EXHIBIT 13

LETTER TO SHAREHOLDERS

We are pleased to report that,  although the Company incurred a loss in the past
year, we have made important  progress in  transitioning  the Company for future
success.  Our  bottom-line  improved  from a $4.7M net loss in fiscal  1999 to a
$475K loss in fiscal 2000. The Company benefited from the restructuring begun in
1999 to bring expenses in line with an achievable  revenue stream.  This benefit
was evident in the first two quarters of fiscal 2000, when the Company  reported
modest profits. However, the Company was not able to offset the steep decline in
Old Dominion Systems (ODS) revenue and profits during the second half, resulting
in small quarterly  losses in the last two quarters of fiscal 2000. The shift in
our revenue mix from a majority of less  profitable ODS revenue to a majority of
more profitable  Contact Center  Solutions  revenue was largely  realized in the
last two  quarters  of  fiscal  2000.  This  shift,  although  significant  when
comparing  fiscal 1999 to 2000, was less than what was necessary to overcome the
decline in ODS profits during the second half of fiscal 2000,  especially  given
the  necessary  increase in sales and marketing  expenditures.  Revenue from the
interactive voice response (IVR) sector of our Contact Center Solutions business
actually  exceeded our plan for the fiscal year. In summary,  fiscal 2000 was an
encouraging transitional year at Microlog.

         CONTACT CENTER SOLUTIONS - AN EMERGING OPPORTUNITY

Exclusive  of the  businesses  we  divested  or exited,  year-on-year  growth in
revenue in the Contact Center Solutions division was actually 44% in fiscal 2000
compared to fiscal 1999! We attribute this to the division's  increased focus on
sales  and  marketing,  and to  favorable  market  trends,  which we  expect  to
continue.  We believe our markets are increasingly seeking solutions to make the
customer  interaction  experience  more  efficient  and  satisfying.  Given  the
scarcity  of  available,  skilled  information  technology  professionals,  many
businesses  are also seeking more  comprehensive  solutions  that do not require
wholesale  demolition of existing expensive and  hard-to-change  infrastructure,
databases  and   applications.   We  believe  that  these  factors  represent  a
significant market opportunity for Microlog.

In addition,  many  businesses are searching for solutions to address  increased
staffing, and expenses that generally result from increased customer contact. In
response, the following two approaches have been developed,  and we believe that
separately and together, each presents multiple opportunities for Microlog:

>>        As a means of buffering  the expense and  difficulty  associated  with
          incremental  staffing of contact centers,  many companies are focusing
          on  augmenting  their  agents with  customer  self-service  functions.
          Self-service  is most  familiar  to people in the form of  interactive
          voice  response,  but the category has adopted new  technology to make
          interactions  easier,  and to extend  them to  alternate  media  types
          including interactive Web response and automated email response.

                                       1

<PAGE>

>>        As a means of making the  interaction  between  customers  and company
          service agents more  intelligent and efficient,  companies are looking
          to  skills-based  routing,  unified  queuing,   customer  relationship
          management applications, and prioritization of customers to ensure the
          optimum  treatment  of  customers.  This  requires a class of software
          capable of  customer  interaction  management  or "CIM."  This is what
          Microlog's  uniQue  family  of  products  provides,  integrating  with
          customer  relationship  management,  or "CRM," applications to provide
          comprehensive customer relationship management.

With respect to market potential,  we have seen annual growth estimates for this
space from 25% to as high as 80% (from  Gartner  Group at the low end,  to Frost
and Sullivan,  to  Datamonitor  at the high end).  The growth  estimates and the
definitions  of "the space" are as varied as the  sources,  but the analysts all
agree  that  there  are  fundamental  factors  that  will  drive  growth.  It is
Microlog's  intention to grow with the market,  and we have direct feedback from
customers  and  prospects  that makes us believe that growth  opportunities  are
available to Microlog.  One comment most  businesses  we have  discussions  with
almost always make is that they will have to deal with alternate  media in their
customer contact centers within the next year or so.

         OLD DOMINION SYSTEMS (ODS) - PROFESSIONAL SERVICES BUSINESS

Our ODS  professional  services  division  remained  profitable in 2000, but did
experience a significant  overall revenue reduction.  We are profitable on every
hour of professional services, so the division can remain profitable even with a
significant decline in billable hours and associated headcount.  The significant
decline in  headcount  this year was due to our  principal  customer,  the Johns
Hopkins  University  Applied  Physics  Laboratory,  choosing to take  previously
subcontracted work in-house.  We have two remaining contracts with APL, but they
are largely  associated with spacecraft  operations,  and therefore of uncertain
duration,  closely gated by spacecraft  longevity and mission funding. We do not
believe  that we will be able to offset the decline in revenue from APL with new
ODS  business.  Instead we plan to continue our focus on  replacing  ODS revenue
with more profitable business in the Contact Center Solutions division.

                  POSITIVE EVENTS IN FISCAL 2000

The year brought changes in the leadership  structure within the Company.  Steve
Smith departed as CEO in February,  and Steve Delmar and I stepped in to jointly
drive the Company  with the same  vision for the  remainder  of the year.  I was
appointed to my current  position in November,  but our modest success this year
is a tribute to the  positioning we accomplished  earlier,  and to the support I
received from our talented and tenacious team. Despite the apparent  challenges,
following are a number of positive  developments  of fiscal 2000 that we believe
have positioned Microlog to capitalize on the future.

                                       2

<PAGE>

>>       The first and most  important  development  is the  retention of valued
         existing  customers,  and continued  acquisition of new customers.  Our
         customers have helped us to refine and sharpen our market focus and our
         product plans so that we can better serve their needs.

>>       Second, we significantly enhanced our sales and marketing staff, adding
         four sales persons, a Vice President of Sales and Marketing,  and a new
         marketing manager.

>>       We acquired our first significant OEM contract as part of our thrust to
         establish an indirect sales channel.

>>       We began offering hosted  services to augment our direct  premise-based
         sales  activity.  We began  with  hosted  IVR  services,  and added the
         capability to host uniQue customer interaction management services.

>>       Underpinning the ability to make these offerings, the Company supported
         and produced  three uniQue  releases,  and two IVR releases  during the
         year.

>>       Along the way,  Microlog won four additional  industry  product awards.
         Technology  Marketing  Corporation awarded uniQue 2.0 a "CRM EXCELLENCE
         AWARD",  and awarded uniQue 2.1 a "BEST OF SHOW" award.  Communications
         Solutions Magazine awarded unique 2.1 their prestigious "PRODUCT OF THE
         YEAR" award.  Finishing off the year,  Microlog won a "BEST OF SHOW" in
         web-enabled  contact center solutions from Customer  Interface Magazine
         for uniQue 2.2 and uniQue IVR. Microlog was also named among the top 50
         technology  businesses  in which to work in the  Washington  DC area by
         ITRecruiterMag.com.

         FISCAL 2001 OUTLOOK ... MEASURED INVESTMENT FOR THE FUTURE

Our progress leads management to embark upon a program of "measured  investment"
in fiscal  2001.  This means the Company will  undertake a carefully  calibrated
increase  in sales and  marketing  efforts,  product  enhancements,  and  hosted
services rollouts to help provide the foundations for future revenue growth. The
Company expects to fund this effort from existing  resources.  If the Company is
able to attract  additional  investment  capital,  the proceeds would be used to
accelerate  the planned  investments  and to position the Company to achieve the
objective of revenue growth.

We remain passionate about our vision,  including our potential for growth,  and
we look forward to being a part of your future.

John C. Mears
President and Chief Executive Officer


                                       3

<PAGE>

FROM IVR TO UNIQUE

Traditional  methods of contacting  businesses are being supplemented by, and in
some cases,  supplanted by email and other web-enabled  technologies.  These new
and more convenient  methods are widely accepted by today's  technology-literate
consumers.   Given  the  inherent   around-the-clock   accessibility   of  these
technologies,  the potential of increased  customer contact volume and frequency
of customer interactions presents a real problem for some businesses--especially
for  organizations  that have started or are planning  enterprise-wide  customer
relationship management initiatives.

For businesses to meet the communication  challenges  presented by the pervasive
use of  technology,  organizations  can  make  one of  two  business  decisions:
increase  the size of their  staff or  address  the  situation  with  technology
specifically intended to manage multimedia  interactions.  Increasing the number
of  customer  service  representatives  (CSRs)  over time may  adversely  impact
profitability,  and it is often difficult,  because the CSR profession sometimes
experiences high turn-over rates.

From  Microlog's  perspective,  organizations  unable to efficiently  manage the
influx of multimedia  customer contacts may risk compromising  their credibility
due to unreliable or prolonged interactions with valued and potential customers.
To illustrate this perspective,  summaries of two Microlog  customers,  TALK.COM
and  WALTER  REED ARMY  MEDICAL  CENTER,  demonstrate  some of the  benefits  to
organizations  resulting from, and some real-world  situations  associated with,
implementing the uniQue solution.

TALK.COM--INTELLIGENT BUSINESS

TALK.COM,  A LEADING INTEGRATED  COMMUNICATIONS  SERVICE PROVIDER,  IS A RAPIDLY
GROWING PROVIDER OFFERING LOCAL AND LONG DISTANCE TELECOMMUNICATIONS SERVICES TO
RESIDENTIAL  AND SMALL  BUSINESS  CUSTOMERS  ACROSS  THE UNITED  STATES.  AS THE
EXCLUSIVE  PROVIDER OF AOL LONG  DISTANCE AND LOCAL  SERVICE,  SUPPORTING  RAPID
GROWTH AND  ENSURING  CUSTOMER  SATISFACTION  WAS AN  EXECUTIVE-LEVEL  PARAMOUNT
CONCERN.  TO HELP QUELL THESE  CONCERNS,  TALK.COM  TURNED TO MICROLOG UNIQUE TO
MANAGE ITS 24X7-CALL CENTER.

Talk.com CSRs assist customers who want to purchase telephone  services,  answer
customers'  inquires,  and  reconcile  overdue  accounts.  On any given day, the
440-seat call center manages over 30,000  customer calls with uniQue IVR, uniQue
CTI,  and  skills-based  routing  capabilities.  Given this  situation,  using a
reliable solution for prioritizing  customer calls for sales and collections was
key, as was ease of use. Achieving the required level of reliability and ease of
use meant integrating uniQue IVR with Talk.com's existing customer  relationship
management  application.  Using this  model,  customer  account  information  is
provided to the CSR for every call.  Furthermore,  optimization of revenue meant
enabling customers with past-due amounts to be prioritized.  By using uniQue RM,
customers with overdue accounts are quickly routed to collections.  The customer
has the option of talking to a live CSR or paying the overdue  bill  without the
interaction  with a live CSR.  According  to Don  Sewell,  director  of  LAN/WAN
operations,  "Once uniQue was implemented,  benefits were quickly recognized. We
saw  significant  reductions  in the abandon call rate and average talk time, as
well as increases in  self-service  calls,  all of which improved our customers'
overall satisfaction with their Talk.com interaction."


                                       4

<PAGE>

WALTER REED ARMY MEDICAL CENTER--INTELLIGENT CONTACT

CONTACT CENTERS AS A CONCEPT ARE GAINING  MOMENTUM.  THE THRUST OF THIS MOMENTUM
IS EVIDENT AT THE WALTER REED ARMY MEDICAL CENTER (WRAMC).  A MICROLOG  CUSTOMER
SINCE 1989,  WRAMC USED THE  MICROLOG IVR PRODUCT TO ROUTE  PATIENT  APPOINTMENT
CALLS TO VARIOUS MEDICAL CLINICS  THROUGHOUT THE BASE. ONCE WRAMC  ESTABLISHED A
WEB PRESENCE,  THE NEXT LOGICAL STEP FOR MANAGING  CUSTOMER  INTERACTIONS WAS TO
TAKE  WRAMC'S  CALL  CENTER TO THE NEXT LEVEL OF SERVICE FOR ITS  PATIENTS  WITH
UNIQUE(Registered Trademark).

The  implementation  of uniQue  Voice,  uniQue CTI,  and uniQue Web allows WRAMC
patients to contact  WRAMC  agents using the method that best suits their needs.
WRAMC agents monitor telephone calls and automatically  update the status of the
service queue, intercept Web-based appointments and type messages back and forth
in a real-time environment to help patients schedule their appointments with the
right clinic. In today's world,  this model of customer  interactions is quickly
becoming the norm rather than the exception.  This exemplary  implementation  of
uniQue  at  WRAMC  evidences   Microlog's  goal  to  make  uniQue  a  preeminent
next-generation  customer  interaction  solution.  Felicia Davis,  supervisor of
Central  Appointment  Services,  anticipates that the patient will be the one to
get the most benefit.  "Bringing  advanced  technology here will have tremendous
implications  for  improving the quality and delivery of  healthcare,"  comments
Davis.

Walter Reed Army Medical Center in Washington,  D.C. is a world-renowned medical
center with over fifty different specialty and subspecialty clinics,  top-ranked
academic   professionals,   cardiovascular   care,   neurosurgery,   and   organ
transplantation  capability.  Walter Reed  offers the  expertise  and  technical
support  to  provide  even  the  most  complex   diagnosis   and   treatment  to
beneficiaries.  As part of The Walter Reed Health Care  System,  the Walter Reed
Army Medical Center is the Army's largest health care delivery system  providing
over 1,500,000  outpatient visits,  over 15,000 ambulatory  surgeries and almost
15,000 inpatient  admissions to beneficiaries from the National Capital Area and
from around the world.


                                       5

<PAGE>

MICROLOG CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                YEAR ENDED OCTOBER 31,
                                           2000         1999           1998
--------------------------------------------------------------------------------
<S>                                        <C>          <C>            <C>
Sales:
    Products                               $ 3,097      $ 3,646        $ 9,367
    Services                                11,430       14,377         17,090
--------------------------------------------------------------------------------

        Total sales                         14,527       18,023         26,457
--------------------------------------------------------------------------------

Costs and expenses:
    Cost of products                         2,623        3,064          8,688
    Cost of services                         7,413       10,382         11,855
    Selling, general and administrative      3,681        5,768          9,088
    Research and development                 1,350        2,870          3,256
    Restructuring                               --          693             --
--------------------------------------------------------------------------------

        Total costs and expenses            15,067       22,777         32,887
--------------------------------------------------------------------------------

Loss from operations                          (540)      (4,754)        (6,430)

Investment income                               93           35             58
Interest expense                               (26)         (71)           (56)
Other (expense) income, net                    (58)          97             86
--------------------------------------------------- ------------- -------------

Loss before income taxes                      (531)      (4,693)        (6,342)

Benefit (provision) for income taxes            56           --         (2,299)
--------------------------------------------------- ------------ --------------

Net loss                                   $  (475)    $ (4,693)      $ (8,641)
--------------------------------------------------- ------------ --------------

Net loss per share:
        Basic                               ($0.07)      $(1.02)        $(2.02)
        Diluted                             ($0.07)      $(1.02)        $(2.02)
--------------------------------------------------- ------------ --------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       6
<PAGE>

MICROLOG CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                OCTOBER 31,
                                                                                         2000                 1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                 <C>
Assets
Current assets:
   Cash and cash equivalents                                                              $ 1,604             $ 3,425
   Receivables, net                                                                         1,628               1,155
   Inventories, net                                                                           278                 375
   Other current assets                                                                       232                 301
-----------------------------------------------------------------------------------------------------------------------

   Total current  assets                                                                    3,742               5,256

Fixed assets, net                                                                             780                 917
Other assets                                                                                  196                 253
-----------------------------------------------------------------------------------------------------------------------

   Total assets                                                                           $ 4,718             $ 6,426
-----------------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
Current liabilities:

   Current portion of long-term debt                                                      $    --             $    74
   Accounts payable                                                                           398                 388
   Accrued compensation and related expenses                                                1,054               1,965
   Deferred revenue and other credits                                                         436                 447
   Other accrued expenses                                                                     158                 564
-----------------------------------------------------------------------------------------------------------------------

   Total current liabilities                                                                2,046               3,438

Deferred officers' compensation                                                               132                 151
Other liabilities                                                                              97                  33
-----------------------------------------------------------------------------------------------------------------------

   Total liabilities                                                                        2,275               3,622
-----------------------------------------------------------------------------------------------------------------------

Commitments and contingencies                                                                  --                  --

Stockholders' equity:
   Preferred stock, $.01 par value,
      1,000,000 shares authorized, no shares issued and outstanding                            --                  --
   Common stock, $.01 par value, 10,000,000 shares authorized,
      7,668,808 and 7,575,597 shares issued and 7,066,938
      and 6,973,727 outstanding                                                                77                  76
   Capital in excess of par value                                                          20,630              20,517
   Treasury stock, at cost, 601,870 shares                                                 (1,177)             (1,177)
   Accumulated deficit                                                                    (17,087)            (16,612)
-----------------------------------------------------------------------------------------------------------------------

   Total stockholders' equity                                                               2,443               2,804
-----------------------------------------------------------------------------------------------------------------------

   Total liabilities and stockholders' equity                                             $ 4,718             $ 6,426
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       7
<PAGE>

MICROLOG CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 CAPITAL IN
                                             COMMON STOCK         EXCESS OF     TREASURY STOCK               ACCUMULATED
                                          SHARES    PAR VALUE     PAR VALUE   SHARES        COST         DEFICIT         TOTAL
--------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>        <C>         <C>         <C>       <C>           <C>              <C>
Balance as of October 31, 1997               4,873      $ 49        $16,294     602       $(1,177)      $ (3,278)       $11,888

  Exercise of common stock options              16        --             23      --             --             --            23

  Consulting expense funded
    through stock options granted               --        --            100      --             --             --           100

  Net loss for the year ended
    October 31, 1998                            --        --             --      --             --        (8,641)        (8,641)
--------------------------------------------------------------------------------------------------------------------------------

Balance as of October 31, 1998               4,889        49         16,417     602        (1,177)       (11,919)         3,370

  Exercise of common stock options              20        --             20      --             --             --            20

  Consulting expense funded
    through stock options granted               --        --            155      --             --             --           155

  Issuance of common stock                   2,667        27          3,925      --             --             --         3,952

  Net loss for the year ended
    October 31, 1999                            --        --             --      --             --        (4,693)        (4,693)
--------------------------------------------------------------------------------------------------------------------------------

Balance as of October 31, 1999               7,576        76         20,517     602        (1,177)       (16,612)         2,804

  Exercise of common stock options              93         1            113      --             --             --           114

  Net loss for the year ended
    October 31, 2000                            --        --             --      --             --          (475)          (475)
--------------------------------------------------------------------------------------------------------------------------------

Balance as of October 31, 2000               7,669      $ 77        $20,630     602       $(1,177)      $(17,087)       $ 2,443
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       8
<PAGE>

MICROLOG CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          YEAR ENDED OCTOBER 31,
                                                                 2000             1999                1998
---------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>                 <C>
Cash flows from operating activities:
     Net loss                                                    $ (475)          $ (4,693)           $ (8,641)
     Adjustments to reconcile net loss to net
       cash used in operating activities:
         Depreciation                                               361                579                 847
         Amortization of goodwill and licensing agreement            89                125                 722
         Loss on disposition of fixed assets                         --                108                  65
         Gain on sale of building and land                           --                 --                (290)
         Provision for sales returns and doubtful accounts           10                 --                  29
         Provision for inventory reserves                           140                309               1,299
         Consulting expense funded through stock options
               granted                                               --                155                 100
         Changes in assets and liabilities:
             Receivables                                           (483)             1,902                 797
             Inventories                                            (43)               188                (250)
             Deferred tax asset                                      --                 --               2,150
             Other assets                                            37                259                (273)
             Accounts payable                                        10               (691)               (793)
             Accrued compensation and related expenses             (911)              (117)                274
             Deferred revenue and other credits                     (11)              (195)               (193)
             Deferred gain on sale of assets of Microlog Europe      --                140                  --
             Deferred gain on sale of building and land              --               (217)                217
             Other accrued expenses and accrued liabilities        (342)              (322)                586
             Deferred officers' compensation                        (19)               (98)                 (7)
---------------------------------------------------------------------------------------------------------------

     Net cash used in operating activities                       (1,637)            (2,568)             (3,361)
---------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:

     Purchases of fixed assets                                     (224)              (283)               (517)
     Proceeds from sale of fixed assets                              --                 32                  --
     Proceeds from sale of building and land                         --                 --               2,276
--------------------------------------------------------------------------------------------------------------

     Net cash (used in) provided by investing activities           (224)              (251)              1,759
--------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:

      Reduction in long-term debt                                   (74)               (68)                (61)
      Net proceeds from issuance of common stock                     --              3,952                  --
      Exercise of common stock options                              114                 20                  23
--------------------------------------------------------------------------------------------------------------

      Net cash provided by (used in) financing activities            40              3,904                 (38)
---------------------------------------------------------------------------------------------------------------

Net (decrease) increase in cash and cash equivalents             (1,821)             1,085              (1,640)
Cash and cash equivalents at beginning of year                    3,425              2,340               3,980
--------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                        $ 1,604            $ 3,425             $ 2,340
---------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       9
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION AND MAJOR CUSTOMERS

The  accompanying  consolidated  financial  statements  include the  accounts of
Microlog  Corporation  and  its  wholly-owned  subsidiaries  (collectively,  the
"Company"). All intercompany transactions have been eliminated.

Microlog Corporation of Maryland, Microlog's operating subsidiary, has two major
subdivisions: the Contact Center Solutions division and the Old Dominion Systems
division.  The Contact Center Solutions  division is a software  development and
systems integration  services company.  This division builds custom self-service
and customer  interaction  solutions  that manage  telephony  type  contacts and
Internet-based  contacts,  sometimes known in the industry as "channels,"  which
allow the Company's customers to serve their customers better through the use of
technology in formal and informal corporate contact centers.  In providing these
solutions,  the  Company  uses  its  products,  primarily  core  voice  and data
platforms  and  toolkits,  combined with its  professional  services  offerings.
Microlog's  products and solutions  address  interactive  voice response  (IVR),
inbound and outbound phone calls, e-mail, fax, world-wide Web interactions,  Web
chat, Web bulletin  board,  and  voice-over-IP  types of contacts.  Professional
Services  associated with this business include technology  assessment,  project
management,   application  and  software  development,   telephony  integration,
installation,  system  administration,  quality assurance testing,  and on-going
maintenance and support.

The Old Dominion Systems division  provides  performance  analysis and technical
and  administrative  support services to the Applied Physics Laboratory (APL), a
prime  contractor  to the U.S.  Navy.  Although this segment of the business has
historically  provided a source of sales and profits,  the Company believes that
its  Old  Dominion  Systems  division  will  not  generate  significant  revenue
beginning in the first quarter of fiscal 2001. Accordingly, the Company believes
that its principal  opportunities for growth are in the Contact Center Solutions
division and is  concentrating  its  investments  and efforts in developing  the
Contact Center Solutions division.

The Company  manages its  business  segments  on the basis of the  products  and
services offered.  The Company's two reportable  segments are the Contact Center
Solutions  division  and  the  Old  Dominion  Systems  division.  The  Company's
management  evaluates segment performance on the basis of segment earnings which
includes an allocation of corporate general and administrative expenses.

A SUMMARY OF INFORMATION  ABOUT THE COMPANY'S  OPERATIONS BY BUSINESS SEGMENT IS
AS FOLLOWS (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                      YEAR ENDED OCTOBER 31,
                                                               2000             1999           1998
----------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>            <C>
Net sales:
         Contact Center Solutions                              $  7,383         $  7,896       $    14,743
         Old Dominion Systems                                     7,144           10,127            11,714
----------------------------------------------------------------------------------------------------------
         Net sales                                            $  14,527        $  18,023         $  26,457
----------------------------------------------------------------------------------------------------------

(Loss) income from operations:

         Contact Center Solutions                           $      (947)      $   (5,245)       $   (7,515)
         Old Dominion Systems                                       407              491             1,085
----------------------------------------------------------------------------------------------------------
         Loss from operations                                  $   (540)      $   (4,754)       $   (6,430)
----------------------------------------------------------------------------------------------------------

Identifiable assets:
         Contact Center Solutions                              $  4,611        $   6,174         $   8,163
         Old Dominion Systems                                       107              252               397
----------------------------------------------------------------------------------------------------------
         Identifiable assets                                   $  4,718        $   6,426         $   8,560
----------------------------------------------------------------------------------------------------------

Capital expenditures:
         Contact Center Solutions                           $       224        $     282         $     509
         Old Dominion Systems                                        --                1                 8
----------------------------------------------------------------------------------------------------------
         Capital expenditures                               $       224        $     283         $     517
----------------------------------------------------------------------------------------------------------

Depreciation expense:
         Contact Center Solutions                            $      358        $     572         $     734
         Old Dominion Systems                                         3                7                12
         Buildings for common use                                    --               --               101
----------------------------------------------------------------------------------------------------------
         Depreciation expense                                $      361        $     579         $     847
----------------------------------------------------------------------------------------------------------
</TABLE>


                                       10
<PAGE>

Approximately  32%, 23%, and 30% of the Company's  consolidated sales for fiscal
years 2000,  1999, and 1998,  respectively,  involved the sale of Contact Center
Solutions to agencies of the United States Government.

Approximately  3%, 11%, and 10% of the Company's  consolidated  sales for fiscal
years 2000,  1999,  and 1998  respectively,  involved the sale of Contact Center
Solutions to one customer in the pharmaceutical industry.

Approximately  0%, 6%, and 13% of the  Company's  consolidated  sales for fiscal
years 2000,  1999, and 1998,  respectively,  involved the sale of Contact Center
Solutions to foreign countries.

Approximately  49%, 56%, and 44% of the Company's  consolidated sales for fiscal
years  2000,  1999,  and  1998,  respectively,  involved  Old  Dominion  Systems
subcontracts  with prime  contractors to the U.S. Navy.  There are two contracts
remaining which have been extended to two different dates in fiscal year 2001.

NOTE 2: SUMMARY OF ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of the  consolidated  financial  statements,  in conformity with
generally accepted accounting principles,  requires management to make estimates
and  assumptions  that affect the reported  amounts of assets and liabilities on
the  consolidated  financial  statements and the reported amounts of revenue and
expenses  during the reporting  periods.  Actual results could differ from those
estimates and assumptions.

REVENUE RECOGNITION

Sales of products are  recognized at the time  deliveries  are made. The Company
generates  software  revenues  from  licensing  the  right  to use its  software
products  and  also  generates   service   revenues  from   implementation   and
installation  services,  ongoing  maintenance,   training  services,  and  other
professional services performed.

Revenue from software  license  agreements  is  recognized  upon delivery of the
software if persuasive  evidence of an  arrangement  exists,  sufficient  vendor
specific  objective  evidence exists to support  allocating the total fee to all
elements of the arrangement, the fee is fixed or determinable, and collection is
probable.  In  addition,  revenue  is  recognized  only  when  the  software  is
considered functional to the user.

Ongoing  maintenance  contracts,  which include software upgrades,  are invoiced
separately and revenue is earned ratably over the term of the contract.  Revenue
from  implementation  and installation  services is recognized when the services
are completed.  Revenue from training services and professional services is also
recognized when the services are completed.

Contract  revenues are  recognized on the  percentage  of  completion  basis for
fixed-price  contracts.  Revenues  are  recorded  to the extent  costs have been
incurred for cost-plus-fixed-fee  contracts, including a percentage of the fixed
fee computed in accordance with the contract  provisions.  Revenues for time and
materials contracts are recognized at negotiated hourly rates as incurred and as
materials  are  delivered.  Provisions  for losses on  contracts in progress are
provided when, in the opinion of management, such losses are anticipated.

CASH AND CASH EQUIVALENTS

The Company  considers all liquid  investments with an original maturity of less
than  three  months to be cash  equivalents.  Cash  equivalents  consist of U.S.
treasury bills,  certificates of deposit,  and repurchase  agreements (which are
collateralized by securities issued or guaranteed by the U.S. Treasury).

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, accounts receivable, accounts payable, and accrued
expenses approximate fair value because of the short maturity of these items.


                                       11
<PAGE>

INVENTORIES

Inventories  are  stated  at the  lower  of  cost,  determined  on the  first-in
first-out method, or market.

FIXED ASSETS

Fixed assets are recorded at cost and depreciated on a  straight-line  basis for
financial reporting purposes and accelerated methods for income tax purposes.

INTANGIBLE ASSETS

Licenses are recorded at cost and amortized on a straight-line basis over two to
seven years.  Accumulated amortization at October 31, 2000 and 1999 was $833,000
and $744,000, respectively.

Goodwill was amortized on a straight-line  basis over six to seven years through
fiscal year 1998 when the goodwill balance was fully written off.

Costs incurred in basic research and development  are expensed as incurred.  The
Company  has  determined   that  the  process  of   establishing   technological
feasibility with its new products is completed approximately upon the release of
the  products to its  customers.  Accordingly,  software  development  costs are
expensed as incurred.

Management   periodically   reviews  intangible  assets  for  recoverability  by
analyzing  future cash flows for  associated  businesses  and product  lines and
makes adjustments for impairment when necessary.

WARRANTY RESERVE

Normal  product  warranty for service and repairs is  generally  provided for 90
days to two years, subsequent to delivery. Expenses incurred for warranties over
the past few  fiscal  years  have been and are  expected  to be  immaterial  and
therefore a liability for warranty obligations has not been provided for.

STOCK-BASED COMPENSATION

The Company  accounts for  stock-based  compensation  using the intrinsic  value
method  prescribed in Accounting  Principles  Board Opinion No. 25 (APB No. 25),
"Accounting  for Stock Issued to Employees" and related  interpretations.  Under
APB No. 25,  compensation  cost is measured as the excess, if any, of the market
price of the Company's stock at the date of the grant over the exercise price of
the option granted.  Compensation cost for stock options,  if any, is recognized
ratably  over the vesting  period.  The Company  provides  additional  pro forma
disclosures as required under  Statement of Financial  Accounting  Standards No.
123 (SFAS No. 123), "Accounting for Stock-Based Compensation" (Note 11).

Transactions for which  non-employees are issued equity instruments for goods or
services  received are recorded by the Company  based upon the fair value of the
goods or services received or the fair value of the equity  instruments  issued,
whichever is more reliably measured.

NET (LOSS) INCOME PER SHARE

The  Company  presents  earnings  per  share  information  using  SFAS No.  128,
"Earnings per Share." This  statement  requires dual  presentation  of basic and
diluted  EPS on the face of the income  statement  for  entities  with a complex
capital structure and requires a reconciliation of the numerator and denominator
used for the basic and diluted EPS  computations.  The Company  implemented SFAS
No. 128 in fiscal year 1998, as required.


                                       12
<PAGE>

NOTE 3: OPERATIONS

The  Company  incurred a net loss of  $475,000  for fiscal  year 2000 and has an
accumulated  deficit of $17.1 million at October 31, 2000.  Key to the Company's
future liquidity position is its ability to generate  sufficient cash flows from
internal and external sources to meet its operating needs. In order to help with
its  liquidity  requirements  in  the  near  future,   management   restructured
operations  in  fiscal  year  1999  to  reduce  operating   expenses  to  levels
commensurate with revenues.  The Company anticipates that existing cash and cash
equivalents  generated  from fiscal year 2001  operations  will be sufficient to
meet its working capital needs in fiscal year 2001. In January 2001, the Company
renewed its revolving line-of-credit facility with its lender (Note 8).

NOTE 4: RECEIVABLES

RECEIVABLES CONSIST OF THE FOLLOWING (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                        OCTOBER 31,
                                                                 2000                   1999
-------------------------------------------------------------------------------------------------
<S>                                                           <C>                       <C>
Billed accounts receivable                                    $   1,653                 $   1,071
Accumulated unbilled costs and fees                                 100                       234
-------------------------------------------------------------------------------------------------
                                                                  1,753                     1,305

Less: Allowance for doubtful accounts                              (125)                     (150)
--------------------------------------------------------------------------------------------------
                                                              $   1,628                 $   1,155
--------------------------------------------------------------------------------------------------
</TABLE>

NOTE 5:  INVENTORIES

INVENTORIES CONSIST OF THE FOLLOWING (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                          OCTOBER 31,
                                                                 2000                     1999
-------------------------------------------------------------------------------------------------
<S>                                                               <C>                     <C>
Components                                                        $ 494                   $   730
Work-in-process and finished goods                                  121                       133
-------------------------------------------------------------------------------------------------
                                                                    615                       863

Less: Reserve for obsolescence                                     (337)                     (488)
-------------------------------------------------------------------------------------------------
                                                                  $ 278                   $   375
-------------------------------------------------------------------------------------------------
</TABLE>


NOTE 6: FIXED ASSETS

FIXED ASSETS CONSIST OF THE FOLLOWING (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                          OCTOBER 31,
                                                                2000                      1999
-------------------------------------------------------------------------------------------------
<S>                                                             <C>                       <C>
Office furniture and equipment                                  $ 2,373                   $ 2,987
Leasehold improvements                                               58                        22
-------------------------------------------------------------------------------------------------
                                                                  2,431                     3,009

Less:  Accumulated depreciation                                  (1,651)                   (2,092)
-------------------------------------------------------------------------------------------------
                                                                $   780                   $   917
-------------------------------------------------------------------------------------------------
</TABLE>

Estimated useful lives are as follows:

    Office furniture and equipment                                     3-7 years
    Leasehold improvements                                  Shorter of estimated
                                                       useful life or lease term


                                       13
<PAGE>

NOTE 7: ACCRUED EXPENSES

ACCRUED   COMPENSATION  AND  RELATED  EXPENSES  CONSIST  OF  THE  FOLLOWING  (IN
THOUSANDS):

<TABLE>
<CAPTION>
                                                                         OCTOBER 31,
                                                                 2000                    1999
-------------------------------------------------------------------------------------------------
<S>                                                            <C>                        <C>
Accrued wages                                                  $    541                   $ 1,103
Accrued vacation and personal leave                                 232                       471
Other related expenses                                              281                       391
-------------------------------------------------------------------------------------------------
                                                               $  1,054                   $ 1,965
-------------------------------------------------------------------------------------------------
</TABLE>

OTHER ACCRUED EXPENSES CONSIST OF THE FOLLOWING (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                         OCTOBER 31,
                                                                 2000                    1999
-------------------------------------------------------------------------------------------------
<S>                                                            <C>                       <C>
Accrued maintenance, marketing, travel and other expenses      $    158                  $    448
Accrued legal and consulting expenses                                --                       116
-------------------------------------------------------------------------------------------------
                                                              $     158                  $    564
-------------------------------------------------------------------------------------------------
</TABLE>

NOTE 8:  DEBT

In April 2000, the Company  renewed its revolving  line-of-credit  facility with
Silicon Valley Bank which allows the Company to borrow up to 75% of its eligible
receivables to a maximum of $2,000,000, subject to the right of the bank to make
loans only in its discretion.  The  line-of-credit  bears interest at the bank's
prime rate plus 2.0%  (11.50%  at  October  31,  2000),  and  contains a minimum
monthly  interest  charge as well as a monthly  collateral  fee and an  up-front
commitment  fee  of  $10,000.   If  and  when  the  Company  borrows  under  the
line-of-credit,  it will be  required  to grant the lender  warrants to purchase
common stock equal to 2% of the commitment  amount at an exercise price equal to
the  market  value of the  Company's  common  stock  on the date of the  initial
borrowing.  The  line  subjects  the  Company  to a  financial  covenant  of not
exceeding   consolidated   quarterly   losses  of   ($70,000)   and   ($50,000),
respectively,  for the  second and third  quarters  of fiscal  year 2000,  and a
requirement for  consolidated  profitability  beginning in the fourth quarter of
fiscal year 2000.  The line also subjects the Company to a number of restrictive
covenants,  including  restrictions  on  mergers  or  acquisitions,  payment  of
dividends,  and  certain  restrictions  on  additional  borrowings.  The line is
secured by all of the Company's  assets.  At July 31, 2000,  Microlog was not in
compliance with the financial covenant of not exceeding a consolidated quarterly
loss of ($50,000)  for the third  quarter.  The bank waived the covenant at July
31,  2000.  At October 31,  2000,  the Company  was not in  compliance  with the
financial covenant requiring consolidated  profitability for the fourth quarter.
A  waiver  was  received  from the  bank  for  this  covenant  when the line was
renegotiated in January 2001. There was no outstanding debt against this line of
credit at October 31, 2000.

In January 2001, the Company renewed its revolving  line-of-credit facility with
the  lender  which  allows  the  Company  to  borrow  up to 75% of its  eligible
receivables to a maximum of $1,000,000, subject to the right of the bank to make
loans only in its discretion.  The  line-of-credit  bears interest at the bank's
prime rate plus 2.0%, and contains a minimum monthly  interest charge, a monthly
collateral fee, and an up-front commitment fee of $35,000. The line subjects the
Company to a financial  covenant of  maintaining  a minimum  tangible  net worth
tested on a monthly  basis.  The line also  subjects  the Company to a number of
restrictive  covenants,  including  restrictions  on  mergers  or  acquisitions,
payment of dividends,  and certain  restrictions on additional  borrowings.  The
line is secured by all of the Company's assets.

NOTE 9: COMMITMENTS AND CONTINGENCIES

COMPENSATION ARRANGEMENTS

In  February  1988,   the  Company   entered  into   non-contributory   deferred
compensation contracts (the "Contracts") with three officers. Under the terms of
the  Contracts,  (i) the  Company's  total  annual  contributions  for the three
officers  was limited to $72,000,  (ii)  contributions  ceased at the earlier of
January 31, 1993 or the officer's retirement and (iii) accumulated contributions
accrue interest at the prime rate through the officer's  retirement.  Subsequent
to retirement  and at the officer's  option,  the officer is eligible to receive
his or her deferred compensation balance in


                                       14
<PAGE>

either monthly  payments over a 10-year period or one lump-sum  payment.  Two of
the officers retired in May 1991 and January 1998, respectively,  and elected to
receive their deferred  compensation  balances over a 10-year period.  The third
officer retired in August 1999 and elected to receive her deferred  compensation
balance in a lump-sum payment which was made in January 2000. In connection with
the Contracts, the Company has incurred interest expense of $18,000, $23,000 and
$27,000 in fiscal years 2000, 1999, and 1998, respectively.

The  Company  is a party to  employment  agreements  with  two of its  executive
officers.  In the event that these  individuals  are  terminated,  they would be
entitled to receive lump sum or monthly payments,  which aggregate approximately
$330,000.  In January 2001, one of the executive  officers left the Company.  He
will receive monthly payments aggregating approximately $130,000 through October
2001.

OPERATING LEASE OBLIGATIONS

In September  1999, the Company  entered into a 10-year lease  commitment on its
headquarters  facility  which extends  through 2009.  Additionally,  the Company
leases other equipment through noncancellable  operating leases, which expire in
various  years through  2004.  Minimum  future  noncancellable  operating  lease
payments as of October 31, 2000 are as follows (in thousands):

         YEAR ENDING OCTOBER 31,

<TABLE>
<CAPTION>
              <S>                           <C>
              2001                          $     355
              2002                                366
              2003                                368
              2004                                367
              2005                                377
              Thereafter                        1,399
-----------------------------------------------------
              Total                           $ 3,232
</TABLE>

In fiscal year 1999,  the  Company's  operating  lease  obligation at its Rancho
Cordova,   California  facility  expired.   Rent  expense  under  noncancellable
operating   lease   agreements  in  fiscal  years  2000,   1999,  and  1998  was
approximately  $393,000,  $565,000,  and $379,000 (net of sublease income of $0,
$159,000, and $281,000), respectively.

LEGAL

The  Company  is  subject  to  litigation  from  time to time  arising  from its
operations and receives  occasional  letters  alleging  infringement  of patents
owned by third parties.  Management believes that such litigation and claims are
without  merit and will not have a  material  adverse  effect  on the  Company's
financial position or results of operations.

ROYALTIES

The Company is committed to pay annual license maintenance fees of $120,000 to a
licensor under certain call  processing  patents,  expiring in 2007. The Company
will receive a credit against future  license  maintenance  fees equal to 12% of
the purchase price paid for products purchased from the licensor.


                                       15
<PAGE>

NOTE 10: STOCK OPTION PLANS

The Company has two incentive  stock option plans.  Under the first plan,  which
has been  frozen,  the Company  granted  options to directors  and  employees to
purchase up to 750,000 shares of common stock at not less than fair market value
at the time of grant.  Under the second plan,  the Company may grant  options to
employees  to purchase up to  1,600,000  shares of common stock at not less than
fair market value at the time of grant.  Additional  information with respect to
both of the incentive stock option plans is summarized in the following table:

<TABLE>
<CAPTION>
                                           NUMBER                   WEIGHTED AVERAGE
                                           OF SHARES                EXERCISE PRICE
------------------------------------------------------------------------------------
<S>                                        <C>                      <C>
Shares under option, October 31, 1997       1,008,921               $    4.39
Options granted                             1,122,400                    1.83
Options canceled                           (1,159,875)                   4.26
Options exercised                             (16,452)                   1.45
------------------------------------------------------------------------------------

Shares under option, October 31, 1998         954,994                    1.59
Options granted                               721,500                    1.34
Options canceled                             (406,248)                   1.49
Options exercised                             (19,725)                   1.12
------------------------------------------------------------------------------------

Shares under option, October 31, 1999       1,250,521                    1.49
Options granted                               727,000                    1.51
Options canceled                             (561,074)                   1.57
Options exercised                             (93,155)                   1.25
------------------------------------------------------------------------------------

Shares under option, October 31, 2000       1,323,292               $    1.49
------------------------------------------------------------------------------------
</TABLE>

Options  granted  under the plans vest at  various  dates  from  immediately  to
ratably  over five years and  expire  ten years from the date of grant.  Certain
options contain possible  accelerated  vesting clauses should specific financial
measures be met. As of October 31, 2000,  options to purchase  347,300 shares of
common  stock were  available  for  granting.  Subsequent  to October 31,  2000,
options  to  purchase  210,000  shares  of  common  stock  have  been  issued to
employees.

Due to the decline in the market value of the Company's  common stock, the Board
of  Directors  authorized  the  Company  to  reprice  stock  options  granted to
employees and officers  with exercise  prices in excess of the fair market value
on August 14, 1998.  Stock  options held by optionees  other than  directors and
non-employees,  which were granted under the incentive stock plans and which had
an exercise  price  greater  than $1.75 per share,  were amended to reduce their
exercise price to $1.63 per share,  which was the closing price of the Company's
common stock on August 14, 1998.  The stock  options that were repriced have the
same terms as the original  options to which they relate.  Options to purchase a
total of 907,150 shares of common stock with a weighted  average  exercise price
of $5.01 were  repriced  and are  included in options  canceled  and granted for
fiscal year 1998.

Additionally,  the Company maintains a non-employee  Director stock option plan.
Under this plan,  the Company may grant up to 250,000  shares of common stock at
not less than the fair market value at the time of grant. Additional information
with respect to this plan is as follows:

<TABLE>
<CAPTION>
                                              NUMBER                  WEIGHTED AVERAGE
                                              OF SHARES               EXERCISE PRICE
--------------------------------------------------------------------------------------
<S>                                           <C>                     <C>
Shares under option, October 31, 1997          50,000                 $  3.85
Options granted                                22,000                    6.13
--------------------------------------------------------------------------------------

Shares under option, October 31, 1998          72,000                    4.55
Options canceled                              (15,000)                   4.75
Options granted                                24,000                    1.31
--------------------------------------------------------------------------------------

Shares under option, October 31, 1999          81,000                    3.55
Options granted                                58,000                    1.64
--------------------------------------------------------------------------------------

Shares under option, October 31, 2000         139,000                 $  2.56
--------------------------------------------------------------------------------------
</TABLE>


                                       16
<PAGE>

Options  granted under the plan vest  immediately  and expire ten years from the
date of grant.  As of October 31,  2000,  options to purchase  88,000  shares of
common stock were available for granting.

The Company also issued stock options to non-employee consultants outside of the
above  plans.  These shares may be granted at such times and under such terms as
determined by the Board of Directors. Additional information is as follows:

<TABLE>
<CAPTION>
                                              NUMBER                 WEIGHTED AVERAGE
                                              OF SHARES              EXERCISE PRICE
-------------------------------------------------------------------------------------
<S>                                           <C>                    <C>
Shares under option, October 31, 1997         240,000                $   4.40
Options granted                                21,000                    1.84
-------------------------------------------------------------------------------------

Shares under option, October 31, 1998         261,000                    4.20
Options canceled                              (62,000)                   0.96
Options granted                               137,000                    1.80
-------------------------------------------------------------------------------------

Shares under option, October 31, 1999         336,000                    1.46
Options canceled                              (11,000)                   2.53
-------------------------------------------------------------------------------------

Shares under option, October 31, 2000         325,000                $   1.46
-------------------------------------------------------------------------------------
</TABLE>
Generally,  options vest upon the  achievement of certain events and expire from
two to five years from the date of grant.

In fiscal year 1997,  the Company  entered into a consulting  agreement with The
Parthenon  Group,  Inc.  ("Parthenon"),  a strategic  marketing  and  consulting
organization.  In exchange  for  providing  consulting  services for a period of
approximately six months, the Company granted Parthenon non-statutory options to
purchase up to 195,000 shares of the common stock at an exercise price of $5 per
share.  40,000 shares would become exercisable upon commencement of the project,
40,000  shares  would  become  exercisable  upon the  completion  of a specified
milestone,  and the additional  115,000 shares would become exercisable upon the
market price of the common stock attaining  specified levels. The options have a
term of five years and will expire in June 2002.

In fiscal year 1999, the Company issued options to  non-employee  consultants to
purchase  47,000  shares  of common  stock at an  exercise  price of  $0.94.  In
addition, the Company entered into a second consulting agreement with Parthenon.
Under the terms of this second consulting agreement, Parthenon agreed to provide
additional consulting services and the Company agreed to reprice options granted
in fiscal  year  1997 to  purchase  195,000  shares  of the  common  stock at an
exercise price of $0.94 per share. Additionally,  the vesting terms were revised
and options to purchase 145,000 shares of the common stock of the Company became
exercisable  on the date they were repriced.  The remaining  options to purchase
50,000 shares of the common stock become  exercisable  in fiscal year 1999.  The
Company also issued  Parthenon  additional  options to purchase 90,000 shares of
common  stock at an  exercise  price of $2.25 per share.  These  options  became
exercisable on the date of grant. The expense associated with all of the options
of $450,000 was recorded over the term of the engagement, which included $75,000
related to the repricing of the options that  occurred  during fiscal year 1999,
as a result of re-measuring  the cost of the services at fair market value.  The
Company  recorded $0,  $150,000,  and $100,000 as  consulting  expense in fiscal
years 2000, 1999, 1998, respectively.

The Company also  reserved  50,000  shares of common stock for issuance  outside
these plans as stock options or stock bonuses to key employees. These shares may
be granted at such  times and under  such  terms as  determined  by the Board of
Directors. No such grants or issuances have been made as of October 31, 2000.


                                       17
<PAGE>

THE FOLLOWING TABLE SUMMARIZES  INFORMATION ABOUT ALL STOCK OPTIONS  OUTSTANDING
AT OCTOBER 31, 2000:

<TABLE>
<CAPTION>
                                                          OPTIONS OUTSTANDING         OPTIONS EXERCISABLE
                                                      ---------------------------- ------------------------
                                                        WEIGHTED
                                                        -AVERAGE
                          RANGE                         YEARS OF       WEIGHTED                   WEIGHTED
                            OF                          REMAINING      -AVERAGE                   -AVERAGE
                         EXERCISE         NUMBER       CONTRACTUAL     EXERCISE       NUMBER       EXERCISE
                          PRICES       OUTSTANDING         LIFE          PRICE      EXERCISABLE      PRICE
                      --------------- --------------- --------------- ------------ -------------- ---------
<S>                   <C>               <C>                <C>             <C>          <C>         <C>
Incentive             $0.88-$1.25         334,267          8.6             $1.05        245,817     $1.04
Stock Option          $1.59-$2.39         981,525          7.1              1.63        707,650      1.64
Plans                 $2.57-$3.86           7,500          9.6              2.57          1,500      2.57
                      --------------- --------------- --------------- ------------ -------------- ---------
                      $0.88-$3.86       1,323,292          7.4             $1.47        954,967     $1.46
                      --------------- --------------- --------------- ------------ -------------- ---------

Non-Employee          $0.94-$1.41          26,000          5.2             $1.17         26,000     $1.17
Director              $1.42-$1.99          70,000          9.0              1.65         53,500      1.65
Plan                  $2.00-$2.75           6,000          1.4              2.50          6,000      2.50
                      $4.75-$6.75          37,000          6.1              6.00         37,000      6.00
                      --------------- --------------- --------------- ------------ -------------- -------
                      $0.94-$6.75         139,000          7.2             $2.76        122,500     $2.90
                      --------------- --------------- --------------- ------------ -------------- -------

Non-Employee          $0.94-$1.06         230,000          3.0             $0.94        230,000     $0.94
Plan                  $2.25                90,000          3.5              2.25         90,000      2.25
                      $8.38                 5,000          0.4              8.38          5,000      8.38
                      --------------- --------------- --------------- ------------ -------------- -------
                      $0.94-$8.38         325,000          3.1             $1.57        325,000     $1.57
                      --------------- --------------- --------------- ------------ -------------- -------
</TABLE>

The  weighted-average  fair value of options  granted  during fiscal years 2000,
1999, and 1998 was $1.52, $1.21, and $0.97, respectively. The fair value of each
significant   option  grant  is  estimated  on  the  date  of  grant  using  the
Black-Scholes  model. The following weighted average assumptions are included in
the Company's fair value calculations:

<TABLE>
<CAPTION>
                                                          2000              1999             1998
                                                          ----              ----             ----
                  <S>                                     <C>             <C>                <C>
                  Expected life (years)                    5.0              5.0               2.5
                  Risk-free interest rate                  6.3%             5.2%              5.5%
                  Volatility                              85.9%           165.9%             62.5%
                  Dividend yield                           --               --                --
</TABLE>

The  Company  continues  to  apply  APB No.  25 in  accounting  for  stock-based
compensation  for the incentive and  non-employee  director  plans. To date, all
stock options have been issued at market  value;  accordingly,  no  compensation
cost has been  recognized.  Had the Company  determined costs for these plans in
accordance  with SFAS No. 123, the Company's pro forma net (loss) income and pro
forma (loss) income per share would have been as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         YEAR ENDED OCTOBER 31,
                                                                 2000             1999             1998
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>               <C>
Pro forma net loss applicable to common
   stockholders                                                 $(1,788)         $(5,664)          $(8,699)

-------------------------------------------------------------------------------------------------------------------------------

Pro forma net loss per share:

   Basic                                                        $  (0.25)        $  (1.22)         $(2.03)
   Diluted                                                      $  (0.25)        $  (1.22)         $(2.03)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The SFAS No. 123 method of accounting does not apply to options granted prior to
November 1, 1995, and accordingly, the resulting pro forma compensation cost may
not be representative of amounts expected in the future.


                                       18
<PAGE>

NOTE 11: INCOME TAXES

Income taxes are provided  for the tax effects of  transactions  reported in the
financial  statements  and consist of taxes  currently due plus  deferred  taxes
related  primarily  to  differences  between  the basis of fixed and  intangible
assets and revenue recognition for financial and income tax reporting.  Deferred
tax assets and  liabilities  represent  the  future  tax  consequences  of those
differences,  which  will  either be taxable  or  deductible  when the assets or
liabilities are recovered or settled.

The (benefit)  provision for income taxes in fiscal years 2000,  1999,  and 1998
consists of (in thousands):

<TABLE>
<CAPTION>
                                                                         YEAR ENDED OCTOBER 31,
                                                                  2000          1999               1998
                                                                 -------       -------            -----
<S>                                                         <C>                <C>              <C>
Increase (decrease) in income taxes payable                 $    (28)          $  --            $      149
Refunds of state income taxes                                    (28)             --                    --
Decrease (increase) in deferred tax asset                         --              --                 2,150
----------------------------------------------------------------------------------------------------------

                                                            $    (56)          $  --             $   2,299
----------------------------------------------------------------------------------------------------------
</TABLE>

Income taxes refundable in fiscal year 2000 relate to state income taxes. Income
taxes in fiscal  year 1998  relate to the  alternative  minimum  tax for Federal
income tax.  Due to  unprofitable  operations  in fiscal year 1998,  the Company
assessed the probability of realizing its net operating loss  carryforwards  and
at that time determined that their expected future realization was not likely to
be realized in the near future. Accordingly,  the Company wrote-off its deferred
tax asset of  $2,150,000  in fiscal year 1998.  The Company has  provided a full
valuation  allowance  for the Company's  $18.7  million net operating  losses as
management  determined  it more  likely  than not that this  amount  will not be
realized.

A reconciliation  of the statutory  Federal tax rate to the Company's  effective
tax rate is as follows:

<TABLE>
<CAPTION>
                                                                               Year Ended October 31,
                                                                 2000            1999              1998
                                                                ------          ------            -----
<S>                                                            <C>               <C>              <C>
Statutory Federal tax rate                                     (34.0)%           (34.0)%          (34.0)%
State income taxes, net of
  federal tax benefit                                          (15.5)             (5.0)            (5.0)
Benefit not recorded due to carryforward position                39.0              39.0            38.6
Goodwill amortization                                           --                --                3.3
Change in deferred tax asset                                    --                --               33.9
Other                                                           --                --               (0.5)
-------------------------------------------------------------------------------------------------------

                                                                10.5%             00.0%            36.3%
-------------------------------------------------------------------------------------------------------
</TABLE>

Deferred tax assets are comprised of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 OCTOBER 31,
                                                       2000                      1999
                                                     --------                 -------
<S>                                                <C>                      <C>
Accounts receivable reserve                        $      39                $       49
Inventory reserves                                       132                       190
Accrued vacation and benefits                             61                       135
Deferred compensation                                     59                       101
Deferred revenues                                        138                       126
Other                                                    429                       536
Research and development credits                         535                       414
Foreign net operating losses                              16                       162
Loss carryforwards                                     7,291                     6,602
--------------------------------------------------------------------------------------

Gross deferred tax assets                              8,700                     8,315
Valuation allowance                                   (8,700)                   (8,315)
---------------------------------------------------------------------------------------
Net deferred tax asset                             $      --                $       --
---------------------------------------------------------------------------------------
</TABLE>


                                       19
<PAGE>

The net  change in the  valuation  allowance  for  deferred  tax  assets  was an
increase of $400,000  during the year. The Company has provided a full valuation
allowance  against the  Company's  gross  deferred tax assets  since  management
believes that the  realization  of such deferred tax assets is not likely in the
near future.

Approximately  $18.7 million of tax loss  carryforwards and $535,000 of research
and  development  tax credits can be utilized by the Company  through  2020.  If
certain substantial changes in the Company's ownership should occur, there would
be an  annual  limitation  on the  amount  of  the  carryforwards  which  can be
utilized.

NOTE 12:  NET LOSS PER SHARE CALCULATION

The following is a  reconciliation  of the  numerators and  denominators  of the
basic net loss per common  share  ("basic  EPS") and diluted net loss per common
and dilutive potential common share ("diluted EPS"). Basic EPS is computed using
the weighted  average  number of common  shares  outstanding  and diluted EPS is
computed using the weighted average number of common and common stock equivalent
shares outstanding.

<TABLE>
<CAPTION>
                                                                                           OCTOBER 31,
(IN THOUSANDS)                                                              2000             1999           1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>            <C>
Net loss                                                                   $ (475)          $ (4,693)      $ (8,641)
---------------------------------------------------------------------------------------------------------------------

Weighted average common stock outstanding                                    7,024             4,619          4,282
Stock options, if converted                                                     --                --             --
---------------------------------------------------------------------------------------------------------------------
Weighted average common
  and common stock equivalent shares outstanding                             7,024             4,619          4,282
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Options  outstanding  in fiscal years 2000,  1999, and 1998 are not reflected in
the  computation  of diluted EPS because the effect is  anti-dilutive  and would
increase diluted EPS.

NOTE 13: PENSION AND PROFIT SHARING PLANS

The Company has a defined  contribution  Pension Plan  covering  all  employees.
After an employee  completes  one-year of service,  the Plan provides for annual
contributions  by the  Company  equal  to 6% of  the  employee's  gross  salary,
excluding bonuses and commissions.  The Company's contributions to the Plan vest
after a five-year period. Employees may also make voluntary contributions to the
Plan up to a maximum of 10% of their gross salary on an after-tax basis. On June
1, 1999, the Company ceased  contributions  to the Pension Plan for employees of
its voice  processing  operations.  At that time, all of these employees  became
100% vested in the Plan.

In accordance with the Plan,  unvested amounts relating to terminated  employees
are credited  against pension  contributions  by the Company.  Such  forfeitures
amounted to $118,000,  $239,000,  and $128,000 in fiscal years 2000,  1999,  and
1998,  respectively.  It is the Company's  policy to fund pension costs accrued.
Net expense of the Plan was approximately  $120,000,  $282,000,  and $518,000 in
fiscal years 2000, 1999, and 1998, respectively.

The Company also  maintains a 401(k)  profit  sharing  plan and trust.  The plan
allows for  employees to contribute up to 10% of gross salary on a pre-tax basis
and 5% of gross  salary  on an  after-tax  basis.  The  Company  matches  50% of
employee  contributions up to 4% of eligible  salary.  Total expense of the plan
was approximately  $112,000,  $186,000, and $196,000 in fiscal years 2000, 1999,
and 1998, respectively.

NOTE 14: RESTRUCTURING EXPENSES

In fiscal  year  1999,  the  Company  recorded  $693,000  in costs  related to a
comprehensive  restructuring  program  that  was  implemented  during  the  last
three-quarters  of 1999. These  restructuring  charges include costs of $381,000
for severance and benefits, the write-off of assets of $49,000 for the equipment
associated  with headcount  reductions,  costs of $103,000  associated  with the
closing  of the  Company's  manufacturing  facility,  and costs of  $160,000  to
terminate  the 15-year lease  commitment  for new office space which the Company
had  entered  into  in  May  1998.  The  Company's   workforce  was  reduced  by
approximately  35% as a  result.  The  foundation  of the  restructuring  effort
focused on  bringing  expenses  in-line  with  forecasted  revenue for the voice
processing  operations.  There  were  accrued  restructuring  costs of  $123,000
included  in accrued  expenses at October  31,  1999,  all of which were paid in
fiscal year 2000.


                                       20
<PAGE>

NOTE 15: SUPPLEMENTAL CASH FLOW INFORMATION

The Company  paid  (received)  cash for  interest  expense  and income  taxes as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                           YEAR ENDED OCTOBER 31,
                                                                  2000             1999             1998
                                                                  ----             ----             ----
<S>                                                            <C>              <C>             <C>
Interest                                                       $      9         $     48        $     29
Income taxes paid (received)                                   $    (28)        $     --        $    125
</TABLE>

NOTE 16: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following  table  presents  unaudited  quarterly  operating  results for the
Company's last eight fiscal quarters.

(In thousands, except per share data)

<TABLE>
<CAPTION>
                                          Jan. 31, 1999    April 30, 1999    July 31, 1999     Oct. 31, 1999
                                          -------------    --------------    -------------     -------------
<S>                                        <C>               <C>              <C>               <C>
Sales                                      $    4,891        $    4,251       $    4,954        $    3,927
Gross margin                                    1,373               844            1,554               806
Loss from operations                          (1,266)           (2,218)            (211)            (1,059)
Net loss                                      (1,199)           (2,189)            (187)            (1,118)
Net loss per share:
   Basic and diluted                       $   (0.28)        $   (0.51)      $    (0.04)        $    (0.20)
------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                          Jan. 31, 2000    April 30, 2000    July 31, 2000     Oct. 31, 2000
                                          -------------    --------------    -------------     -------------
<S>                                        <C>               <C>              <C>               <C>
Sales                                      $    4,167        $    4,387       $    3,071        $    2,902
Gross margin                                    1,181             1,516              750             1,044
Income (loss) from operations                      27               108            (515)              (160)
Net income (loss)                                  73               110            (504)              (154)
Net income (loss) per share:
   Basic and diluted                         $   0.01          $   0.02      $    (0.07)        $    (0.02)
------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       21
<PAGE>


           REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

           Board of Directors and Stockholders
           Microlog Corporation

           We have  audited  the  accompanying  consolidated  balance  sheet  of
           Microlog  Corporation  and  subsidiaries  as of October  31, 2000 and
           1999,  and the related  statements  of operations  and  stockholders'
           equity,  and cash flows for the years  then  ended.  These  financial
           statements are the  responsibility of the Company's  management.  Our
           responsibility is to express an opinion on these financial statements
           based on our audit.

           We  conducted  our  audit  in  accordance  with  auditing   standards
           generally accepted in the United States. Those standards require that
           we plan and perform the audit to obtain  reasonable  assurance  about
           whether the financial  statements are free of material  misstatement.
           An audit includes examining, on a test basis, evidence supporting the
           amounts and  disclosures in the financial  statements.  An audit also
           includes  assessing the accounting  principles  used and  significant
           estimates  made by  management,  as well as  evaluating  the  overall
           financial statement presentation.  We believe that our audit provides
           a reasonable basis for our opinion.

           In our opinion, the October 31, 2000 and 1999 consolidated  financial
           statements   referred  to  above  present  fairly,  in  all  material
           respects, the consolidated financial position of Microlog Corporation
           and   subsidiaries   as  of  October  31,  2000  and  1999,  and  the
           consolidated  results of operations and cash flows for the years then
           ended, in conformity with accounting principles generally accepted in
           the United States.

           GRANT THORNTON LLP

           Vienna, Virginia
           December 8, 2000


                                       22
<PAGE>


           REPORT OF INDEPENDENT ACCOUNTANTS

           To the Board of Directors and Stockholders
           Microlog Corporation

           In  our  opinion,   the   accompanying   consolidated   statement  of
           operations,  of  changes  in  stockholders'  equity and of cash flows
           present fairly, in all material  respects,  the results of operations
           and cash flows of Microlog  Corporation and its  subsidiaries for the
           year ended October 31, 1998, in conformity  with  generally  accepted
           accounting   principles.   These   financial   statements   are   the
           responsibility of the Company's management;  our responsibility is to
           express an opinion on these financial  statements based on our audit.
           We  conducted  our  audit  of these  statements  in  accordance  with
           generally  accepted auditing standards which require that we plan and
           perform the audit to obtain  reasonable  assurance  about whether the
           financial  statements  are free of  material  misstatement.  An audit
           includes examining,  on a test basis, evidence supporting the amounts
           and disclosures in the financial statements, assessing the accounting
           principles  used and  significant  estimates made by management,  and
           evaluating the overall financial statement  presentation.  We believe
           that our audit provides a reasonable basis for the opinion  expressed
           above.  We have not audited the  consolidated  statements of Microlog
           Corporation for any period subsequent to October 31, 1998.

           The  accompanying  financial  statements have been prepared  assuming
           that the Company will  continue as a going  concern.  The Company has
           suffered  recurring  losses from  operations.  This condition  raises
           substantial  doubt about its ability to continue as a going  concern.
           The financial  statements do not include any  adjustments  that might
           result from the outcome of this uncertainty.

           PRICEWATERHOUSECOOPERS LLP


           McLean, Virginia
           March 17, 1999


                                       23
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Unless otherwise indicated, all dollar amounts have been rounded to the nearest
hundred thousand.)

<TABLE>
<CAPTION>
                                                                                             PERIOD-TO-PERIOD
                                                                                            PERCENTAGE CHANGES
                                                     PERCENTAGE OF SALES
                                                     YEAR ENDED OCTOBER 31,                  1999          1998
                                                                                              to            to
                                                    2000         1999         1998           2000          1999
                                                    ------------------------------           ------------------
<S>                                                <C>          <C>           <C>            <C>         <C>
Sales:

  Contact Center Solutions                         50.8%        43.8%         55.7%          (6.5)%      (46.5)%
  Old Dominion Systems                             49.2%        56.2%         44.3%         (29.5)%      (13.6)%
-----------------------------------------------------------------------------------

  Total sales                                     100.0%       100.0%        100.0%         (19.4)%      (31.9)%
-----------------------------------------------------------------------------------

Costs and expenses:
  Cost of sales                                    69.1%        74.6%         77.6%         (25.4)%      (34.6)%
  Selling, general and administrative              25.3%        32.0%         34.4%         (36.2)%      (36.5)%
  Research and development                          9.3%        15.9%         12.3%         (53.0)%      (11.9)%
  Restructuring                                      --          3.9%           --         (100.0)%        --
-----------------------------------------------------------------------------------

Total costs and expenses                          103.7%       126.4%        124.3%         (33.9)%      (30.7)%
-----------------------------------------------------------------------------------
Investment and other income
  (expense), net                                    0.0%         0.4%          0.3%         (85.5)%      (30.7)%
-----------------------------------------------------------------------------------

Loss before income taxes                           (3.7)%      (26.0)%       (24.0)%        (88.7)%      (26.0)%
-----------------------------------------------------------------------------------

Benefit (provision) for income taxes                0.4%        --            (8.7)%         --         (100.0)%
-----------------------------------------------------------------------------------

Net loss                                           (3.3)%      (26.0)%       (32.7)%        (89.9)%      (45.7)%
-----------------------------------------------------------------------------------
</TABLE>

RESULTS OF OPERATIONS

A SUMMARY OF INFORMATION  ABOUT THE COMPANY'S  OPERATIONS BY BUSINESS SEGMENT IS
AS FOLLOWS (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                         YEAR ENDED OCTOBER 31,
                                                               2000               1999            1998
---------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>            <C>
Sales:
         Contact Center Solutions                              $  7,383         $  7,896       $    14,743
         Old Dominion Systems                                     7,144           10,127            11,714
----------------------------------------------------------------------------------------------------------
         Total sales                                           $ 14,527         $ 18,023       $    26,457
----------------------------------------------------------------------------------------------------------

(Loss) income from operations:

         Contact Center Solutions                              $   (947)        $ (5,245)       $   (7,515)
         Old Dominion Systems                                       407              491             1,085
----------------------------------------------------------------------------------------------------------
         (Loss) income from operations                         $   (540)        $ (4,754)       $   (6,430)
----------------------------------------------------------------------------------------------------------
</TABLE>

The Company had a net loss of $475,000 (($0.07) per basic and diluted share) for
the fiscal year ended  October 31, 2000  compared to a net loss of $4.7  million
(($1.02) per basic and diluted share) for the fiscal year ended October 31, 1999
and a net loss of $8.6  million  (($2.02)  per basic and diluted  share) for the
fiscal year ended October 31, 1998.  The net loss in fiscal year 1998 included a
$2.15  million  (($.50) per basic and diluted  share)  reversal of an income tax
benefit  associated  with the expected  future  realization of the Company's net
operating loss carryforwards.

The net loss of $475,000 for fiscal 2000 was attributable to insufficient  sales
of approximately $1.0 million in the Contact Center Solutions division, of which
$400,000 was offset by net income generated from the Old Dominion


                                       24
<PAGE>

Systems division.  In fiscal 2000, as a result of the  restructuring  activities
and other cost reduction actions taken in fiscal year 1999,  operating  expenses
of the Contact  Center  Solutions  division were reduced by  approximately  $3.6
million.

SALES

Sales for fiscal 2000 decreased  $3.5 million (19%),  from $18 million in fiscal
1999 to $14.5  million in fiscal 2000.  The decrease in fiscal 2000 was due to a
decrease in Contact Center Solutions sales of $0.5 million and a decrease in Old
Dominion  Systems  sales of $3.0  million.  Sales of $18 million for fiscal 1999
decreased  $8.5 million  (32%) from sales of $26.5  million in fiscal 1998.  The
decrease in fiscal 1999 was due to a decrease in Contact Center  Solutions sales
of $6.9 million and a decrease in Old Dominion Systems sales of $1.6 million.

CONTACT CENTER SOLUTIONS SALES

Contact Center  Solutions sales decreased $0.5 million (6%) in fiscal 2000, from
$7.9  million in fiscal 1999 to $7.4  million in fiscal  2000.  The  decrease in
sales in fiscal 2000 was  primarily  due to a 14%  decrease  in  products  sales
within the division,  represented  by a decrease of $1.5 million in sales of the
Automated  Prescription  Refill  System (APRS)  product to commercial  customers
which was  offset  in part by $1.0  million  in sales of the  TIVRA  and  uniQue
products  to four new  commercial  customers  and one new  government  customer.
Services  sales in fiscal 2000 remained  relatively  unchanged  from fiscal 1999
levels.

In fiscal 2000, sales to the Company's ten largest  customers  accounted for 66%
of Contact Center Solutions  sales. Of the Company's three largest  customers in
fiscal 2000,  two were in the  government  sector and one was in the  commercial
sector.  In fiscal 1999, sales to the Company's 10 largest  customers  accounted
for 75% of Contact  Center  Solutions  sales.  Of the  Company's  three  largest
customers in fiscal 1999, one was in each of the following  three sectors served
by the Company: government, commercial, and international. In fiscal 1998, sales
to the  Company's  10 largest  customers  accounted  for 85% of  Contact  Center
Solutions sales and one of the three largest  customers was in each of the three
sectors served by the Company.

Sales to government  customers in fiscal 2000 increased $0.6 million (15%), from
$4.1 million,  or 52% of Contact Center  Solutions sales and 23% of consolidated
sales, in fiscal 1999 to $4.7 million,  or 64% of Contact Center Solutions sales
and 32% of consolidated sales, in fiscal 2000. The increase was primarily due to
increased  sales and upgrades of $0.4 million of the Company's TIVRA products to
existing customers and to one new customer,  and also to increased sales of $0.2
million of  professional  services to existing  customers.  Sales to  government
customers in fiscal 1999 decreased $3.9 million (49%),  from sales to government
customers in fiscal 1998 of $8.0  million,  or 54% of Contact  Center  Solutions
sales and 30% of  consolidated  sales. In fiscal 1999, the Company was unable to
replace sales and upgrades of $4.1 million to a large  customer that occurred in
fiscal 1998.

Sales to commercial  customers in fiscal 2000 decreased $0.3 million (11%), from
$2.7 million,  or 34% of Contact Center  Solutions sales and 15% of consolidated
sales, in fiscal 1999 to $2.4 million,  or 33% of Contact Center Solutions sales
and 17% of consolidated sales, in fiscal 2000. The decrease was primarily due to
decreased  sales of $1.7 million of the  Automated  Prescription  Refill  System
(APRS) product,  offset in part by increased sales of $1.4 million of the uniQue
and TIVRA products to existing customers as well as to four new customers. Sales
to commercial  customers for fiscal 1999 decreased $0.6 million (18%), from $3.3
million, or 23% of Contact Center Solutions sales and 12% of consolidated sales,
in fiscal 1998.  The decrease was  attributable  to decreased  sales of the APRS
product.  The Company's principal customer of the APRS product has substantially
completed  its purchases of products from the Company and there remains no major
customers for the APRS product who have not  implemented  technology  similar to
APRS.  The Company  anticipates  only minor sales of the APRS  product in fiscal
2001.

Sales to  international  customers in fiscal 2000  decreased $0.8 million (73%),
from  $1.1  million,  or  14%  of  Contact  Center  Solutions  sales  and  6% of
consolidated sales, to $0.3 million, or 4% of Contact Center Solutions sales and
2% of consolidated  sales, in fiscal 2000. Sales to international  customers for
fiscal 1999 decreased $2.3 million (68%), from sales to international  customers
in fiscal 1998 of $3.4 million, or 23% of Contact Center Solutions sales and 13%
of consolidated sales. These decreases are attributable to the Company's sale in
fiscal 1999 of the Contact  Center  Solutions  operations of Microlog  Europe to
Comsys International, B.V. of The Netherlands.

As of October 31,  2000,  the  Company had a backlog of existing  orders for the
Contact Center  Solutions  division  totaling $1.7 million.  By comparison,  the
backlog,  as of October 31, 1999, was $2.8 million.  The Company has experienced
fluctuations in its backlog at various times in the past attributable  primarily
to the seasonality of governmental  purchases.  The Company anticipates that all
of the  outstanding  orders at October  31,  2000 will be shipped  and the sales
recognized  during  fiscal 2001.  Although the Company  believes that its entire
backlog of


                                       25
<PAGE>

orders consists of firm orders,  because of the possibility of customer  changes
in delivery schedules and delays inherent in the government contracting process,
the Company's  backlog as of any particular date may not be indicative of actual
sales for any future period.

OLD DOMINION SYSTEMS SALES

Sales from the Old  Dominion  Systems  division  in fiscal 2000  decreased  $3.0
million (30%), from $10.1 million in fiscal 1999 to $7.1 million in fiscal 2000.
Sales from the Old  Dominion  Systems  division  in fiscal 1999  decreased  $1.6
million (14%), from $11.7 million in fiscal 1998.

The Old Dominion Systems division  provides  performance  analysis and technical
and  administrative  support services to the Applied Physics Laboratory (APL), a
prime  contractor  to the U.S.  Navy.  Although this segment of the business has
historically  provided a source of sales and profits,  the Company believes that
its  Old  Dominion  Systems  division  will  not  generate  significant  revenue
beginning in the first quarter of fiscal 2001.

As of October  31,  2000,  the  Company  had no  backlog of funding on  existing
contracts for Old Dominion Systems. By comparison, the backlog as of October 31,
1999 was $0.4 million. The Company's existing Old Dominion Systems contracts are
indefinite delivery, indefinite quantity (IDIQ) contracts which generally do not
have a funding  amount,  and therefore are not included in backlog.  The Company
has two Old  Dominion  Systems  contracts,  each of  which  is with  APL.  These
agreements,   which  expire  in  fiscal  2001,  are  not  expected  to  generate
significant revenue.

CONTACT CENTER SOLUTIONS COSTS AND EXPENSES

Cost of sales of products for Contact Center Solutions were $2.6 million, or 85%
of  sales  of  products,  for  fiscal  2000;  $3.1  million,  or 84% of sales of
products,  for fiscal 1999; and $8.7 million,  or 93% of sales of products,  for
fiscal 1998. The decreases in cost of sales, in dollar amount,  for fiscal years
2000 and 1999 were primarily attributable to reduced product sales. The decrease
in cost of sales,  as a  percentage  of sales,  for  fiscal  1999 was  primarily
attributable to higher margins on sales to commercial  customers.  The Company's
principal customer for its APRS product purchased  additional  software licenses
in fiscal  1999,  which have  significantly  lower  costs of sales than  product
sales.

Cost of sales of services for Contact Center Solutions were $1.4 million, or 33%
of  sales  of  services,  for  fiscal  2000;  $1.7  million,  or 40% of sales of
services,  for fiscal 1999; and $2.2 million,  or 40% of sales of services,  for
fiscal  1998.  The  decrease  in cost of sales  in  fiscal  2000  was  primarily
attributable to cost cutting measures taken by the Company in fiscal 1999, which
are described in more detail under  "Restructuring  Costs." The decrease in cost
of sales,  in dollar amount,  for fiscal 1999 was primarily  attributable to the
decrease in sales of services.

Selling, general and administrative costs for Contact Center Solutions were $2.9
million,  or 39% of Contact  Solutions sales, for fiscal 2000; $4.9 million,  or
62% of sales,  for fiscal  1999;  and $8.1  million or 55% of sales,  for fiscal
1998.  The  decreases  in fiscal 2000 and 1999 in dollar  amount were  primarily
attributable to cost cutting measures taken by the Company,  which are described
in more detail under "Restructuring Costs."

Research and  development  expenses for Contact Center  Solutions  reflect costs
associated with the development of applicable software and product  enhancements
for the Company's Contact Center systems.  The Company believes that the process
of  establishing  technological  feasibility  with its new products is completed
approximately  upon release of the products to its customers.  Accordingly,  the
Company  does  not  anticipate  capitalizing  research  and  development  costs.
Research and development expenses were $1.4 million, or 18% of Contact Solutions
sales, for fiscal 2000; $2.9 million,  or 36% of Contact Center Solutions sales,
for fiscal 1999; and $3.3 million, or 22% of Contact Center Solutions sales, for
fiscal 1998.

Research  and  development  expenses for fiscal 2000 were focused on the broader
uniQue family, with incremental  investments in the uniQue-IVR  product.  uniQue
2.0, 2.1.0 & 2.1.1 were released in fiscal 2000, with additional capabilities in
e-mail  handling,  Web call-back,  Web chat, Web bulletin board,  collaboration,
security  enhancements,   statistics  collection,   management,  and  reporting.
uniQue-IVR  enhancements  were in the areas of  specific  custom  and  re-usable
application  extensions  for  individual  customers.  The Company,  in providing
special features,  application  development,  and system integration services to
customers, undertakes a significant amount of custom engineering. The Company is
subject to the risk that it may not have the  financial  resources to maintain a
competitive research and development strategy.


                                       26
<PAGE>
OLD DOMINION SYSTEMS COSTS AND EXPENSES

Cost of sales of services for Old Dominion  Systems was $6.0 million,  or 84% of
sales of services,  for fiscal 2000; $8.7 million,  or 86% of sales of services,
for fiscal 1999; and $9.7 million, or 83% of sales of services, for fiscal 1998.
These  decreases,  in dollar  amount,  were  primarily  attributable  to reduced
services sales.

Selling,  general and  administrative  costs for Old Dominion  Systems were $0.8
million,  or 11% of sales of services,  for fiscal 2000; $0.9 million,  or 9% of
sales of services, for fiscal 1999; and $0.9 million or 8% of sales of services,
for fiscal 1998. These increases,  as a percentage of sales,  were primarily due
to fixed  costs  that do not vary  directly  with  sales  volume.  As a  result,
declines in sales of services did not result in similar declines in costs.

RESTRUCTURING COSTS

In fiscal 1999, the Company restructured its Contact Center Solutions operations
in order to bring expenses more in line with anticipated  revenues.  The Company
incurred  restructuring charges of $693,000 for severance and benefits and other
costs associated with the reduction of employees,  including temporary employees
and  contractors.  The  restructuring  charges  include  costs of  $381,000  for
severance  and  benefits,  the  write-off of assets of $49,000 for the equipment
associated  with headcount  reductions,  costs of $103,000  associated  with the
closing  of the  Company's  manufacturing  facility,  and costs of  $160,000  to
terminate  the 15-year lease  commitment  for new office space which the Company
had entered into in May 1998. As a result of these  restructuring and other cost
reduction activities,  the Company reduced its operating expenses in fiscal 2000
by  approximately  $3.6 million (42%),  from $8.6 million in fiscal 1999 to $5.0
million in fiscal 2000.

INVESTMENT AND OTHER INCOME, NET

The  Company  had net  investment  and other  income of $9,000 for fiscal  2000,
compared to net  investment  and other income of $61,000 for fiscal 1999 and net
investment  and other income of $88,000 for fiscal 1998.  The decrease in fiscal
2000 was primarily  attributable to the gain on the sale of the Company's office
building in fiscal 1998 which was amortized in part in fiscal 1999. The decrease
in fiscal 1999 was primarily attributable to lower interest income on short-term
investments and higher interest expense on short-term borrowings.

PROVISION FOR INCOME TAXES

There was no  provision  for income  taxes  recorded in fiscal 2000 or in fiscal
1999. Income taxes (refundable) payable of $(56,000) in fiscal 2000 and $149,000
in fiscal 1998 relate to state income taxes, and the alternative minimum tax for
Federal income tax. Based on the Company's  profitability in fiscal 1995 through
fiscal  1997,  the  Company  recorded  a  deferred  tax  asset of  $650,000  and
$1,500,000 in fiscal years 1996 and 1997,  respectively,  reflecting the benefit
of  approximately  $5.5 million in loss  carryforwards.  Due to the unprofitable
operations  in fiscal  1998 and  uncertain  future  profitability,  the  Company
reassessed the probability of realizing  these net operating loss  carryforwards
and  determined  that their  expected  future  realization  was not likely to be
realized in the near  future.  The Company  wrote-off  the deferred tax asset of
$2.15 million in fiscal 1998. The Company has provided a valuation allowance for
$18.7 million of net operating  losses as management  has  determined it was not
likely that this amount will be realized.

The  Company  has  exhausted  its  ability to carry  losses  back for income tax
refunds.  Net  operating  loss  and tax  credit  carryforwards  for  income  tax
reporting   purposes  of   approximately   $18.7   million  and  $0.5   million,
respectively,  will be available to offset taxes  generated  from future taxable
income through 2020. If certain  substantial  changes in the Company's ownership
should  occur,  there  would  be an  annual  limitation  on  the  amount  of the
carryforwards that can be utilized.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This section  (Management's  Discussion and Analysis of Financial  Condition and
Results of Operations) contains forward-looking statements within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities   Exchange  Act  of  1934,  as  amended.   The  Company  intends  the
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking  statements  in these  sections.  All  statements  regarding the
Company's expected financial position and operating results,  business strategy,
financing  plans,  forecasted  trends  relating to our industry,  its ability to
realize  anticipated  cost  savings  and  similar  matters  are  forward-looking
statements.  These  statements  can  sometimes  be  identified  by  the  use  of
forward-looking words such as "may," "will," "anticipate," "estimate," "expect,"
"believe" or "intend." The Company cannot promise you that its  expectations  in
such  forward-looking  statements  will turn out to be correct.  Some  important
factors that could cause its actual results to be materially  different from our
expectations  include those discussed under the caption "Factors That May Affect
Future Results of Operations."
                                       27
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

The Company has been experiencing  reduced demand,  increased  competition,  and
reduced margins in the interactive voice response area, which was a major thrust
of the  Company  prior to the  development  of the uniQue  product  family.  The
Company  attributes  the  decline  in IVR sales to market  forces.  The  Company
believes  that  interactive  voice  response  systems in  general,  and  certain
vertical sub-segments of this market in particular, are in the maturing phase of
market  evolution  for  stand-alone   systems.   Accordingly,   competition  has
increased, industry consolidation is on-going, margins have been reduced, and it
has become more  difficult to sell these  products.  In  addition,  governmental
customers  have been procuring  large IVR systems as part of major  procurements
from  larger  vendors,  which has  required  the Company to work  through  prime
contractors,  also resulting in increased margin pressure and greater difficulty
in making sales  directly.  The Company's  response to this has been to increase
its R&D in the uniQue(R)  product  family to address the larger  opportunity in
customer relationship  management associated with corporate contact centers, and
to offer professional  turnkey services associated with the integration of those
modern customer contact centers. This addresses not only traditional voice types
of contacts,  but also e-mail,  fax,  Web  callback,  IP  telephony,  chat,  Web
bulletin board, and hardcopy mail,  thereby expanding the Company's  addressable
market.  The Company  believes that this approach  yields sales potential due to
the  trend  in  corporate  process   re-engineering  in  customer   relationship
management,   and  in  outsourcing  of  related   transactions  and  application
development.

In fiscal 2001, the Company's  Contact Center Solutions  strategy for addressing
the market  trends  will be to expand its sales and  marketing  efforts,  uniQue
product  offerings,  and its  professional  services  offerings  to provide more
comprehensive  solutions to its customers and in different  ways.  Microlog will
offer its products directly through regional sales  representatives,  indirectly
through OEM and reseller partners, and through hosted or network-based services.
Both product features and services offerings will be augmented as appropriate to
facilitate marketing and sales through the various means.

The Company is subject to the risk that its new strategy will not be successful.
The new strategy is dependent on market  acceptance  of the  Company's new focus
and new  products,  ongoing  research  and  development  efforts  and  sales and
marketing  activities over the near term. In addition,  the new strategy is also
dependent on the Company's  ability to  successfully  retain and recruit skilled
personnel.

LIQUIDITY AND CAPITAL RESOURCES

The  Company  incurred  a net  loss  of  $475,000  for  fiscal  2000  and has an
accumulated  deficit of $17.1 million at October 31, 2000.  Key to the Company's
future liquidity position is its ability to generate  sufficient cash flows from
internal and external sources to meet its operating needs. In order to help with
its liquidity requirements, management restructured operations in fiscal 1999 to
reduce operating expenses to levels commensurate with revenues. Although the Old
Dominion Systems  division has  historically  provided a stable source of sales,
profits,  and cash  flows,  the Company  believes  that this  division  will not
generate  significant  sales  beginning  in the first  quarter  of fiscal  2001.
Accordingly,  in fiscal 2001, the Company must replace the lost profits, but not
necessarily  the sales,  of the Old Dominion  Systems  division with  additional
Contact Center Solutions  sales. The Company  anticipates that existing cash and
cash  equivalents  generated from fiscal 2001  operations  will be sufficient to
meet its working  capital needs through the end of fiscal 2001. In January 2001,
the Company renewed its revolving  line-of-credit facility with its lender (Note
8).

Working  capital as of  October  31,  2000 was $1.7  million,  compared  to $1.8
million as of October 31, 1999.  The decrease was  primarily  attributable  to a
$1.8  million  decrease  in cash and cash  equivalents,  offset by a decrease in
accrued  compensation and other related expenses of $0.9 million,  a decrease in
other accrued expenses of $0.4 million and an increase in accounts receivable of
$0.5 million.

Cash and cash equivalents as of October 31, 2000 were $1.6 million,  compared to
$3.4 million as of October 31, 1999. The decrease was primarily  attributable to
a decrease in accrued compensation and other related expenses of $0.9 million, a
decrease in other  accrued  expenses of $0.4 million and an increase in accounts
receivable of $0.5 million.

Accounts  receivable as of October 31, 2000 were $1.6 million,  compared to $1.1
million as of October 31,  1999.  The  increase was  primarily  attributable  to
increased sales in the Contact Center  Solutions  division in the fourth quarter
of fiscal 2000 compared to the fourth quarter of fiscal 1999.

Fixed assets as of October 31, 2000 were $0.8 million,  compared to $0.9 million
as of October 31, 1999. The net decrease resulted from  depreciation  expense of
$0.3 million, offset by $0.2 million in asset purchases. Major assets

                                       28
<PAGE>

purchased in fiscal 2000 were  primarily  hardware and software  upgrades to the
Company's internal computer network and workstations.

In April 2000, the Company  renewed its revolving  line-of-credit  facility with
Silicon Valley Bank which allows the Company to borrow up to 75% of its eligible
receivables to a maximum of $2,000,000, subject to the right of the bank to make
loans only in its discretion.  The  line-of-credit  bears interest at the bank's
prime rate plus 2.0%  (11.50%  at  October  31,  2000),  and  contains a minimum
monthly  interest  charge as well as a monthly  collateral  fee and an  up-front
commitment  fee  of  $10,000.   If  and  when  the  Company  borrows  under  the
line-of-credit,  it will be  required  to grant the lender  warrants to purchase
common stock equal to 2% of the commitment  amount at an exercise price equal to
the  market  value of the  Company's  common  stock  on the date of the  initial
borrowing.  The  line  subjects  the  Company  to a  financial  covenant  of not
exceeding   consolidated   quarterly   losses  of   ($70,000)   and   ($50,000),
respectively,  for the  second and third  quarters  of fiscal  year 2000,  and a
requirement for  consolidated  profitability  beginning in the fourth quarter of
fiscal year 2000.  The line also subjects the Company to a number of restrictive
covenants,  including  restrictions  on  mergers  or  acquisitions,  payment  of
dividends,  and  certain  restrictions  on  additional  borrowings.  The line is
secured by all of the Company's  assets.  At July 31, 2000,  Microlog was not in
compliance with the financial covenant of not exceeding a consolidated quarterly
loss of ($50,000)  for the third  quarter.  The bank waived the covenant at July
31,  2000.  At October 31,  2000,  the Company  was not in  compliance  with the
financial covenant requiring consolidated  profitability for the fourth quarter.
A  waiver  was  received  from the  bank  for  this  covenant  when the line was
renegotiated in January 2001. There was no outstanding debt against this line of
credit at October 31, 2000.

In January 2001, the Company renewed its revolving  line-of-credit facility with
the  lender  which  allows  the  Company  to  borrow  up to 75% of its  eligible
receivables to a maximum of $1,000,000, subject to the right of the bank to make
loans only in its discretion.  The  line-of-credit  bears interest at the bank's
prime rate plus 2.0%, and contains a minimum monthly  interest charge, a monthly
collateral fee, and an up-front commitment fee of $35,000. The line subjects the
Company to a financial  covenant of  maintaining  a minimum  tangible  net worth
tested on a monthly  basis.  The line also  subjects  the Company to a number of
restrictive  covenants,  including  restrictions  on  mergers  or  acquisitions,
payment of dividends,  and certain  restrictions on additional  borrowings.  The
line is secured by all of the  Company's  assets.  As of January 29,  2001,  the
Company had not drawn against this line.

QUARTERLY RESULTS

Note  16 of the  Notes  to  Consolidated  Financial  Statements  of the  Company
contained in this Annual Report presents unaudited  quarterly  operating results
for the Company's  last eight fiscal  quarters.  The Company  believes that this
unaudited  information  contains  all  adjustments,  consisting  only of  normal
recurring  adjustments,  necessary  for a  fair  presentation  of  the  selected
quarterly  information when read in conjunction with the Consolidated  Financial
Statements  and Notes  thereto.  The  operating  results for any quarter are not
necessarily indicative of results for any subsequent period.

The net loss of $475,000 for fiscal 2000 was attributable to insufficient  sales
of approximately $1.0 million in the Contact Center Solutions division, of which
$400,000  was  offset by net  income  generated  from the Old  Dominion  Systems
division. In fiscal 2000, as a result of the restructuring  activities and other
cost  reduction  actions  taken in fiscal year 1999,  operating  expenses of the
Contact Center Solutions division were reduced by approximately $3.6 million.

The Company was  profitable  in the first two quarters of fiscal year 2000,  but
experienced losses in the second two quarters. Insufficient sales in the Contact
Center Solutions division were the primary reason for the losses.

The net loss of $4.7 million for fiscal 1999 was  attributable  to the Company's
voice  processing  operations.  Approximately  $4.2 million of this loss was due
primarily to insufficient  voice processing  revenues.  The loss was also due in
part to a $0.3 million increase in the reserve for inventory  obsolescence,  and
$0.7 million in costs incurred for  restructuring the Company's voice processing
operations.  These  losses  were  offset in part by the $0.5  million net income
generated  from  the  Company's   performance  analysis  and  supports  services
operations.

The Company  experienced  losses in all four quarters of fiscal 1999. The losses
in each  quarter  were  primarily  attributable  to  insufficient  sales  in the
Company's voice processing  operations,  restructuring costs of $0.6 million and
$0.1 million in the second and fourth quarters,  respectively,  and increases in
the reserve for inventory  obsolescence  of $0.1 million and $0.2 million in the
third and fourth quarters, respectively.


                                       29
<PAGE>

PRICE RANGE OF COMMON STOCK

The common stock is  presently  traded on the Nasdaq  SmallCap  Market under the
symbol  "MLOG." The  following  table sets forth for the last two years the high
and low sales  prices per share of the common  stock as  reported  by the Nasdaq
SmallCap Market:

<TABLE>
<CAPTION>
                                                                                            High           Low
                                                                                            ----           ---
<S>                                                                                          <C>            <C>
Fiscal Year Ended October 31, 1999
     First Quarter                                                                           $2.00          $0.81
     Second Quarter                                                                           2.94           0.75
     Third Quarter                                                                            2.31           1.44
     Fourth Quarter                                                                           2.00           1.44

Fiscal Year Ended October 31, 2000
     First Quarter                                                                           $1.91          $1.06
     Second Quarter                                                                           4.13           1.22
     Third Quarter                                                                            2.13           1.06
     Fourth Quarter                                                                           1.50           0.75
</TABLE>

On January  19,  2001,  there were  approximately  217  holders of record of the
common  stock.  This  number  does not  reflect  the  number of  individuals  or
institutional  investors holding stock in nominee name through banks,  brokerage
firms, and others.

On January 11,  2001,  the Company was  notified by the Nasdaq  SmallCap  Market
System  that it had failed to  maintain  the  standard of a minimum bid price of
$1.00 per share of common  stock over the previous 30  consecutive  trading days
and that it was given  until  April  11,  2001 to  regain  compliance  with this
standard.  The Company must demonstrate  compliance by maintaining a minimum bid
price  of at  least  $1.00  per  share  of  common  stock  for a  minimum  of 10
consecutive  trading days prior to April 11,  2001.  If the Company is unable to
demonstrate compliance, the common stock will be delisted.

DIVIDEND POLICY

The Company has not paid any cash  dividends in over ten years.  The  agreements
governing the Company's revolving line-of-credit facility and the Company's July
1999 investment agreement with TFX Equities, Inc. restrict the Company's ability
to pay dividends.  See Note 8 of the Notes to Consolidated Financial Statements.
The Company does not  anticipate  paying any cash  dividends in the  foreseeable
future.


                                       30
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction
with  the  Company's  Consolidated  Financial  Statements  and  Notes,  and with
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations included herein.

INCOME STATEMENT DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):

<TABLE>
<CAPTION>
                                                            YEAR ENDED OCTOBER 31,
                                          2000            1999             1998         1997                1996
-------------------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>             <C>            <C>                <C>
Sales                                    $ 14,527         $ 18,023        $ 26,457       $ 31,768           $25,707
(Loss) income from operations                (540)          (4,754)         (6,430)         2,374             2,111
Net (loss) income                            (475)          (4,693)         (8,641) (1)     3,732 (2)         2,713 (2)
Net (loss) income per share:
   Basic                                 $  (0.07)        $ (1.02)        $ (2.02)       $    .89           $   .67
   Diluted                               $  (0.07)        $ (1.02)        $ (2.02)       $    .82           $   .59
</TABLE>

BALANCE SHEET DATA (IN THOUSANDS):

<TABLE>
                                                                  OCTOBER 31,
                                         2000             1999             1998         1997                1996
----------------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>               <C>            <C>               <C>
Working capital                          $  1,696         $  1,818          $1,953         $6,671            $3,144
Total assets                                4,718            6,426           8,560         17,055            13,713
Long-term debt, net
  of current maturities                        --               --              74            142               203
Stockholders' equity                        2,443            2,804           3,370         11,888             7,766
-------------------------------------------------------------------------------------------------------------------
</TABLE>

1)   Net loss for fiscal 1998  includes a $2.15  million  (($0.50) per basic and
     diluted share)  write-off of a deferred tax asset.  Due to the unprofitable
     operations  in fiscal  1998 and the  uncertain  future  profitability,  the
     Company  reassessed  the  probability  of realizing its net operating  loss
     carryforwards and determined that their expected future realization was not
     likely  to be  realized  in the near  future.  See Note 11 of the  Notes to
     Consolidated Financial Statements.

2)   Net income  includes a $1.5  million  ($0.36 per share  basic and $0.33 per
     share  diluted)  and a $0.65  million  ($0.16 per share basic and $0.14 per
     share  diluted)  income  tax  benefit  for  fiscal  years  1997  and  1996,
     respectively.


                                       31
<PAGE>

MICROLOG CORPORATE INFORMATION

DIRECTORS

David M. Gische
Chairman of the Board
Attorney, Ross, Dixon & Bell

Randall P. Gaboriault
Director of Information Technology
Teleflex Incorporated

Robert E. Gray, Jr.
Executive Vice President
Prosperity Bank and Trust

David B. Levi
Director

Joe J. Lynn
Director

John J. Sickler
Vice Chairman
Teleflex, Inc.

John C. Mears
President and Chief Executive Officer
Microlog Corporation

TRANSFER AGENT

Continental Stock Transfer & Trust Company
2 Broadway
New York, NY  10004-2277
(212) 509-4000

ANNUAL MEETING

Thursday, April 5, 2001, 10 a.m.
Corporate Headquarters
20270 Goldenrod Lane
Germantown, MD 20876-4070


TICKER SYMBOL
NASDAQ Over-the-Counter - MLOG

OFFICERS

MICROLOG CORPORATION
PARENT COMPANY & SUBSIDIARY

John C. Mears
President and Chief Executive Officer
Microlog Corporation

Kirk E. Isenbart
Controller and Principal Financial Officer

Arlene A. France
Corporate Secretary

Terence M. McFarland
Vice President, Sales and Marketing

CORPORATE OFFICES

20270 Goldenrod Lane
Germantown, MD 20876-4070
(301) 540-5500






INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Grant Thornton LLP
2070 Chain Bridge Road, Suite 375
Vienna, Virginia  22182-2536

LEGAL COUNSEL

Hogan and Hartson LLP
555 13th Street, NW
Washington, DC  20004-1109


                                       32