Market Overview

Conolog Reports Results for Fiscal Year Ended July 31, 2010

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SOMERVILLE, N.J.--(BUSINESS WIRE)--

Conolog Corporation (NASDAQ: CNLG) a provider of digital signal processing and digital security solutions to electric utilities worldwide, reported today its financial results for the fiscal year ended July 31, 2010 and restated financial results for the fiscal year ended July 31, 2009.

Operating Revenues: For the last two years the majority of the Company's sales revenue has been generated from sales of the PDR-2000 and PTR-1500 Teleprotection products. For the fiscal year ended July 31, 2010 we had total product revenue sales of $1,178,673 compared to revenues of $1,485,298 for the fiscal year ended July 31, 2009, a decrease of $306,625 or 20%. The decline in sales revenues can be attributed to (a) a decrease of approximately $273,000 or 83% decline in the PTR-1500 products as customers are switching from old analog technical to digital technology, (b) A 7% decline in the PDR-2000 sales due to a delay in current projects by public utilities companies, (c) Telemetry sales decline of approximately $103,000 or 36% due natural rhythm of our markets, we expect this category to further decline in the coming years, (d) Military sales increased approximately $128,000 due to an unexpected military supply contract for current and next fiscal year.

 
Sales changes by product line for the fiscal years ended July 31, 2010 and 2009.
 
Products sold   2010  

% to
total

  2009  

% to
total

 

$ change

  % chg
         
PDR-2000 digital teleprotection 749,500 64 % 807,600 54 %   (58,100 ) -7.2 %
PTR-1500 analog teleprotection 54,700 5 % 328,100 22 % (273,400 ) -83.3 %
Telemetry equipment 181,350 15 % 284,100 19 % (102,750 ) -36.2 %
Military Sales 170,500 14 % 42,000 3 % 128,500 306.0 %
Spare parts 24,000 2 % 25,000 2 % (1,000 ) -4.0 %
Freights 3,923 0 % 5,800 0 % (1,877 ) -32.4 %
Discounts (5,300 ) 0 % (7,302 ) 0 %   2,002   -27.4 %
Net Sales Revenues 1,178,673   100 % 1,485,298   100 %   (306,625 ) -20.6 %
 

Net Loss: The Company recorded a net loss of $24,910,756 for the fiscal year ended July 31, 2010, as compared to a net loss of $2,289,415 for fiscal year ended July 31, 2009. The increase in net loss of $22,621,341 can mainly be attributed to noncash transactions related to the subscription agreement entered into in 2009. A decline in sales of approximately $307,000, along with a decline in gross profit margin of approximately $213,000 also contributed to the increase in net loss. The Company reported a net loss applicable to common shares of ($5.36) per share for fiscal 2010, compared to a net loss applicable to common shares of ($2.36) per share, as restated for fiscal 2009.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2010, the Company had total current assets of $1,859,984 and total current liabilities of $351,880, resulting in working capital of $1,508,104 compared to working capital of $598,825 at year ended July 31, 2009, as restated. The Company's current assets consists of $713,005 in cash and cash equivalents, $826,079 in inventory, $248,297 in prepaid expenses and $67,603 in accounts receivable. Accounts receivable decreased from $245,980 at July 31, 2009 to $67,603 at July 31, 2010. This decline in our accounts receivable is the of result of lower sales in the last three months of our fiscal year due to a few customers delaying their sales orders until fiscal year 2011.

Cash expenditures have exceeded revenues for the prior year and Management expects this consumption of cash to continue into next year. Our operations have been and will continue to be funded from existing cash balances and private placements of equity. 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 $1,636,745 for fiscal year ended July 31, 2010, as compared to net cash used in operating activities in the amount of $1,264,121 for fiscal year 2009, an increase of $372,624, this increase can be attributed to increase in cash use in paying down our accounts payable liabilities for approximately ($66,600), increased spending for inventory for approximately ($313,900) and an increased spending on cash prepaid expenses for approximately ($121,300) for an aggregate of approximately $365,400. Additionally, accounts receivable collections increased by approximately $178,000.

INVESTING ACTIVITIES

Net cash used in investing activities for the fiscal year ended July 31, 2010 was $22,781 for the purchase of manufacturing equipment. For fiscal year ended July 31, 2009 investing activities funded $600,182 from the redemption of a certificate of deposit.

FINANCING ACTIVITIES

Net cash provided by financing activities was $2,345,173 for the fiscal year ended July 31, 2010, as compared to $10,650 provided in fiscal year 2009. In fiscal year 2010 the Company received proceeds of $2,000,000 related to issuance of convertible debentures and $635,070 related to the exercise of warrants. The Company paid deferred loan costs of $291,507.

About Conolog Corporation

Conolog Corporation is a provider of digital signal processing and digital security solutions to electric utilities worldwide. The Company designs and manufactures 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 manufactures 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. There can be no assurance that the Company's revenue for the year ending July 31, 2011 will be more than its revenue for the year ended July 31, 2010. There can also be no assurance that the Company will find suitable growth opportunities.

 

CONOLOG CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheet

For the Years Ended July 31, 2010 and 2009

   

ASSETS

 

As Restated

2010 2009
Current Assets:
Cash and cash equivalents $ 713,005 $ 27,358
Accounts receivable, net of allowance 67,603 245,980
Inventory , net of reserve for obsolescence 826,079 587,782
Prepaid expenses 248,297 47,000
Current portion of note receivable - 1,610
Other current assets   5,000     5,000  
Total Current Assets   1,859,984     914,730  
Property and equipment:
Machinery and equipment 1,357,053 1,357,053
Furniture and fixtures 430,924 429,765
Automobiles 34,097 34,097
Computer software 231,002 209,380
Leasehold improvements   30,265     30,265  
Total property and equipment 2,083,341 2,060,560
Less: accumulated depreciation   (1,987,284 )   (1,960,054 )
Net Property and Equipment   96,057     100,506  
Other Assets:
Deferred financing fees, net of amortization   382,132     -  
Total Other Assets   382,132     -  
 
TOTAL ASSETS $ 2,338,173   $ 1,015,236  
 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable $ 150,880 $ 217,455
Accrued expenses 201,000 64,132

Convertible debenture, net of discount, of $0 and $3,631 at July 2010 and 2009, respectively

  -     34,318  
Total Current Liabilities   351,880     315,905  
Non-Current Liabilities:

Convertible debenture, net of discount of $720,687 and $0 at July 31, 2010 and 2009, respectively

  279,313     -  
Total Liabilities   631,193     315,905  
Stockholders' Equity:

Preferred stock, par value $.50; Series A; 4% cumulative; 500,000 shares authorized; 155,000 shares issued and outstanding at July 31, 2010 and 2009, 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 July 31, 2010 and 2009 , respectively.

597 597

Common stock, par value $0.01; 30,000,000 shares authorized; 6,967,881 and 1,842,485 shares issued and outstanding at July 31, 2010 and 2009 respectively including 2 shares held in treasury.

69,679 18,425
Contributed capital 78,088,878 52,221,727
Accumulated deficit (76,397,940 ) (51,487,184 )
Treasury shares at cost   (131,734 )   (131,734 )
Total Stockholders' Equity   1,706,980     699,331  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,338,173   $ 1,015,236  
 
 

CONOLOG CORPORATION AND SUBSIDIARIES

Consolidated Statement of Operations

For the Years Ended July 31, 2010 and 2009

   
As Restated
2010 2009
OPERATING REVENUES
Product revenue $ 1,178,673   $ 1,485,298  
Cost of product revenue
Materials and labor used in production 618,990 618,325
Obsolete inventory parts   75,564     169,712  
Total Cost of product revenue   694,554     788,037  
Gross Profit from Operations   484,119     697,261  
Selling, general and administrative expenses
General and administrative 3,759,490 1,779,243
Research and development 139,951 368,331
Selling expenses   117,323     170,564  
Total selling, general and administrative expenses   4,016,764     2,318,138  
Loss Before Other Income (Expenses)   (3,532,645 )   (1,620,877 )
OTHER INCOME (EXPENSES)
Loss on derivative financial instruments (18,958,801 ) -
Beneficial conversion feature (457,692 ) -
Incremental consideration for modification of debt warrants (107,863 ) -
Interest expense (44,546 ) (102,379 )
Interest income 3,630 16,265
Induced conversion cost (150,201 ) (621,880 )
Bad debt for note receivable - (83,101 )
Amortization of debt discount (1,279,313 ) (123,274 )
Amortization of deferred financing fees   (520,656 )   (128,108 )
Total Other Income (Expense)   (21,515,442 )   (1,042,477 )
Net Loss before income tax benefit (25,048,087 ) (2,663,354 )
Income tax benefit   137,331     373,939  
NET LOSS APPLICABLE TO COMMON SHARES   (24,910,756 )   (2,289,415 )
NET LOSS PER BASIC AND DILUTED COMMON SHARE $ (5.36 ) $ (2.36 )

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

  4,650,113     968,723   *
 
*Represents retroactive application of 1:5 reverse stock split.

Conolog Corporation
Robert Benou, 908-722-8081
Chairman

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