CNLGD Conolog (MM)

Conolog Corporation (NASDAQ: CNLGD) announced today the results for the nine months ended April 30, 2010.

Contrary to the rules of the Securities and Exchange Commission, the Company’s condensed consolidated financial statements included in this filing have not been reviewed by our independent public accountant in accordance with professional standards for conducting such reviews.

When the review is complete, the Company will amend this Form 10-Q for the period ended April 30, 2010.

Results of Operations (three months ended April 30, 2010 compared to the three months ended April 30, 2009.

For the three months ended April 30, 2010 product revenues were $515,897 compared to $293,920 for the three months ended April 30, 2009. The Company attributes this increase to additional customer purchase order releases.

Cost of goods sold (Materials and Labor) increased to $220,403 for the quarter ended April 30, 2010 from $78,159 for the same quarter ended April 30, 2009. This increase in cost can be attributed to the increase in products produced and shipped within the quarter and by an increase in fixed labor costs.

Gross profit for the three month periods ended April 30, 2010 and 2009, amounted to $295,494 or 57% of revenues and $215,761 or 73% of revenues respectively.

Total Selling, general and administrative expenses decreased to $849,894 for the three months ended April 30, 2010 compared to $1,152,063 for the three months ended April 30, 2009.

This decrease for the three month period was primarily due to a non-cash expense of $1,381,800 for the annual stock incentive grant to employees, officers and directors which was amortized in an earlier period.

Other non-cash non-operating income (expenses) increased to $8,581,657 for the three months ended April 30, 2010 compared to ($184,759) for the three months ended April 30, 2009. This increase consisted primarily of changes in fair market value of derivatives of $13,965,643 offset by related interest expense ($4,946,564) related to recording of equity derivatives on debt.

As a result of the foregoing, the Company reported net income from operations for the three months ended April 30, 2010 of $8,027,257, or $1.22 earnings per share- Basic and $0.47 earnings per share- Diluted, compared to a net loss from operations of ($1,121,061), or ($1.19) (loss) per share –Basic and diluted, for the three months ended April 30, 2009.

Basic earnings per share is computed based on the weighted average number of common shares outstanding, including potential common shares outstanding for conversion and exercise of secured promissory notes and warrants to purchase common stock, which are recognized as derivative liabilities and separately accounted for at fair value for each reporting period.

The Company determined the fair value of the embedded conversion feature and the free-standing warrants utilizing a Black-Scholes pricing model. The fair values were measured at the commitment date, at the conversion or exercise date, as applicable, and at the end of the interim period, based on the following range of assumptions: strike price - $0.78 (conversion feature) and $1.00 - $1.12 (warrants); expected life – 18 months from commitment date (conversion feature) and 5 years from commitment date (warrants); risk-free rate – 2.36% - 2.43%; dividend yield – none; volatility – 117.4% (conversion feature) and 108.0% (warrants).

Results of Operations (nine months ended April 30, 2010 compared to the nine months ended April 30, 2009.

For the nine months ended April 30, 2010 product revenues were $1,095,913 compared to $1,239,560 for the nine months ended April 30, 2009. The Company attributes this decrease to the scheduling in receiving customer purchase order releases. The Company believes that this scheduling of releases will adjust in the following quarter.

Cost of goods sold (Materials and Labor) increased to $514,394 for the nine months ended April 30, 2010 from $312,522 for the same nine months period ended April 30, 2009. The Company attributes this increase in cost of $201,872 to production of more costly systems combined with an increase in fixed labor costs.

Gross profit for the nine month periods ended April 30, 2010 and 2009, amounted to $581,519 or 53% of revenues and $927,038 or 75% of revenues respectively.

Total Selling, general and administrative expenses increased to $3,434,412 for the nine months ended April 30, 2010 compared to $2,285,610 for the nine months ended April 30, 2009. This increase of $1,148,802 was primarily due to the amortization of a non-cash expense of $1,381,800 for the annual stock incentive grant to employees, officers and directors in an earlier period.

Other non-cash non-operating expenses increased to $25,644,348 for the nine months ended April 30, 2010 compared to $428,413 for the nine months ended April 30, 2009. This increase in expenses consisted primarily of negative change in fair market value of derivatives of ($2,102,682) and the increase in interest expense ($23,678,829) related to recording of equity derivatives on debt.

As a result of the foregoing, the Company reported a net loss from operations for the nine months ended April 30, 2010 of ($28,500,376), or ($7.24) (loss) per share –Basic and Diluted, compared to a net loss of ($1,786,985), or ($2.46) (loss) per share for the nine months ended April 30, 2009.

Basic earnings per share is computed based on the weighted average number of common shares outstanding, including potential common shares outstanding for conversion and exercise of secured promissory notes and warrants to purchase common stock, which are recognized as derivative liabilities and separately accounted for at fair value for each reporting period.

The Company determined the fair value of the embedded conversion feature and the free-standing warrants utilizing a Black-Scholes pricing model. The fair values were measured at the commitment date, at the conversion or exercise date, as applicable, and at the end of the interim period, based on specific assumptions for each reporting period including: strike price (conversion feature and warrants); expected life – 18 months from commitment date (conversion feature) and 5 years from commitment date (warrants); risk-free rate; dividend yield – none; and volatility.

About Conolog Corporation

Conolog Corporation is a provider of digital signal processing and digital security solutions to electric utilities worldwide. The Company designs and assembles electromagnetic products to the military and provides engineering and design services to a variety of industries, government organizations and public utilities nationwide. The Company’s INIVEN division is a provider of a line of digital signal processing systems, including transmitters, receivers and multiplexers.

Forward-looking statements in this release are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward looking statements involve risks and uncertainties, including, without limitation, continued acceptance of the Company’s products, increased levels of competition, new products introduced by competitors, and other risks detailed from time to time in the Company’s periodic reports filed with the Securities and Exchange Commission.

  CONOLOG CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)    

ASSETS

Restated

April 30, 2010 July 31, 2009 Current Assets: Cash and cash equivalents $ 1,097,410 $ 27,358 Accounts receivable, net of allowance 396,118 245,980 Prepaid expenses 15,896 70,843 Prepaid service agreements 435,651 - Current portion of note receivable - 14,864 Inventory 700,000 425,920 Other current assets   5,000     5,000   Total Current Assets   2,650,075     789,965     Property and equipment: Net Property and Equipment   360,775     396,704       Other Assets: Other non-current assets 262,234 Non-current inventory 547,721 425,000 Deferred financing fees, net of amortization 51,507 8,445 Note receivable, net of current portion   83,103     69,846   Total Other Assets   944,565     503,291     TOTAL ASSETS $ 3,955,415   $ 1,689,960    

LIABILITIES AND STOCKHOLDERS' EQUITY

  Current Liabilities: Accounts payable $ 181,682 $ 217,456 Accrued expenses 47,334 26,132 Derivative Liability 20,847,678 - Current Convertible debenture, net of discount   -     34,318   Total Current Liabilities   21,076,694     277,906     Non-Current Liabilities:   Convertible debenture, net of discount $ 355,634     -   Total Liabilities   21,432,328     277,906     Stockholders' Equity:

Preferred stock, par value $.50; Series A; 4% cumulative;500,000 shares authorized; 155,000 shares issued and outstanding

77,500 77,500

Preferred stock, par value $.50; Series B; $.90 cumulative;500,000 shares authorized; 1,197 shares issued and outstanding

597 597

Common stock, par value $0.01; 30,000,000 shares authorized;6,965,680 and 1,842,485 shares issued and outstanding atApril 30, 2010 and July 31, 2009 respectively

69,679 18,425 Contributed capital 61,471,520 52,385,432 Accumulated deficit (78,964,475 ) (50,938,166 ) Treasury shares at cost - 2 shares (131,734 ) (131,734 )       Total Stockholders’ Equity   (17,476,913 )   1,412,054     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,955,415   $ 1,689,960     The accompanying notes are an integral part of the condensed consolidated financial statements   CONOLOG CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Operations (Unaudited)     For the Three Months     For the Nine Months Ended April 30, Ended April 30, 2010   2009 2010   2009 OPERATING REVENUES     Product revenue $ 515,897     $ 293,920   $ 1,095,913       1,239,560     Cost of product revenue Cost of goods sold   220,403       78,159     514,394       312,522   Total Cost of product revenue   220,403       78,159     514,394       312,522     Gross Profit (Loss) from Operations   295,494       215,761     581,519       927,038   Selling, general and administrative expenses General and administrative (includes non-cash stock grants)   849,894       1,152,063     3,434,412       2,285,610   Total selling, general and administrative expenses   849,894       1,152,063     3,434,412       2,285,610   Loss Before Other Income (Expenses)   (554,400 )     (936,302 )   (2,852,893 )     (1,358,572 ) OTHER INCOME (EXPENSES) Interest expense (4,946,564 ) (6,289 ) (22,415,385 ) (75,563 ) Interest income 1,244 76 2,661 13,888 Other Income - (320 ) 284,703 354,947 Change in Fair Market value of derivatives 13,965,643 - (2,102,682 ) Induced conversion cost - (142,071 ) (150,201 ) (347,982 ) Amortization   (438,666 )     (36,155 )   (1,263,444 )     (373,703 ) Total Other Income (Expense)   8,581,657       (184,759 )   (25,644,348 )     (428,413 ) Income (Loss) before provision for income taxes 8,027,257 (1,121,061 ) (28,497,241 ) (1,786,985 ) Provision for income taxes   -       -       -       -   NET INCOME (LOSS) $ 8,027,257 $ (1,121,061 ) $ (28,497,241 ) $ (1,786,985 ) Preferred stock dividends $ (1,045 )   $ -   $ (3,135 )   $ -   NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 8,026,212 $ (1,121,061 ) $ (28,500,376 ) $ (1,786,985 ) NET INCOME (LOSS) PER COMMON SHARE BASIC EARNINGS (LOSS) $ 1.22 $ (1.19 ) $ (7.24 ) $ (2.46 ) DILUTIVE EARNINGS (LOSS) $ 0.47 $ - $ - $ -   WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC   6,596,113       939,688     3,938,957       727,420   WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - ASSUMING DILUTIVE   17,068,624       -     -       -     The accompanying notes are an integral part of the condensed consolidated financial statements