UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ýS QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~January~~April 3130, 2013

¨£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-8174

Conolog Corporation

(Exact Name of registrant as specified in its charter)

Delaware		22-1847286
(State or other Jurisdiction of		(I.R.S. Employer
(State or other Jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
incorporation or organization)		Identification Number)

5 Columbia Road
Somerville, NJ 08876
(Address of principal executive offices)

(908) 722-8081
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ £ No x S

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that ~~the~~ the registrant was required to submit and post such files). Yes x S No ¨ £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

¨£ Large Accelerated Filer ¨£ Accelerated Filer ¨£ Non-Accelerated Filer xS Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ £ No x S

As of ~~June~~September 2023, 2013, there were 2123,~~683~~187,~~065~~052 shares outstanding of the registrant’s common stock.

TABLE OF CONTENTS

		Page	~~Page~~
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements.	1	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15	16
Item 3.	Quantitative and Qualitative disclosures about Market Risk.	23	24
Item 4.	Controls and Procedures.	23	24
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings.	24	25
Item1A.	Risk Factors.	24	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	24	25
Item 3.	Defaults Upon Senior Securities.	24	25
Item 4.	Mine Safety Disclosures.	24	25
Item 5.	Other Information.	24	25
Item 6.	Exhibits.	24	25
Signatures		26	26

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

INDEX TO FINANCIAL STATEMENTS

	PAGE	~~PAGE~~
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 2013 AND JULY 31, 2012		2
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF APRIL 30, 2013 AND JULY 31, 2012	2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2013 AND 2012 AND THE SIX MONTHS ENDED JANUARY 31, 2013 AND 2012		3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2013 AND 2012 AND THE NINE MONTHS ENDED APRIL 30, 2013 AND 2012	3
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY FOR THE SIX MONTHS ENDED JANUARY 31, 2013		4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED APRIL 30, 2013	4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JANUARY 31, 2013		5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		6

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONOLOG CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	January 31,			July 31,
	April 30, 2013 (Unaudited)			July 31, 2012
ASSETS	~~2013~~			~~2012~~
	(Unaudited)
Current Assets:
Cash and equivalents	$	768,~~354~~456		$	70,359
Accounts receivable		22169,~~894~~006			132,747
Inventory, net of reserve for obsolescence		~~392~~358,~~771~~658			497,235
Prepaid expenses		3122,~~726~~197			43,280
Total Current Assets		~~523~~558,~~745~~317			743,621
Property and equipment:
Machinery and equipment		1,362,952			1,362,952
Furniture and fixtures		430,924			430,924
Automobiles		34,097			34,097
Computer software		231,002			231,002
Leasehold improvements		30,265			30,265
Total property and equipment		2,089,240			2,089,240
Less: accumulated depreciation		(2,~~039~~042,~~227~~612	)		(2,018,442	)
Net Property and Equipment		5046,~~013~~628			70,798
TOTAL ASSETS	$	~~573~~604,~~758~~945		$	814,419
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable	$	~~366~~398,~~301~~028		$	377,427
Accrued expenses		2,~~138~~229,~~914~~415			1,734,329
Notes payable - Officer		~~285~~439,~~000~~093			190,000
Total Current Liabilities		23,~~790~~066,~~215~~536			2,301,756
Total Liabilities		23,~~790~~066,~~215~~536			2,301,756
COMMITMENTS AND CONTINGENCIES
Stockholders’ Deficiency:
Preferred stock, par value $.50; Series A; 4% cumulative; 500,000 shares authorized 155,000 shares issued and outstanding at January 31, 2013 and July 31, 2012, respectively		77,500			77,500
Preferred stock, par value $.50; Series A; 4% cumulative; 500,000 shares authorized 155,000 shares issued and outstanding at April 30, 2013 and July 31, 2012, respectively		77,500			77,500
Preferred stock, par value $.50; Series B; $.90 cumulative; 500,000 shares authorized; 1,197 shares issued and outstanding at January 31, 2013 and July 31, 2012, respectively		597			597
Preferred stock, par value $.50; Series B; $.90 cumulative; 500,000 shares authorized; 1,197 shares issued and outstanding at April 30, 2013 and July 31, 2012, respectively		597			597
Common stock, par value $0.01; 30,000,000 shares authorized; 21,683,064 shares issued at January 31, 2013 and 21,592,450 shares issued at July 31, 2012, respectively		216,831			215,925
Common stock, par value $0.01; 30,000,000 shares authorized; 21,843,064 shares issued at April 30, 2013 and 21,592,450 shares issued at July 31, 2012, respectively		218,431			215,925
Contributed capital		80,889,378			80,873,283
Accumulated deficit		(83,~~269~~509,~~029~~763	)		(82,522,908	)
Less: Treasury shares at cost - 2 shares		(131,734	)		(131,734	)
Less: Treasury shares at cost - 224,288 shares		(137,734	)		(131,734	)
Total Stockholders’ Deficiency		(2,~~216~~461,~~457~~591	)		(1,487,337	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	~~573~~604,~~758~~945		$	814,419

The accompanying notes are an integral part of these condensed consolidated financial statements

CONOLOG CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

For the Three Months Ended January 31,

For the Six Months Ended January 31,

For the Three Months Ended April 30,

For the Nine Months Ended April 30,

2013

2012

2013

2012

OPERATING REVENUES

Product revenue

~~353~~256,~~315~~567

~~195~~240,~~792~~115

~~602~~858,~~308~~875

~~254~~494,~~229~~344

Cost of product revenue

Cost of goods sold

~~205~~146,~~192~~057

84119,~~065~~568

~~347~~493,~~092~~149

~~112~~232,~~485~~053

Total Cost of product revenue

~~205~~146,~~192~~057

84119,~~065~~568

~~347~~493,~~092~~149

~~112~~232,~~485~~053

Gross Profit from Operations

~~148~~110,~~123~~510

~~111~~120,~~727~~547

~~255~~365,~~216~~726

~~141~~262,~~744~~291

Operating Expenses

General and administrative

~~450~~329,~~182~~181

~~582~~462,~~594~~279

~~978~~1,~~540~~307,721

1,~~118~~580,~~315~~594

Research and development

62,~~049~~300

3114,~~945~~730

2831,~~859~~159

4660,~~240~~970

Selling expenses

4151,~~410~~916

8846,~~132~~464

75126,~~057~~973

~~183~~229,~~166~~630

Total operating expenses

~~497~~383,~~641~~397

~~702~~523,~~671~~473

1,~~082~~465,~~456~~853

1,~~347~~871,~~721~~194

Loss from operations

(~~349~~272,~~518~~887

)

(~~590~~402,~~944~~926

)

(~~827~~1,~~240~~100,127

)

(1,~~205~~608,~~977~~903

)

OTHER INCOME (EXPENSES)

Interest expense

(3,000

)

(53,~~122~~035

)

(69,000

)

(1114,~~147~~182

)

Interest income

280

Other expense

—

~~(11,461~~—

)

—

(11,461

)

Other income

~~152~~36,930

~~191~~0

~~152~~37,082

191

Total Other Income (Expense)

(233,~~841~~931

)

(163,~~364~~035

)

(528,~~841~~090

)

(2225,~~342~~377

)

Net Loss before income taxes benefit (expense)

(~~352~~238,~~359~~956

)

(~~607~~405,~~308~~961

)

(~~833~~1,~~081~~072,037

)

(1,~~228~~634,~~319~~280

)

Income tax benefit (expense)

88(1,~~293~~778

)

~~234,445~~818

8685,~~961~~183

237,~~084~~902

NET LOSS APPLICABLE TO COMMON SHARES

(~~264~~240,~~066~~734

)

(~~372~~405,~~863~~143

)

(~~746~~986,~~120~~854

)

(~~991~~1,~~235~~396,378

)

Net Loss per basic and diluted common share

(0.01

)

(0.02

)

(0.0405

)

(0.0608

)

Weighted Average number of common shares outstanding

21,~~657~~778,~~153~~666

1820,~~966~~241,~~191~~119

21,~~629~~678,~~867~~376

1617,~~405~~665,~~632~~464

The accompanying notes are an integral part of these condensed consolidated financial statements

~~Conolog~~CONOLOG ~~Corporation~~CORPORATION ~~and~~AND ~~Subsidiaries~~SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the Nine Months Ended April 30, (Unaudited)

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficiency)

	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(986,854	)	$	(1,396,378	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation		24,170			12,420
Employee stock expense		—			99,000
Employee stock expense paid directly by a related party		—			3,600

Changes in assets and liabilities
(Increase) decrease in accounts receivable		(36,259	)		385,031
(Increase) decrease in prepaid expenses		21,083			(25,649	)
(Increase) decrease in inventories		138,577			(119,815	)
Decrease in other current assets		—			259
Increase (decrease) in accounts payable		20,600			(51,796	)
Increase (decrease) in accrued expenses		495,086			516,581
Net cash used in operations		(323,597	)		(576,747	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		17,000			668,907
Proceeds from exercise of warrants		1,600			—
Proceeds of Notes Payable - Officer		367,093			100,000
Payment for purchase of treasury stock		(6,000	)
Repayments of Notes Payable - Officer		(118,000	)		(181,350	)
Net cash provided by financing activities		261,693			587,557

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(61,904	)		10,810
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		70,359			7,907

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	8,456		$	18,717

~~For~~The ~~the~~accompanying ~~Six~~notes ~~Months~~are ~~Ended~~an ~~January~~integral part ~~31,~~of ~~2013~~these condensed consolidated financial statements

	Preferred Stock Series A				Preferred Stock Series B				Common Stock										Treasury Stock					Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Contributed Capital			Accumulated Deficit			Shares		Amount			Equity (Deficiency)
Balance at July 31, 2012		155,000	$	77,500		1,197	$	597		21,592,450	$	215,925	$	80,873,283		$	(82,522,908	)		2	$	(131,734	)	$	(1,487,337	)
Issuance of Common Stock and Warrants Pursuant to Private Placements										28,000		280		6,720											7,000
Issuance of Anti-Dilution shares										9,312		93		(93	)										0
Net loss for the Period																	(482,054	)							(482,054	)
Balance at October 31, 2012		155,000	$	77,500		1,197	$	597		21,629,762	$	216,298	$	80,879,910		$	(83,004,962	)		2	$	(131,734	)	$	(1,962,391	)
Issuance of Common Stock and Warrants Pursuant to Private Placements										40,000		400		9,600											10,000
Issuance of Anti-Dilution shares										13,302		133		(133	)										—
Net loss for the Period																	(264,066	)							(264,066	)
Balance at January 31, 2013		155,000	$	77,500		1,197	$	597		21,683,064	$	216,831	$	80,889,378		$	(83,269,028	)		2	$	(131,734	)	$	(2,216,457	)

The accompanying notes are an integral part of these consolidated financial statements.

CONOLOG CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended January 31,

(Unaudited)

	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(746,120	)	$	(991,235	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation		20,785			8,280
Employee stock expense		—			99,000
Changes in assets and liabilities
(Increase) decrease in accounts receivable		109,854			365,371
(Increase) decrease in prepaid expenses		11,554			(47,262	)
(Increase) decrease in inventories		103,384			(133,133	)
(Increase) decrease in other current assets		—			259
Increase (decrease) in accounts payable		(9,984	)		(100,563	)
Increase (decrease) in accrued expenses		404,522			335,100
Net cash used in operations		(106,006	)		(464,183	)
CASH FLOWS FROM INVESTING ACTIVITIES
		—			—
Net cash used in investing activities		—			—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		17,000			658,907
Proceeds of Notes Payable - Officer		95,000			—
Repayments of Notes Payable - Officer		—			(181,350	)
Net cash provided by financing activities		112,000			477,557
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,994			13,374
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		70,359			7,907
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	76,354		$	21,281

The accompanying notes are an integral part of these condensed consolidated financial statements

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Conolog Corporation (the “Company”) is in the business of design, manufacturing and distribution of small electronic and electromagnetic components and subassemblies for use in telephone, radio and microwave transmissions and reception, and other communication areas. The Company’s products are used for transceiving various quantities, data and protective relaying functions in industrial, utility and other markets. The Company’s customers include primarily industrial customers, which include power companies located primarily throughout the United States, and various branches of the military.

The Company formed a wholly owned subsidiary, Nologoc Corporation. In September 1998, Nologoc Corporation purchased the assets of Atlas Design, Incorporated. In January, 2001, Nologoc Corporation purchased the assets of Prime Time Staffing, Incorporated and Professional Temp Solutions Incorporated. Atlas Design, Prime Time Staffing and Professional Temp Solutions provided short-term and long-term qualified engineering and technical staff, as well as human resource consulting to various industries. In March 2004, the Company ceased operating its staffing business. The assets of the Company’s wholly-owned subsidiary, Nologoc, Inc. trading as Atlas Design, were sold to the Company’s vice-president of operations of Atlas Design.

The accompanying unaudited condensed consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed consolidated financial statements is unaudited but in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed consolidated financial statements, including notes, have been prepared in accordance with the requirements of Form 10-Q and Article 8 of Regulation S-X and the Securities and Exchange Commission (“SEC”) and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Results for the interim period are not necessarily indicative of results that may be expected for the entire year or for any other interim period. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended July 31, 2012.

Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has a loss from operations of $~~827~~1,~~240~~100,127 and used cash from operations in the amounts of $~~106~~323,~~006~~597 for the ~~six~~nine months ended ~~January~~April 3130, 2013. At ~~January~~April 3130, 2013, the Company had negative working capital of $2,~~267~~508,~~549~~219 and a stockholders’ deficiency of $2,~~216~~461,~~457~~591. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from this uncertainty.

The Company plans to raise additional capital through debt and equity placements and increase revenue through new product development. In the event that the Company cannot generate sufficient cash flow from its operations or raise proceeds from offering debt or equity securities, the Company may be forced to curtail or cease its activities. There can be no assurance that the Company will be successful in achieving its goals.

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Conolog Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

6Cash and Equivalents

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Cash~~For the purpose of the statements of cash flows, cash equivalents include time deposits, certificates of deposit and ~~Equivalents~~all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents balances at financial institutions and are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, balances in certain bank accounts may exceed the FDIC insured limits. Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. At April 30, 2013, the Company did not have any cash equivalents.

For the purpose of the statements of cash flows, cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents balances at financial institutions and are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, balances in certain bank accounts may exceed the FDIC insured limits. Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. At January 31, 2013, the Company did not have any cash equivalents.

Receivables and Allowance for Doubtful Accounts

Trade Receivables are non-interest bearing, ~~uncollateralized~~ uncollateralized customer obligations and are stated at the amounts billed to customers. The preparation of financial statements requires our management to make estimates and assumptions relating to the collectivity of our accounts receivable. Management specifically analyzes historical bad debts, customer credit worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. As of ~~January~~April 3130, 2013 and July 31, 2012, the Company has determined that no Allowance for Doubtful Accounts was required.

The Company has a concentration risk in trade accounts receivable with significant sales to the government and local agencies. One customer accounted for approximately 90 87% of accounts receivable as of ~~January~~April 3130, 2013. Two customers accounted for approximately 96% of accounts receivable as of July 31, 2012. The credit evaluation process has mitigated the credit risk, such losses have been minimal, and within management expectations.

Inventories

Inventories are valued at lower of cost or market using the first-in, first-out (“FIFO”) method. Finished goods costs included raw materials, labor and manufacturing overhead costs. Excess and obsolete inventory costs are expensed and a reserve for slow-moving inventory is made on management’s estimates.

Finished goods are products that have been completed in connection with specific orders and are awaiting shipment. Work-in-Process represents raw material components that have been requisitioned from the warehouse and are being assembled in the manufacturing area. Raw Materials consist of components parts purchased from various suppliers and are used to build our finished products. Various raw material parts are also maintained to support warranty claims for commercial and military products. Typical raw material products include PC boards, digital screen assemblies, guide rails, capacitors, terminals, power supplies, process chips, resistors, keypads, relays and face plates.

The Company provides a twelve-year warranty on all commercial products and is required by government regulation to design and produce military products with a minimum 25-year operating life in addition to shelf life.

The Company maintains a significant amount of raw material component parts and some of this raw material inventory is not expected to be realized within a twelve month operating cycle from the balance sheet date. For any raw material part which has not been purchased within the last twelve months from the balance sheet date, it is evaluated as part of the slow moving inventory and is part of our inventory reserve review. The Company estimated a usage rate for its raw material component parts for what it expects to use over a 36 month period. Any excess inventory based on this projected usage rate is written off as excess and obsolete. The Company then reserves 100% of the estimated usage that is over 12 months and less than 36 months. Certain raw material parts which have been written down to a zero value, may still be maintained in inventory to satisfy possible requirements under the warranty programs but are valued at zero. The Company evaluates the inventory parts based on their age and usage over a 36 month period to determine inventory obsolescence and reserve adjustments.

7Inventory consisted of the following as of April 30, 2013 and July 31, 2012:

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Inventory consisted of the following as of January 31, 2013 and July 31, 2012:

	April 30, 2013		July 31, 2012

Finished Goods	$	55,112	$	75,155
Work-in-process		181,083		246,211
Raw materials		157,463		210,869
		393,658		532,235
Less: Inventory reserve		35,000		35,000
Inventory, net	$	358,658	$	497,235

	January 31, 2013		July 31, 2012
Finished Goods	$	59,910	$	75,155
Work-in-process		196,102		246,211
Raw materials		171,759		210,869
		427,771		532,235
Less: Inventory reserve		35,000		35,000
Inventory, net	$	392,771	$	497,235

The Company reviews finished goods and raw material inventory on hand and provides a reserve for obsolete product based on the results of the review.

For the ~~six~~nine month period ended ~~January 31~~April 30, 2013, no inventory was written off as obsolete.

Property and Equipment

Property and equipment are carried at cost, less allowances for depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the assets which range between three (3) and thirty-nine (39) years. Depreciation was $2024,~~785~~170 and $812,~~280~~420 for the ~~six~~nine month periods ended ~~January~~April 3130, 2013 and 2012, respectively. Repairs and maintenance expenditures which do not extend the useful lives of the related assets are expensed as incurred. Gains and losses on depreciable assets retired or sold are recognized in the consolidated statement of operations in the year of disposal.

Fair Value Measurements

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 –	Quoted prices in active markets for identical assets or liabilities.

Level 2 –	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.

Level 3 –	Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses, and notes payable - officer. All of these items were determined to be Level 1 fair value measurements.

The carrying amounts of cash and equivalents, accounts receivable, other current assets, accounts payable, accrued expenses and notes payable – officer approximates fair value because of the short maturity of these instruments.

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Advertising / Public Relations Costs

Advertising/Public Relations costs are charged to operations when incurred. These expenses were $0 and $88,796 for the ~~six~~nine months ended ~~January~~April 3130, 2013 and 2012, respectively.

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured as the amount by which the carrying value exceeds the fair value, is recognized if the carrying amount exceeds estimated undiscounted future cash flows.

Revenue Recognition

Revenue is recorded in accordance with the guidance of the SEC’s Staff Accounting Bulletin (SAB) No. 104, which supersedes SAB No. 101. Revenue from product sales are recognized at the time of shipment (when title and risks and rewards of ownership have passed) upon fulfillment of acceptance terms; products are not sold on a conditional basis. Therefore, when delivery has occurred the sale is complete as long as the collection of the resulting receivable is probable.

Research and Development

Research and Development costs are expensed as incurred. Research and Development costs were $2831,~~859~~159 and $4660,~~240~~970 for the ~~six~~nine months period ended ~~January~~April 3130, 2013 and 2012, respectively.

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and amounted to $15,~~856~~980 and $35,~~661~~321 for the ~~six~~nine months period ended ~~January~~April 3130, 2013 and 2012, respectively.

Income Taxes

The Company follows the authoritative guidance for accounting for income taxes. Deferred income taxes are determined using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the expected recognition of a deferred tax asset is considered to be unlikely. The guidance also requires that the Company determine whether it is more likely than not that a tax position will not be sustained upon examination by the appropriate taxing authority. If a tax position does not meet the more likely than not recognition criterion, the guidance requires that the tax position be measured at the largest amount of benefit greater than 50 percent not likely of being sustained upon ultimate settlement. Based on the Company’s evaluation, management has concluded that there are significant uncertain tax positions requiring recognition in the consolidated financial statements with respect to the sale of the Company’s New Jersey Net Operating Loss Carryovers. In the event the Company receives an assessment for interest and/or penalties by major tax jurisdiction it would be classified in the financial statements as general and administrative expense.

Other State Tax Benefits

In 1998, the State of New Jersey enacted legislation allowing emerging technology and/or biotechnology companies to sell their unused New Jersey Net Operating Loss (“NOL”) ~~Carryover~~ Carryover and Research and Development Tax Credits (“R&D” Credits”) to corporate taxpayers in New Jersey. Recognition of this asset and income would be in accordance with the guidance of SAB Topic 13 and are ~~would be~~ recorded upon the State of New Jersey’s approval of the technology tax benefit transfer certificate and receipt of a contract to purchase a fixed amount of these NOLs.

~~Warranty~~8

The Company provides a 12 year warranty on its commercial products and 25 years on its military products; the warranty covers parts and labor. The Company, at its option, repairs or replaces products that are found defective during the warranty period provided that proper preventive maintenance procedures have been followed by customers. Repairs necessitated by misuse of such products are not covered by our warranty. In cases of defective products, the customer typically returns them to the Company’s facility in Somerville, New Jersey. The Company’s service personnel will replace or repair the defective items and ship them back to the customer. All servicing is completed at the Company’s main facility and customers are charged a fee for those service items that are not covered by the warranty. We do not offer our customers any formal written service contracts. Our warranty costs have historically been insignificant and therefore a provision was not warranted. Management continues to monitor the costs and will provide a warranty provision if circumstances change.

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Warranty

Stock Based Compensation

The Company follows the authoritative guidance for accounting for stock-based compensation. This guidance requires that new, modified and unvested share-based payment transactions with employees, such as grants of stock options and stock, be recognized in the financial statements based upon their fair value at the grant date and recognized as compensation expense over their vesting periods. The Company also follows the guidance for equity instruments issued to consultants. During the ~~six~~nine month period ended April ~~January 31~~30, 2013, the ~~company~~Company did not grant any shares of ~~Common~~common ~~Stock~~stock to employees, officers, or directors.

Loss Per Share of Common Stock

Basic loss per share of common stock is computed by dividing the Company’s net loss by the weighted average number of shares of ~~Common~~common ~~Stock~~stock outstanding during the period. The preferred dividends are not reflected in arriving at the net loss as they are not material and would have no effect on loss per share available to common shareholders. Diluted loss per shares is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of warrants and conversions of debentures. Potentially dilutive securities at ~~January~~April 3130, 2013, consist of 2,~~604~~444,732 common shares from outstanding warrants and 155,006 common shares from preferred stock.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions made by management are based upon available current information, historical experience and other factors that are believed to be reasonable under the circumstances. The estimates and assumptions made by management involve risks and uncertainties which could cause reported amounts to differ materially from actual future results. If management’s estimates and assumptions are inaccurate, the Company’s reported amounts and disclosures of contingent assets and liabilities could be materially and adversely affected. Management considers its reserve for inventory and accounting for derivative liabilities to be significant estimates.

Future Impact of Recently Issued Accounting Standards

In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. ASU 2012-02 is not expected to have a material impact on the Company’s financial position or results of operations.

10On July 18, 2013, FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force). The amendments in this ASU provide guidance on the financial statements presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions, in which case such an unrecognized tax benefit should be presented in the financial statements as a liability. The amendments in this ASU do not require new recurring disclosures. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments in ASU No. 2013-11 are not expected to have an impact on our condensed consolidated financial statements.

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 enhances current disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. Entities are required to provide both net and gross information for these assets and liabilities in order to facilitate comparability between financial statements prepared on the basis of U.S. GAAP and financial statements prepared on the basis of IFRS. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 is not expected to have a material impact on the Company’s financial position or results of operations.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08 (“ASU 2011-08”), which updates the guidance in ASC Topic 350, Intangibles – Goodwill & Other. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than fifty percent. If, after assessing the totality of events or circumstances, an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments in ASU 2011-08 include examples of events and circumstances that an entity should consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. However, the examples are not intended to be all-inclusive and an entity may identify other relevant events and circumstances to consider in making the determination. The examples in this ASU 2011-08 supersede the previous examples under ASC Topic 350 of events and circumstances an entity should consider in determining whether it should test for impairment between annual tests, and also supersede the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to perform the second step of the impairment test. Under the amendments in ASU 2011-08, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit’s fair value from a prior year as previously permitted under ASC Topic 350. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact on the Company’s financial position or results of operations.

Management does not believe that any other recently issued, but not currently effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.

NOTE 3 - INCOME TAXES

The tax provision for the ~~six~~nine months ended ~~January~~ 31April 30, 2013 was a tax benefit of $8685,~~961~~183, and for the ~~six~~nine months ended ~~January~~April 3130, 2012 was a tax benefit of $237,~~084~~902. The Company has no open tax years for the State of New Jersey or for federal income tax purposes, which are subject to examination.

In 1998, the State of New Jersey enacted legislation allowing emerging technology and/or biotechnology companies to sell their unused ~~New Jersey Net Operating Loss (“~~NOL~~”) Carryover~~ and ~~Research and Development Tax Credits (“~~R&D” Credits) to corporate taxpayers in New Jersey. During the ~~six~~nine month period ended ~~January~~April 3130, 2013, the Company entered into agreements to sell $98,851 of its unused tax losses. The ~~Company~~ Company received net proceeds of $88,293, during the ~~six~~nine month period ended ~~January~~April 3130, 2013, related to the sale and accordingly ~~recorded~~ recorded them as a tax benefit in the period received. During the ~~six~~nine month period ended ~~January~~April 3130, 2012, the Company entered into agreements to sell $254,687 of its unused tax losses and it received net proceeds of $227,945, related to the sale and accordingly ~~recorded~~ recorded them as a tax benefit in the period received.

NOTE 4 – STOCKHOLDERS’ DEFICIENCY

The Series A Preferred Stock provides 4% cumulative dividends, which were $~~134~~135,~~733~~508 ($0.87 per share) and $133,183 ($0.86 per share) in arrears at ~~January~~April 3130, 2013 and July 31, 2012, respectively. In addition, each share of Series A Preferred Stock may be exchanged for one share of ~~Common~~common ~~Stock~~stock upon surrender of the ~~Preferred~~preferred ~~Stock~~stock and payment of $5,760,000 (due to reverse stock splits) per share. The Company may redeem the Series A Preferred Stock at $.50 per share plus accrued and unpaid dividends. The liquidation preference of the Series A Preferred Stock was $~~212~~213,~~233~~008 and $210,683 at ~~January~~April 3130, 2013 and July 31, 2012, respectively.

1110

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Series B Preferred Stock provides cumulative dividends of $0.90 per share, which were $4445,~~789~~058 ($37.4264 per share) and $44,250 ($36.97 per share) in arrears at ~~January 31~~April 30, 2013 and July 31, 2012, respectively. In addition, each share of Series B Preferred Stock is convertible into .005 of one share of ~~Common~~common ~~Stock~~stock. The liquidation preference of the Series B Preferred Stock is the dividend in arrears plus $15 per share. The liquidation preference was $6263,~~744~~013 and $62,205 at ~~January~~April 3130, 2013 and July 31, 2012, respectively.

Between August 1, 2012 and ~~January~~April 3130, 2013, the Company issued units, consisting of 68,000 shares of its common stock and 136,000 warrants, valued at $17,000, as part of its secondary private placement offering.

The first private placement offering contained an “Anti-Dilution” provision that calls for the issuance of additional shares to its investors, if the company issues or sells additional common shares on or before December 31, 2012. The number of shares to be issued will be such that each investor’s percentage of ownership remains the same as it was before the additional common shares were issued or sold.

As a result of the shares issued during this period, and pursuant to the Anti-dilution provisions mentioned above, the Company isissued ~~obligated to issue~~ an additional 1322,~~302~~ 614 shares of its common stock to investors in the Company’s first private placement, during the nine month period ended April 30, 2013.

During the ~~six~~nine month period ended ~~January 31~~April 30, 2013, the Company issued 136,000 warrants and 33,355 warrants expired. During the ~~six~~nine month period ended ~~January~~April 3130, 2012, no stock warrants were issued, ~~canceled~~ or ~~exercised~~canceled.

On February 19, 2013, the Company received a total of $1,600 in cash from investors who exercised an aggregate of 160,000 warrants at $.01 per share.

On April 18, 2013, the Company acquired 224,286 shares of its common stock at an aggregate purchase price of $6,000. The acquired 224,286 shares of the Company’s common stock have been recorded as treasury stock using the cost method.

A summary of the Company’s warrants is as follows:

The following table summarizes the warrants activities :

	Number of shares			Weighted Average Exercise price		Weighted Average Remaining contractual term in years		Aggregated Intrinsic Value
Outstanding at October 31, 2012		2,558,087		$	0.62		2.19	$	116,200
Outstanding at January 31, 2013		2,604,732		$	0.18		1.72	$	69,600
Granted		~~80,000~~—		$	~~0 .01~~—		~~1.92~~—	$	~~3,200~~—
Exercised		—(160,000	)	$	—0 .01		—1.67	$	—(6,400	)
Canceled / Expired		~~(33,355~~—	)		—		—		—
Outstanding at January 31, 2013		2,604,732		$	0 .18		1.97	$	69,600
Outstanding at April 30, 2013		2,444,732		$	0 .19		1.73	$	63,200

1211

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – STOCK-BASED COMPENSATION

Stock Incentive Plans

The Company has Stock Incentive Plans pursuant to which the Company may grant a number of shares of the Company’s ~~Common~~common ~~Stock~~stock to the Company’s officers, directors, employees and consultants. The Company’s 2008 and 2009 Stock Incentive Plan was approved by its shareholders, authorizing the board of directors (the “Board”) of the Company to, from time-to-time, issue up to 800,000 shares of the Company’s ~~Common~~common ~~Stock~~stock to the Company’s officers, directors, employees and consultants under each plan.

The specific number of shares of the Company’s ~~Common~~common ~~Stock~~stock granted to any officer, director, employee or consultant will be determined by the Board.

Pursuant to the Corporation’s 2009 Stock Incentive Plan, no common shares of Company stock were issued to current officers, directors, employees and consultants for the ~~six~~nine months ended ~~January~~April 3130, 2013 or for the year ended July 31, 2012.

NOTE 6 - MAJOR CUSTOMERS

The following summarizes sales to major customers (each 10% or more of net sales) by the Company:

Six Months Ended		Total Revenue			Major Customer Revenue				Customers		% of Total
Nine Months Ended	Total Revenue			Major Customer Revenue			Customers			% of Total
January 31, 2013		$	602,308		$	412,369			3			68.5%
April 30, 2013	$	858,875		$	695,885			4			81.0	%
January 31, 2012		$	254,229		$	225,562			5			88.7%
April 30, 2012	$	494,344		$	416,715			5			84.3	%

NOTE 7 – COMMITMENTS

Employment Contracts

On January 31, 2013, Mr. Robert Benou resigned from his position as the Chief Executive Officer of ~~Conolog~~the ~~Corporation~~Company. Mr. Benou will continue to ~~the~~ serve the Company in his capacity as Chairman of the Board ~~of Directors of the Company~~.

On January 31, 2013, Mr. Michael Horn was appointed as the Company’s new Chief Executive Officer at a special meeting of the Board. Mr. Horn resigned his position as Vice President but continues to serve the Company in his capacities as Secretary and member of the Board.

The Company’s ~~former~~ Chief Executive Officer, ~~Robert Benou~~Michael Horn, ~~served~~serves ~~under~~without an employment agreement ~~commencing June 1, 1997 and ending May 31, 2002, which pursuant to its terms, renewed for one-year terms until cancelled by either party~~. His annual base salary, as of January 131, ~~2012~~2013, was $~~470~~53,000. ~~The employment agreement also entitled~~ Mr. ~~Benou~~Horn tois ~~the use of an automobile and~~ entitled to employee benefit plans, such as,; life, health, pension, profit sharing and other plans. ~~During the six months ended January 31, 2013, and 2012, the Company’s CEO did not receive any payment of his salary.~~ The Company has accrued and expensed $~~235~~8,~~000~~832 ~~and $225,000~~ for the unpaid portion of his salary for the ~~six~~nine months ended ~~January~~April 3130, 2013 ~~and 2012, respectively~~.

1312

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company’s President and Chief Operating Officer, Marc Benou, is serving under an employment agreement commencing May 3, 2012 and ending May 3, 2016, which pursuant to its terms, renews for one-year terms until cancelled by either party. His annual base salary as of July 31, 2012 was $199,000 and he receives annual increases of $3,000 on May 3rd of each year. The Company’s President and Chief Operating Officer is entitled to an annual bonus equal to 6% of the Company’s annual “income before income tax provision” as stated in its ~~annual~~Annual ~~Form~~Report on 10-K. The employment agreement also entitles him to the use of an automobile and to employee benefit plans, such as life, health, pension, profit sharing and other plans. Under the employment agreement, employment is terminated upon death or disability of the employee and employee may be terminated by the Company for cause. During the ~~six~~nine months ended ~~January~~ 31April 30, 2013, and 2012, the Company’s President and Chief Operating Officer was paid $14,786 and $83,467 of his salary, respectively. The Company has accrued $84134,~~714~~464 and $43108,~~783~~908 for the unpaid portion of his salary for the ~~six~~nine months ended ~~January 31~~April 30, 2013 and 2012, respectively.

The Company’s former Chief Executive Officer, Robert Benou, served under an employment agreement commencing June 1, 1997 and ending May 31, 2002, which pursuant to its terms, renewed for one-year terms until cancelled by either party. His annual base salary, as of January 1, 2013, was $470,000. The employment agreement also entitled Mr. Benou to the use of an automobile and to employee benefit plans, such as; life, health, pension, profit sharing and other plans. During the nine months ended April 30, 2013, and 2012, the Company’s CEO did not receive any payment of his salary. The Company has accrued and expensed $235,000 and $337,500 for the unpaid portion of his salary for the nine months ended April 30, 2013 and 2012, respectively.

Installment Agreement:

The Company has an outstanding balance with its former auditors Withum, Smith & Brown and has agreed to pay the balance of $122,500 as follows:

·— Monthly installment payments of $1,000 commencing March 25, 2011.

·— 8% of all additional net financing received by the Company over the next 22 months beginning February 25, 2011 and ending December 31. 2012.

·— If there is still a remaining balance after December 31, 2012, the balance will be paid in ~~Conolog~~the Company’s common stock at the fair market value of the stock on December 31, 2012.

As of ~~January~~April 3130, 2013, the remaining balance on this indebtedness was $90,704, which is included as part of accrued expenses on the Balance Sheet.

NOTE 8 – LOANS FROM OFFICERS

On October 4, 2012, ~~Conolog~~the Company ~~Corporation~~ issued a promissory note in favor of Robert Benou in the principal amount of $100,000. The note is non-interest bearing and is payable on demand. The note ~~Note~~ is subject to various default provisions, and the occurrence of such an ~~Event~~event of ~~Default~~default will cause the outstanding principal amount under ~~the~~such ~~Note~~note, together with any and all other amounts payable under ~~the~~such ~~Note~~note, to become immediately due and payable to Mr. Benou.

On November 21, 2012, ~~Conolog~~the ~~Corporation~~ Company issued a promissory note in favor of Robert Benou in the principal amount of $98,000. The note is non-interest bearing and is payable on demand. The note ~~Note~~ is subject to various default provisions, and the occurrence of such an ~~Event~~event of ~~Default~~default will cause the outstanding principal amount under ~~the~~such ~~Note~~note, together with any and all other amounts payable under ~~the~~such ~~Note~~note, to become immediately due and payable to Mr. Benou.

~~During~~On ~~the~~April ~~six~~24, ~~month~~2013, ~~period~~the ~~ended~~Company ~~January~~issued a promissory 31note in favor of Robert Benou in the principal amount of $169,093. ~~2013~~The note is non-interest bearing and is payable on demand. The note is subject to various default provisions, and the ~~Company~~occurrence ~~repaid~~of ~~$103~~such an event of default will cause the outstanding principal amount under such note,~~000~~ ~~against~~together ~~previously~~with ~~issued~~any ~~Notes~~and ~~Payable~~all other amounts payable under such note, to become immediately due and payable to Mr. Benou.

AsDuring ofthe ~~January~~nine 31month period ended April 30, 2013, the Company ~~net~~repaid ~~amount owed~~$118,000 toagainst ~~Mr.~~previously ~~Benou~~issued ~~was~~Notes ~~$285,000~~Payable.

1413

CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of April 30, 2013, the net amount owed to Mr. Benou $439,093.

NOTE 9 – SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

	Six months Ended January 31, 2013		Six months Ended January 31, 2012
	Nine months Ended April 30, 2013		Nine months Ended April 30, 2012
CASH PAID DURING THE PERIOD FOR:
Interest expense	$	—	$	—
Income Taxes	$	13,~~332~~110	$	—
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
None	$	—	$	—

NOTE 10– PROFIT SHARING PLAN

The Company sponsors a contributing thrift and savings plan which qualifies under Section 401(k) of the Internal Revenue Code that covers eligible employees meeting age and service requirements. Eligible participating employees may elect to contribute up to the maximum allowed under the IRS code to an investment trust. For the tax years 2011 and 2010, this maximum allowable deferred contribution was $16,500 ($22,500 for employees over age 50). Employer contributions to the plan are discretionary and determined annually by management. The Company did not make any matching contributions to the plan for either the ~~six~~nine months ended ~~January~~April 3130, 2013 or the fiscal year ended July 31, 2012.

NOTE 11 – SUBSEQUENT EVENTS

~~The Company~~On ~~has~~June ~~evaluated~~20, ~~subsequent~~2013, ~~events through~~ the ~~date~~Board appointed ~~the~~Mrs. ~~financial~~Julie ~~statements~~Orr-Silvius ~~were issued~~ and upMr. toHans ~~the~~C. ~~time~~Kaspersetz ofas ~~filing~~members of ~~the~~ ~~financial statements with~~ the ~~Securities and Exchange Commission~~ Board.

OnBetween ~~February~~June 1513, 2013 and August 16, ~~the~~2013, ~~Board~~12 ~~approved~~investors ~~the~~exercised ~~appointment~~1,024,000 ofwarrants, ~~Michael~~all ~~Horn~~with an exercise price of $.01, ~~the~~and ~~Company’s~~received ~~Chief~~an ~~Executive~~aggregate ~~Officer~~of 1,024,000 asshares of the ~~company~~Company’s Common ~~Principal~~Stock ~~Accounting~~($.01 ~~Officer~~par).

OnBetween ~~February~~May 151, 2013, ~~the~~and ~~Board~~August ~~approved a~~16, ~~resolution~~2013, ~~stating that all expenses incurred by Marc Benou as a result of subpoena issued by~~ the ~~Securities and Exchange Commission~~Company inrepaid ~~connection~~$30,000 ~~with~~against ~~his~~notes ~~role~~previously asissued ~~president~~to ofMr. ~~the~~Robert ~~Company will be paid by the Company~~Benou.

On February 19, 2013, two investors exercised an aggregate of 80,000 warrants, purchased as part of the Company’s secondary private placement, which allowed them to purchase 80,000 shares of the Company’s common stock for $.01 per share.14

On March 15, 2013, the Board authorized the officers of the Company to issue 289,325 additional shares to shareholders that invested in the Company’s private offering between October 4, 2011 and May 24, 2012. This issuance is pursuant to the “anti-dilution” provision in the subscription agreement of the offering.

On April 24, 2013, the Company issued a promissory note in favor of Robert Benou in the aggregate principal amount of $169,092.87, consisting of amounts advanced by Mr. Benou to the Company between March 7, 2013 and April 24, 2013. The note is not interest bearing and is payable on demand.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2012, filed with the SEC on January 7, 2013, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

Overview

We are engaged in the design and manufacture of (i) transducers, which are electro-magnetic devices which convert electrical energy into mechanical and other forms of physical energy, or conversely convert mechanical and other forms of physical energy into electrical energy; (ii) digital signal processing (DSP) systems and electromagnetic wave filters for differentiation among discreet audio and radio frequencies; (iii) audio transmitters and modulators, for the transmission over telephone lines, microwave circuits, or satellite, of electrical signals obtained from transducers, data generated in electronic code form or by computers or other similar equipment (not manufactured by us); (iv) audio receivers and demodulators which are small systems which receive and decode the signals from the audio transmitters and convert them into digital codes for input into computers, teletypes or other similar equipment (not manufactured by us) or convert such signals into mechanical or other form of energy, such as opening or closing valves, or starting or stopping a motor; (v) magnetic “networks” which are devices that permit the matching or coupling of different types of communication equipment together or many identical or similar equipment together or onto telephone or other transmission lines so as not to cause interference; and (vi) analog transmitters and receivers, which permit the coding/transmission and receiving/decoding of a constantly variable data, such as the water level in a tank, pressure in a pipe or temperature, by actually displaying the exact information at the receiving end in digital form for storing in a computer or other devices, or by physically displaying the

1615

information in a visual fashion such as a numerical readout or meter, (vii) fiber optic switching and monitoring devices which permit physical layer control and in line, live, level monitoring of most types of fiber optics, and (viii) digital communication systems that are utilized in the protection of transmission lines and the tripping or blocking of protection circuits in the case of faults.

Description of Revenues

We derive operating revenues from the sales of products used in radio and other transmissions, telephones and telephone exchanges, air and traffic control, automatic transmission of data for utilities, tele-printing of transmitted data such as news and stock market information and for use by electric utilities in monitoring power transmission lines for faults and/or failures. Our products may be used independently or in combination with other products to form a system type configuration, whereby our equipment is pre-assembled in a large cabinet with other equipment in a configuration that would provide the end user with protection as well as operational status displays.

Description of Expenses

Our expenses include the following: (i) Costs of revenues, which consists primarily of costs to manufacture the products we ship, these costs include raw materials, direct labor, overhead expenses associated with manufacturing and freight shipping costs; (ii) General and administrative (“G&A”) expenses, which consists of compensation and benefits for all non-manufacturing employees, compensation costs also includes stock-based awards to employees and directors. Also included in G&A expenses is professional services for legal, accounting and business consultants, as well as, rent, depreciation and general corporate expenditures.; and (iii) Selling costs, consisting mainly of commissions and trade shows expenditures; (iv) Research and Development expenses represent the costs of our development efforts related to new products; (v) Other income (expense) consist of interest income on cash and cash equivalents, interest expense consist of interest expense on convertible debentures. Other expenses consist of change in fair value of derivatives associated with the convertible debentures, along with amortization of debt discount and deferred financing fees also associated with the convertible debentures.

Results of Operations

Three months ended ~~January~~April 3130, 2013 compared to the three months ended ~~January~~April 3130, 2012

Operating Revenues:

Sales for the quarter ended ~~January~~April 3130, 2013 were higher compared to the prior year three month period,. ~~the~~The sales revenue increased $~~157~~16,~~523~~452 or 817% to $~~353~~256,~~315~~567, compared to ~~total~~ total revenues of $~~195~~240,~~757~~115. The increase is mainly a result of ~~receiving~~higher ~~our~~PDR-2000 ~~first Fidra~~ sales.

Sales changes by product line for the quarters ended January 31, 2013 and 2012.
Sales changes by product line for the quarters ended April 30, 2013 and 2012.
Products sold	2013			% to total			2012			% to total			$ change
Fidra	$	942,~~126~~980			271	%	$	0			0	%	$	942,~~126~~980
PDR-2000 Digital Teleprotection		~~225~~240,~~256~~451			6394	%		~~174~~147,~~270~~675			8962	%		5092,~~986~~776
PTR-1500 Analog Teleprotection		~~23,349~~0			70	%		0			0	%		~~23,349~~0
Telemetry Equipment		91,~~695~~707			31	%		1931,~~323~~035			1013	%		(929,~~628~~328	)
Military Sales		83,~~707~~110			21	%		261,~~280~~015			125	%		6(57,~~427~~905	)
Repairs & Spare Parts		312,~~599~~107			15	%		~~335~~883			0	%		311,~~264~~224
Discounts		(113,~~417~~788	)		(32	%)		(~~416~~493	)		—			(113,~~001~~295	)
Net Sales Revenues	$	~~353~~256,~~315~~567			100	%	$	~~195~~240,~~792~~115			100	%	$	~~157~~16,~~523~~452

1716

Cost of Revenue:

Total product cost of goods sold for the ~~quarter~~ quarter ended ~~January~~April 3130, 2013, amounted to $~~205~~146,~~192~~057 compared to $84119,~~065~~568 for the quarter ended ~~January~~April 3130, 2012, an increase of $~~121~~26,~~127~~489 or ~~144~~22%. The increase in cost of goods sold is a result of aan ~~comparable~~ increase in sales, ~~as well as, price~~of ~~increases for some components needed for~~ the PDR-2000.

Gross Profit:

The gross profit of 4243.01% for the quarter ~~ended~~ ~~January~~ended 31April 30, 2013, a decrease of 157.01% from 5750.02% for the quarter ended ~~January~~April 3130, 2012. The decrease is attributed to ~~price~~a ~~increases~~change ~~for~~in ~~some~~the ~~components~~sales ~~needed~~mix. ~~for~~During the three month period ended April 30, 2013, the vast majority of sales were PDR-2000.’s, which requires most expensive parts and more labor than the product mix of sales for the quarter ended April 30, 2012.

Operating Expenses:

General and Administrative: For ~~the~~ the quarter ended ~~January~~April 3130, 2013, general and administrative expenses decreased $~~132~~133,~~412~~098 to $~~450~~329,~~182~~181 from $~~582~~462,~~594~~279. This decrease of 2329% can ~~mostly~~mainly be attributed to (a) a decrease of $99126,000 in ~~stock~~executive compensation ~~expense;~~ and ~~(b)~~automobile ~~professional fees~~expenses ~~decreasing~~related ~~$31,098 due~~ to ~~reduced~~the ~~legal~~Company’s change ~~fees.~~of CEO.

Research and Development: For the ~~quarter~~ quarter ended ~~January~~April 3130, 2013, research and development cost was $62,~~049~~300, a decrease of $2512,~~896~~430 as ~~compared~~ compared to the prior year total of $3114,~~945~~730. Our research and development costs can be attributed to enhancing the FIDRA and GlowWorm products.

Selling Expenses: For the quarter ~~ended~~ ~~January~~ended 31April 30, 2013, selling expenses were $4151,~~410~~916, aan ~~decrease~~increase of $465,~~722~~452 versus the prior year total of $8846,~~132~~464. This ~~decrease is~~increase is mainly related to ~~marketing expense decreasing by $62,745 from the prior period resulting from the completion of work for the Fidra and GlowWorm products. This was offset by~~ an increase in ~~commissions~~sales commission expense which was generated by increased sales for the period.

Total Other Income and Expenses:

For the quarter ended ~~January~~April 3130, 2013, other income/expense was an ~~expense~~income of $223,~~841,~~931. There awas ~~decrease of $13,523 as compared to~~ an expense of $163,~~364~~035 for the quarter ended ~~January 31~~April 30, 2012. The difference is related to adebt ~~decrease~~that inwas ~~agent~~forgiven ~~commissions~~by ~~for~~a ~~NOL sales~~vendor.

Income Tax Benefit:

In 1998, the State of New Jersey enacted ~~legislation~~ legislation allowing emerging technology and/or biotechnology companies to sell their unused New Jersey ~~Net Operating Loss (“~~NOL”) Carryover and ~~Research and Development Tax Credits (“~~R&D” Credits) to corporate taxpayers in New Jersey. During the three month ~~period~~periods ended ~~January~~April 3130, 2013, ~~the Company entered into agreements to sell $98,851 of its unused tax losses. The Company received net proceeds of $88,293, during the three month period ended January 31, 2013, related to the sale~~ and ~~accordingly recorded~~April ~~them as a tax benefit in the period received. During the three month period ended January 31~~30, 2012, the Company ~~entered~~ did not enter into any agreements to sell ~~$254,687 of~~ its unused ~~tax losses and it received net proceeds of $227,945, related to the sale and accordingly~~ ~~recorded them as a~~ tax ~~benefit in the period received~~losses.

Net Loss:

The Company recorded a net loss of $~~264~~240,~~066~~734 for the quarter ended ~~January~~April 3130, 2013, as compared to a net loss of $~~372~~405,~~863~~143 for the quarter ended ~~January~~April 3130, 2012, a decrease in in net loss of $~~108~~164,~~797~~409. For the quarter ended ~~January~~April 3130, 2013, gross profit ~~increased~~decreased $3610,~~396~~037, general and administrative costs ~~decreased~~ decreased $~~132~~133,~~412~~098, research and development costs decreased $2512,~~896~~430, and selling expenses ~~decreased~~increased $465,~~722~~452. As a result of the foregoing, the Company reported a net loss applicable to common shares of ($0.01) basic and diluted loss per share compared to ($0.02) basic and diluted loss per share for the quarter ended April 30, 2012.

1817

~~Company~~Nine ~~reported~~months aended ~~net~~April ~~loss~~30, ~~applicable~~2013 ~~to common shares of ($0.01) basic and diluted loss per share~~ compared to ~~($0.02) basic and diluted loss per share for~~ the ~~quarter~~nine months ended ~~January 31~~April 30, 2012.

Six months ended January 31, 2013 compared to the six months ended January 31, 2012

Operating Revenues:

Sales for the ~~six~~nine month period ended ~~January~~April 3130, 2013 were higher compared to the prior year ~~six~~nine month period. The sales revenue increased $~~348~~364,~~079~~531 or ~~137~~74% to $~~602~~858,~~308~~875. The increase is a result of receiving our first Fidra orders, ~~significant sales of PDR-2000’s to three customers,~~ and a ~~sharp~~ significant increase in ~~military~~ sales of the PDR-2000.

Sales changes by product line for the six months ended January 31, 2013 and 2012.
Sales changes by product line for the nine months ended April 30, 2013 and 2012.
Products sold	2013			% to total			2012			% to total			$ change
Fidra	$	9699,~~506~~486			1612	%	$	0			0	%	$	9699,~~506~~486
PDR-2000 Digital Teleprotection		~~400~~640,~~201~~382			6774	%		~~197~~341,~~955~~219			7869	%		~~202~~299,~~246~~163
PTR-1500 Analog Teleprotection		40,928			75	%		04,411			01	%		4036,~~928~~517
Telemetry Equipment		26,~~189~~745			43	%		4877,~~488~~516			1916	%		(2250,~~299~~771	)
Military Sales		3235,~~775~~885			54	%		364,~~448~~463			113	%		29(28,~~327~~578	)
Repairs & Spare Parts		1730,~~437~~795			34	%		47,~~754~~644			21	%		1223,~~683~~151
Discounts		(1115,~~728~~346	)		(2	%)		(~~416~~909	)		—			(1114,~~312~~437	)
Net Sales Revenues	$	~~602~~858,~~308~~875			100	%	$	~~254~~494,~~229~~344			100	%	$	~~348~~364,~~079~~531

Cost of Revenue:

Total cost of goods sold for the ~~six~~nine month period ended ~~January~~April 3130, 2013, amounted to $~~347~~493,~~092~~149 compared to $~~112~~232,~~485~~053 for the ~~six~~nine month period ended ~~January~~April 3130, 2012, an increase of $~~234~~261,~~607~~096 or ~~209~~112%. The increase in cost of goods sold is mainly a result of a comparable increase in sales, asof ~~well as, price increases for some components needed for~~ the PDR-2000.

Gross Profit:

The gross profit of 42.46% for the ~~six month~~nine month period ended ~~January~~April 3130, 2013, a decrease of 1310.45% from 5553.81% for the ~~six~~nine month period ended ~~January~~April 3130, 2012. ~~The decrease~~During isthe ~~attributed~~nine tomonth ~~price~~period ~~increases~~ended ~~for~~April ~~some~~30, ~~components~~2013, ~~needed~~the ~~for~~vast ~~the~~majority of sales were PDR-2000.’s, which require more expensive parts and more labor than the products that predominated sales for the quarter ended April 30, 2012.

Operating Expenses:

General and Administrative: For ~~the~~ ~~six~~the nine month period ended ~~January~~April 3130, 2013, general and administrative expenses decreased $~~139~~272,~~775~~873 to $~~978~~1,~~540~~307,721 from $1,~~118~~580,~~315~~594. ~~This~~ This decrease of ~~12.5~~17% can ~~mostly~~mainly be attributed to (a) a decrease of $99126,000 in ~~stock~~executive compensation ~~expense;~~and automobile expenses related to the Company’s change of CEO and (b) ~~professional fees~~a ~~decreasing~~decrease of $51102,~~546~~600 ~~due~~in tostock ~~reduced~~compensation ~~legal fees~~expense.

Research and Development: For the ~~six~~ nine month period ended ~~January~~April 3130, 2013, research and development cost was $2831,~~859~~159, a decrease of $1729,~~381~~811 as compared to the prior year total of $4660,~~240~~970. Our research and development costs can be attributed to enhancing the ~~FIDRA~~Fidra and GlowWorm products.

19Selling Expenses: For the nine month period ended April 30, 2013, selling expenses were $126,973, a decrease of $102,657 versus the prior year total of $229,630. This decrease is mainly related to marketing expense decreasing by $146,920 from the prior period resulting from the completion of work for the Fidra and GlowWorm products. This was offset by a $44,862 increase in sales commissions.

Selling Expenses: For the six month period ended January 31, 2013, selling expenses were $75,057, a decrease of $108,109 versus the prior year total of $183,166. This decrease is mainly related to marketing expense decreasing by $147,066 from the prior period resulting from the completion of work for the Fidra and GlowWorm products. This was offset by an increase in commissions expense which was generated by increased sales for the period.18

Total Other Income and Expenses:

For the ~~six~~nine month period ended ~~January~~April 3130, 2013, other income/expense was anincome ~~expense~~ of $528,~~841~~090, a decrease of $1653,~~501~~467, as compared to an expense of $2225,~~342~~377 for the ~~six~~nine month period ended ~~January~~April 3130, 2012. The difference is related to (a) a decrease in agent commissions for NOL sales and (b) a debt that was forgiven by a vendor.

Income Tax Benefit:

In 1998, the State of New Jersey enacted ~~legislation~~ legislation allowing emerging technology and/or biotechnology companies to sell their unused New Jersey ~~Net Operating Loss (“~~NOL”) Carryover and ~~Research and Development Tax Credits (“~~R&D” Credits) to corporate taxpayers in New Jersey. During the ~~six~~nine month period ended ~~January~~April 3130, 2013, the Company entered into agreements to sell $98,851 of its unused tax losses. The ~~Company~~ Company received net proceeds of $88,293, during the ~~six~~nine month period ended ~~January~~April 3130, 2013, related to the sale and accordingly ~~recorded~~ recorded them as a tax benefit in the period received. During the ~~six~~nine month period ended ~~January~~April 3130, 2012, the Company entered into agreements to sell $254,687 of its unused tax losses and it received net proceeds of $227,945, related to the sale and accordingly ~~recorded~~ recorded them as a tax benefit in the period received.

Net Loss:

The Company recorded a net loss of $~~746~~986,~~120~~854 for the ~~six~~nine month period ended ~~January~~April 3130, 2013, as compared to a net loss of $~~991~~1,~~235~~396,378 for the ~~six~~nine month period ended ~~January~~April 3130, 2012. The decrease in net loss of $~~245~~409,~~115~~524 can mainly be attributed to decreased operating expenses during the current period. For the ~~six~~nine month period ended ~~January~~April 3130, 2013, gross profit increased $~~113~~103,~~472~~435, general and administrative costs decreased $~~139~~272,~~755~~873, research and development costs decreased $1729,~~381~~811, and selling expense decreased $~~108~~102,~~109~~657. As a result of the foregoing, the Company reported a net loss applicable to common shares of ($0.0405) basic and diluted loss per share compared to ($0.0608) basic and diluted loss per share for the ~~six~~nine month period ended ~~January~~April 3130, 2012.

LIQUIDITY AND CAPITAL RESOURCES

We had a loss from operations of $~~827~~1,~~240 for~~100,127 for the ~~six~~nine month period ended ~~January~~April 3130, 2013 and used cash from operations in the amount of $~~106~~323,~~005~~597 during the same period. At ~~January~~At 31April 30, 2013, the Company had cash and cash equivalents of $768,~~354~~456.

At ~~January~~April 3130, 2013, the Company had total current assets of $~~523~~558,~~745~~317 and total current liabilities of $23,~~790~~066,~~215~~536, resulting in a working capital deficit of $2,~~266~~508,~~470~~219 compared to a working capital deficit of $1,558,135 at the fiscal year ended July 31, 2012. The Company’s current assets consists of $768,~~354~~456 in cash and cash equivalents, $22169,~~894~~006 in accounts receivable, $~~392~~358,~~771~~658 in inventory, and $3122,~~726~~197 in prepaid expenses. Accounts receivable ~~decreased~~increased from $132,747 at July 31, 2012 to $22169,~~894~~006 at ~~January~~April 3130, 2013, resulting from the timing of collections during the ~~three~~nine month period ended ~~January~~April 3130, 2013 as compared to the ~~quarter~~year ended July 31, 2012.

Cash expenditures have exceeded revenues ~~for~~ for the prior quarters and Management expects this consumption of cash to continue. Our operations have been, and will continue to to be, funded from existing cash balances and private placements of equity funding. During the ~~six~~nine month period ended ~~January~~April 3130, 2013, we raised an additional $~~198~~367,~~000~~093 from the issuance of Notes Payable to Mr. Robert Benou and repayments totaling $~~103~~118,000 were made during the same ~~six~~nine month period. We are dependent on improved operating results and raising additional funds over the next twelve month period. There are no assurances that we will be able to raise additional funding. In the event that we are unable to generate sufficient cash flow or receive proceeds from offerings of debt or equity securities, the Company may be forced to curtail or cease it activities and/or operations.

OPERATING ACTIVITIES

Net cash used in operating activities was $~~106~~323,~~005~~ 597 for the ~~six~~nine month period ended ~~January~~April 3130, 2013, as compared to $~~464~~576,~~183~~747 net cash used in operating activities for the nine ~~six~~ month period ended ~~January~~April 3130, 2012, a decrease of $~~358~~253,~~178~~150. This decrease in the use of cash of can mainly be attributed to~~: (a) net losses~~ ~~from operational activities using approximately $245,114 less than the prior period and (b)~~ a ~~decrease~~reduction in ~~inventories~~our ofnet ~~approximately $58,816~~loss.

INVESTING ACTIVITIES

No cash was used for investing activities ~~for~~ for the ~~six~~nine month periods ended ~~January~~April 3130, 2013 and ~~January~~April 3130, 2012.

FINANCING ACTIVITIES

Net cash provided from financing activities was $~~112~~261,~~000~~693 for the ~~six~~nine month period ended ~~January~~April 3130, 2013, as compared to $~~477~~587,557 provided in the same ~~six~~nine month period in 2012. During the ~~six~~nine month period ended ~~January~~April 3130, 2013, the Company received proceeds of $17,000 from the sale of its common ~~stock~~ stock through a private placement, $1,600 from the exercise of warrants, and an aggregate total of $~~198~~367,~~000~~093 from notes issued to Mr. Robert Benou. Repayments of $~~104~~118,000 were made against the notes payable held by ~~Robert~~Mr. Benou during the ~~six~~nine months ended ~~January~~April 3130, 2013.

INFLATION

Management believes that the results of operations have not been affected by inflation and management does not expect inflation to have a significant effect on its operations in the future.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements and reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management uses its best judgment in valuing these estimates and may, as warranted, solicit external professional advice and other assumptions believed to be reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect the Company’s consolidated financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions made by management as based upon available current information, historical experience and other factors that are believed to be reasonable under the circumstances. The estimates and assumptions made by management involve risks and uncertainties which could cause reported amounts to differ materially from actual future results. If management’s estimates and assumptions are inaccurate, the Company’s reported amounts and disclosures of contingent assets and liabilities could be materially and adversely affected. Management considers its reserve for inventory and accounting for derivative liabilities to be significant estimates.

REVENUE RECOGNITION

Revenue is recorded in accordance with the guidance of the SEC’s Staff Accounting Bulletin (SAB) No. 104, which supersedes SAB No. 101. Revenue from product sales is recognized at the time of shipment (when title has passed) upon fulfillment of acceptance terms; products are not sold on a conditional basis. Therefore, when delivery has occurred the sale is complete as long as the collection of the resulting receivable is probable.

2120

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

The preparation of financial statements requires our management to make estimates and assumptions relating to the collectability of our accounts receivable. Management specifically analyzes historical bad debts, customer credit worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. The Company has a concentration risk in trade accounts receivable with significant sales to the government and local agencies. The credit evaluation process has mitigated the credit risk, such losses have been minimal, and within management expectations.

INVENTORY VALUATIONS, COMPONENTS AND AGING

The Company maintains a significant amount of raw material component parts and some of this raw material inventory is not expected to be realized within a twelve month operating cycle from the balance sheet date. For any raw material part which has not been purchased within the last twelve months from the balance sheet date, it is evaluated as part of the slow moving inventory and is part of our reserve review. The Company estimated a usage rate for its raw material component parts for what it expects to use over a 36 month period. Any excess inventory based on this projected usage rate is written off as excess and obsolete. The Company then reserves 100% of the estimated usage that is over 12 months and less than 36 months. Certain raw material parts which have been written down to a zero value, may still be maintained in inventory to satisfy possible requirements under the warranty programs but are valued at zero. The Company evaluates the inventory parts based on their age and usage over a 36 month period to determine inventory and obsolescence and reserve adjustments.

WARRANTY

The Company provides a twelve-year warranty on its commercial products and 25 years on its military products: the warranty covers parts and labor. The Company, at its option, repairs or replaces products that are found defective during the warranty period providing proper preventive maintenance procedures have been followed by customers. Repairs necessitated by misuse of such products are not covered by our warranty. In cases of defective products, the customer typically returns them to the Company’s facility in Somerville, New Jersey. The Company’s service personnel will replace or repair the defective items and ship them back to the customer. All servicing is completed at the Company’s main facility and customers are charged a fee for those service items that are not covered by the warranty. We do not offer our customers any formal written service contracts. Our warranty costs have historically been insignificant and therefore a provision was not warranted. Management continues to monitor the costs and will provide a warranty provision if circumstances change.

INCOME TAXES

2221

requires that the Company determine whether it is more likely than not that a tax position will not be sustained upon examination by the appropriate taxing authority. If a tax position does not meet the more likely than not recognition criterion, the guidance requires that the tax position be measured at the largest amount of benefit greater than 50 percent not likely of being sustained upon ultimate settlement. Based on the Company’s evaluation, management has concluded that there are significant uncertain tax positions requiring recognition in the consolidated financial statements with respect to the sale of the Company’s New Jersey Net Operating Loss Carryovers. In the event the Company receives an assessment for interest and/or penalties by major tax jurisdiction it would be classified in the financial statements as general and administrative expense.

STOCK BASED COMPENSATION

The Company follows the authoritative guidance for accounting for stock-based compensation. This guidance requires that new, modified and unvested share-based payment transactions with employees, such as grants of stock options and restricted stock, be recognized in the financial statements based upon their fair value at the grant date and recognized as compensation expense over their vesting periods. The Company also follows the guidance for equity instruments issued to consultants.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses and short term convertible Debentures approximates fair value because of the short maturity of these instruments. The recorded value of long-term debt approximates its fair value as the terms and rates approximate market rates.

FAIR VALUE MEASUREMENTS

Level 1 –	Quoted prices in active markets for identical assets or liabilities.

Level 2 –	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.

Level 3 –	Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

In On July ~~2012~~18, ~~the~~2013, ~~Financial Accounting Standards Board (“~~FASB”) issued ASU No. ~~2012~~2013-0211, Income ~~“Testing~~Taxes ~~Indefinite-Lived Intangible~~(Topic ~~Assets~~740): ~~for~~Presentation ~~Impairment”~~of ~~(“ASU~~an ~~2012-02”).~~Unrecognized ~~ASU~~Tax ~~2012-02~~Benefit ~~gives~~when ~~entities~~a anNet ~~option~~Operating toLoss ~~first~~Carryforward, ~~assess~~a ~~qualitative~~Similar Tax Loss, or ~~factors~~a toTax ~~determine~~Credit ~~whether~~Carryforward ~~the~~Exists ~~existence~~(a consensus of ~~events~~the ~~and~~FASB ~~circumstances~~Emerging ~~indicate~~Issues ~~that~~Task itForce). isThe ~~more~~amendments ~~likely~~in ~~than~~this ~~not~~ASU ~~that~~provide ~~the~~guidance ~~indefinite-lived~~on the ~~intangible~~financial ~~asset~~statements ~~impaired.~~presentation Ifof ~~based~~an onunrecognized ~~its~~tax ~~qualitative~~benefit ~~assessment~~when ana ~~entity~~net ~~concludes~~operating ~~that~~loss itcarryforward, isa ~~more~~similar ~~likely~~tax ~~than~~loss, ~~not~~or ~~that~~a ~~the~~tax credit ~~fair~~carryforward ~~value~~exists. ofAn anunrecognized ~~indefinite~~tax ~~lived~~benefit ~~intangible~~should be presented in the financial statements as a reduction to a deferred tax asset isfor ~~less~~a ~~than~~net operating ~~its~~loss ~~carrying~~carryforward, ~~amount~~a similar tax loss, ~~quantitative~~or ~~impairment~~a ~~testing~~tax iscredit ~~required. However~~carryforward with certain exceptions, ifin which case such an ~~entity~~unrecognized ~~concludes~~tax benefit ~~otherwise,~~should ~~quantitative~~be ~~impairment~~presented ~~testing~~in isthe financial statements as a liability. The amendments in this ASU do not ~~required~~require new recurring disclosures. The amendments in this ASU isare effective for ~~annual~~fiscal years, and interim ~~impairment~~ ~~tests~~periods ~~performed~~within ~~for~~those ~~fiscal~~ years, beginning after December 15, 2013. The amendments in ASU No. 2013-11 are not expected to have an impact on our condensed consolidated financial statements.

23In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. ASU 2012-02 is not expected to have a material impact on the Company’s financial position or results of operations.

~~after September 15, 2012, with early adoption permitted. ASU 2012-02 is not expected to have a material impact on the Company’s financial position or results of operations.~~22

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Our Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2423

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~Between~~On ~~October~~February 19, 152013, ~~2012 and~~two ~~November~~investors 30exercised 160,000 ~~2012~~warrants, ~~the~~all ~~Company~~with ~~issued~~an exercise price of $.01, and ~~sold~~received an aggregate of 48160,000 shares toof ~~two~~the ~~accredited~~Company’s ~~investors~~common atstock ~~a purchase price of~~ ($0.2501 ~~per~~par). ~~share~~The ~~receiving~~company received proceeds of $121,~~000~~600, which was used to fund daily operating activities. There were no other unregistered sales of equity securities not otherwise reported on a Current Report on Form 8-K.

These securities were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but qualified for exemption under Section 4(2) of the Securities Act. The securities were exempt from registration under Section 4(2) of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,” as defined in Section 4(2) of the Securities Act, due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. The Company did not undertake an offering in which it sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(2) of the Securities Act since they agreed to, and received, share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Section 4(2) of the Securities Act.

Item 3. Defaults upon Senior Securities.

There were no defaults upon senior securities during the ~~six~~nine month period ended ~~January~~April 3130, 2013.

Item 4. Mine Safety Disclosures.

~~Not Applicable~~None.

Item 5. Other Information.

~~There is no other information required to be disclosed under this item which has not been previously reported~~None.

Item 6. Exhibits.

Exhibit No.		Description
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS		XBRL Instance Document (furnished herewith)
101.SCH		XBRL Taxonomy Extension Schema (furnished herewith)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase (furnished herewith)
101.DEF		XBRL Taxonomy Extension Definition Linkbase (furnished herewith)
101.LAB		XBRL Taxonomy Extension Label Linkbase (furnished herewith)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase (furnished herewith)

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*

32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS		XBRL Instance Document (furnished herewith)

101.SCH		XBRL Taxonomy Extension Schema (furnished herewith)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase (furnished herewith)

101.DEF		XBRL Taxonomy Extension Definition Linkbase (furnished herewith)

101.LAB		XBRL Taxonomy Extension Label Linkbase (furnished herewith)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase (furnished herewith)

* Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CONOLOG CORPORATION
Date: July 2, 2013	By:	/s/ Michael Horn
Date: September 23, 2013
		Name:	Michael Horn
	By:		/s/ Michael Horn
		Title:	Chief Executive Officer
			Name:	Michael Horn
			(Principal Executive Officer)
			Title:	Chief Executive Officer
			(Principal Accounting Officer)
				(Principal Executive Officer)
				(Principal Accounting Officer)

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