SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended October 31, 1998           Commission File No. 0-14880


                              MICROLOG CORPORATION
             (Exact name of Registrant as specified in its charter)


         VIRGINIA                                            52-0901291
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)


         20270 GOLDENROD LANE                                20876-4070
         GERMANTOWN, MARYLAND                                (Zip Code)
(Address of principal executive offices)

                                 (301) 428-9100
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X  No
                                      ---   ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained herein, and
will not be  contained,  to the best of  Registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )

The  aggregate  market  value of shares of Common  Stock held by  non-affiliates
(based on the March 4, 1999  closing  price of these  shares) was  approximately
$5.4 million. The Common Stock is traded over-the-counter and quoted through the
Nasdaq National Market.

        As of March 4, 1999, 4,287,585 shares of the Registrant's Common
                            Stock were outstanding.
       ------------------------------------------------------------------


<PAGE>



                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

Parts I, II and IV  incorporate  information  by reference  from portions of the
Company's  Annual Report to  Shareholders  for the fiscal year ended October 31,
1998 attached as an exhibit hereto (the "Annual Report to Shareholders").



<PAGE>


                                     PART I

ITEM 1. BUSINESS

GENERAL

Microlog  Corporation  ("Microlog" or the  "Company")  designs,  assembles,  and
supports, a variety of interactive  communications  systems which allow users to
remotely  interact  with  computer  systems  via  voice,  touch-tone  phone,  or
graphical  means and to access  information  on  computer  databases  as well as
provides open solutions for customer contact center management. In addition, the
Company 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 its business, historically, has provided a stable
source  of  sales  and  profits,   the  Company   believes  that  its  principal
opportunities  for  growth are in the  interactive  communications  and  contact
center  solutions  segments  and has been  concentrating  its  efforts  on those
segments.

The Company had a net loss of $8.6 million (($2.02) per basic and diluted share)
for the fiscal year ended October 31, 1998. These results include a write-off of
$2.15 million  (($.50) per basic and diluted  share) related to the deferred tax
asset.  As a result of the  losses in fiscal  year 1998 and the  uncertainty  of
future  profitability,  management believes that the expected future realization
of the Company's net operating loss  carryforwards  is not likely to be realized
in the near future.  By  comparison,  the Company had net income of $3.7 million
($.89 per basic  share and $.82 per  diluted  share) for the  fiscal  year ended
October 31, 1997,  which  included a $1.5 million ($.36 per basic share and $.33
per  diluted  share)  income tax  benefit.  The  Company  had net income of $2.7
million  ($.67 per basic share and $.59 per  diluted  share) for the fiscal year
ended October 31, 1996, which included a $650,000 ($.16 per basic share and $.14
per diluted  share) income tax benefit.  The Company is now reporting  basic and
diluted  earnings per share as required under Statement of Financial  Accounting
Standards (SFAS No.128),  "Earnings per Share",  which became  effective for the
Company in fiscal year 1998.

The net loss of $8.6  million  for  fiscal  year  1998 was  attributable  to the
Company's voice processing  operations.  Approximately $5.3 million of this loss
was due primarily to insufficient voice processing  revenues and a change in the
sales mix in the Company's voice processing operations. The loss was also due in
part to a write-off of the deferred tax asset ($2.15 million),  a large increase
in the reserve for  inventory  obsolescence  ($1.3  million),  the  write-off of
goodwill  ($0.5  million),  and reserves  associated  with the relocation of its
operations facility in The Netherlands ($0.3 million).  These losses were offset
by the $1.0 million net income generated from the Company's performance analysis
and supports services operations.

Over the past  fiscal year the Company  has been  experiencing  reduced  demand,
increased  competition and reduced margins in the voice  processing  area, which
the Company  attributes to market forces.  The Company believes that interactive
information  response  (IIR)  systems in  general,  and in the  retail  pharmacy
vertical  market  targeted  by  the  Company's   commercial   sales  efforts  in
particular,  are becoming  commodities  which are more readily available from an
increased  number of vendors  and require  less  engineering  customization.  In
addition,  governmental  customers have been procuring large IIR systems as part
of major  procurements  from larger  vendors,  which has required the Company to
work through prime  contractors,  also resulting in greater difficulty in making
sales  and  increased  pressure  on  margins.  One of the  Company's  short-term
responses  to these  market  trends has  included  increased  marketing  efforts
focusing on the  capabilities of the Company's Intela product and its ability to
customize the product to meet specific application requirements.

In February 1999, the Company  restructured its voice  processing  operations in
order to bring expenses in line with  forecasted  revenues.  In connection  with
this  restructuring,  the Company  reduced  its voice  processing  workforce  by
approximately  25%  and  wrote  off  equipment  associated  with  its  headcount
reductions. As a result of the restructuring and cost reduction plan the Company
expects to reduce total voice  processing  operating  expenses by  approximately
$4.0 million annually and approximately $2.3 million for the remainder of fiscal
year 1999, starting in the second quarter of fiscal year 1999.

In  February  1999,  the Company and its  financial  institution  put in place a
$750,000 line-of-credit  facility,  which allows the Company to borrow up to 75%
of the eligible  receivables of Old Dominion Systems Inc. of Maryland.  


                                       1
<PAGE>

The line of credit  bears  interest  at the bank's  prime rate plus 1.25% (9% at
February 11, 1999) and is payable upon demand.  At March 17, 1999,  $500,000 was
outstanding against this line-of-credit. This credit facility will be terminated
upon closing of the $2.0 million revolving  line-of-credit facility with the new
financial institution discussed below.

The  Company  has a  commitment  for a  $2.0  million  revolving  line-of-credit
facility with a new financial institution, 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 financial institution to make loans at its discretion.  The Company
expects  to  close  on  this  loan  facility  by the  end of  March,  1999.  The
line-of-credit  bears  interest at the bank's  prime rate plus 2.25%  (10.00% at
March 17, 1999),  and contains a 0.025% fee on the average unused portion of the
line as well as a monthly  collateral fee and a 1% upfront  commitment  fee. The
term of the loan is one year, and subjects the Company to a restrictive covenant
of not  exceeding  115% of its  consolidated  planned  quarterly  losses for its
second  and  third  quarters  of  fiscal  year  1999,  and  a  requirement   for
consolidated  profitability beginning in the fourth quarter of fiscal year 1999.
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 will be secured by all
of the Company's  assets. 

In fiscal year 1999,  the Company's  strategy for  addressing  the market trends
will be to move aggressively into the customer contact center market,  which was
a new  vertical  market for the Company in late fiscal year 1997 and fiscal year
1998. The Company will be focusing sales of its UNIX-based  Intela product,  the
Company's  principal  interactive   communications  system,  on  contact  center
applications.  The  Company  also will be  promoting  its newest  product  line,
uniQue(TM),  a family of open solutions for customer  contact center  management
that leverages the  effectiveness of unified queuing,  priority and skills-based
routing,  and  "zero   administration"  at  the  agent's  desktop.   With  "zero
administration"  the system  administrator makes changes to the configuration or
application  from a central  location and  distributes  to the agents'  desktops
automatically.  In fiscal year 1998, the Company launched its first product from
the uniQue suite of contact center products,  uniQue  Agent(TM),  an application
that  allows  the  contact  center  agent to  seamlessly  manipulate  all of the
different  media types:  email,  fax,  Web,  and voice  contacts all at one work
station.   The  Company  is  devoting  significant  efforts  to  promote  market
acceptance  of uniQue  Agent(TM),  and is  commencing  an  advertising  campaign
directed   specifically  at  contact  centers,   collections,   and  interactive
communications industries.

To a lesser  extent,  the  Company  also  will be  focusing  on  another  Intela
application,  The Automated Collector (TAC), which has recently been enhanced to
add features the Company  believes  will meet market  requirements.  The Company
will be seeking  technology  partners and  resellers  for this product in fiscal
year 1999.

Also in fiscal year 1999, the Company will continue to market its Intela product
to its base of VCS 3500  customers.  The  Company no longer  offers the VCS 3500
product;  there were no VCS 3500  product  revenues in fiscal years 1998 or 1997
and limited  revenues ($0.6 million) in fiscal year 1996. The Company  continues
to support its base of VCS 3500  customers  and receives  service  revenues from
this support,  but expects  these  revenues to decline since the Company has not
updated the product  including with respect to Year 2000 compliance since fiscal
year 1996.

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 activities
over the near term.  In  addition,  the new  strategy is also  dependent  on the
Company's  ability to successfully  reduce costs.  The Company is subject to the
risk  that it will  not be  able to  obtain  and  maintain  the  necessary  debt
financing  it  requires to  implement  its new  strategy.  Failure to obtain and
maintain required financing would have a material adverse effect on the Company.
The  Company's   fiscal  year  1999  operating   budget   includes   significant
expenditures  relating to the development and marketing of its new product line,
uniQue,  and requires the Company to utilize debt  financing to maintain its new
strategy. The Company's anticipated cash flows from existing operations will not
generate  the  required  cash flows to  successfully  launch the  Company's  new
strategy.  If the Company is unable to obtain and  maintain the  necessary  debt
financing,  the  Company  will  not be able to  successfully  implement  its new
strategy  and it will be forced  to reduce  expenditures  in  addition  to those
associated  with the  restructuring  discussed  above in order to  continue as a
going  concern.  The  Company  is  subject to the risks that it may not make the
necessary  decisions  to  reduce  expenditures  in enough  time to avoid  severe
adverse  consequences.  In March 1999,  the Company has a  commitment  for a new
line-of-credit facility with a new financial institution.


                                       2

<PAGE>

The results of the Company's performance during fiscal 1998, 1997, and 1996, are
discussed  in  greater  detail  in  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations,"  incorporated by reference into
Item 7 of the report. That section should be read in its entirety in conjunction
with the  discussion  of the  Company's  business  in this  Item 1.  Information
concerning the Company's  operations by business segment is hereby  incorporated
by reference  from Note 1 of the "Notes to  Consolidated  Financial  Statements"
incorporated by reference into Item 8 of this Report.

Microlog,  a Virginia  corporation,  was organized in 1969. The Company's wholly
owned  subsidiaries are Microlog  Corporation of Maryland,  Old Dominion Systems
Incorporated of Maryland, and Microlog Europe.

INTERACTIVE COMMUNICATIONS

INTERACTIVE COMMUNICATIONS INDUSTRY

Interactive   communications   systems  are  designed  to  serve  the  needs  of
organizations  which are  searching for an  efficient,  cost-effective  means to
deliver and  communicate  information  and complete  business  transactions in a
timely manner.  These systems use specialized  computer hardware and software to
store, retrieve, and transmit digitized voice messages and to access information
on computer databases. In traditional  Interactive Voice Response,  callers hear
voice  prompts and then use a touch-tone  telephone to enter  information  into,
and/or retrieve information from, a computer database.  Voice processing systems
have evolved to interactive  communications  systems,  which provide information
not only through voice, but through a wide range of additional input devices and
interfaces,  including the Internet, fax, Telecommunications Device for the Deaf
(TDD), Analog Display Services Interface (ADSI) screen phones, and pagers.

Interactive   communications   typically  includes  a  voice  processing  system
connected to an external  computer  that  contains  data of interest to callers.
With touch-tone or voice commands  (using speech  recognition  software),  which
often  include  passwords,  codes or  account  numbers,  callers  can  query the
computer  and have  data  read  back to them in  voice  form.  Depending  on the
customer's  application,  callers may also change data on the  computer or input
new data with touch-tone or voice commands. Interactive communications is widely
used for functions such as reporting account balances, checking on inventory, or
determining  the  status of  applications  or permits  in  process.  Interactive
communications  systems  range from small  systems  with basic voice  processing
features utilizing a few phone lines, to larger more complex distributed systems
with hundreds of lines.

PRODUCTS

The Company's  interactive  communications  products  include the Intela(TM),  a
UNIX-based  platform  product,  which  is  capable  of  running  many  different
applications  simultaneously,  including pre-packaged applications,  such as The
Automated Collector(TM),  and numerous development tools, and its newest product
line,  the  uniQue(TM)  family of open  solutions  for customer  contact  center
management.  The  Company  also  offers a Retail  Solutions  product  line  that
operates  under  either a UNIX or DOS  operating  system,  and the VCS  3500(TM)
products  which  are  DOS-based  only.   Microlog   emphasizes  the  interactive
communications applications of its Intela product, but also provides much of the
same application functionality through the VCS 3500 and Retail Solutions product
lines.

The  following  functionality  is  provided  through the  Company's  interactive
communications products:

     Audiotex is used by  organizations to construct a "library" of pre-recorded
     messages,  which  outside  callers can access  through  touch-tone or voice
     commands without live operator assistance.  Customers can record and change
     menus and messages themselves over the telephone at any time.  Libraries of
     information  may be  presented  in  different  languages,  and callers with
     rotary  telephones  may also  access  menus and  information.  Up to 50,000
     messages  may  be   presented.   Audiotex   software   finds  wide  use  by
     organizations  that receive  large volumes of  highly-repetitive  telephone
     requests  for   information.   Major   advantages  of  audiotex  over  live
     information operators include the availability of information at every hour
     of the day and the consistency in information disseminated.

                                       3
<PAGE>

     Automated  Attendant uses touch-tone or voice commands to route and connect
     inbound calls to extensions faster and more accurately than live operators.
     Microlog's  software  allows  different  phone  lines to be  answered  with
     various greetings and menus of options presented to different  callers.  In
     the event of a busy or unanswered  extension,  the software permits callers
     to hold,  transfer,  leave a  message  or  disconnect.  The  system  can be
     name-based,  in which  callers input the first three letters of the party's
     last name, or  extension-based,  in which callers dial an extension number.
     For  extension-based  systems,  the  software  incorporates  a directory of
     names,  allowing  callers  to use  touch-tone  commands  to find  extension
     numbers they do not know.

     Service  Management System (SMS) allows network and operations  managers to
     configure  and manage their  interactive  communications  system  through a
     simple,  consistent graphical "point & click" interface. SMS allows network
     managers  to monitor  the  status,  retrieve  usage  statistics,  configure
     hardware and software  resources,  and install software on any Intela-based
     system installed in the network.

     Fax  Software  allows  system  users to  automatically  receive  stored fax
     documents on demand from the voice processing system.  Customer service and
     sales support  operations  are frequent  users of fax  software.  A service
     representative  can  take a  request  for  documents  from the  system  and
     designate  faxes to be sent in response  without  exiting  the  interactive
     communications system.

     Interactive Voice Response (IVR) provides a telephone interface to computer
     systems.  IVR  allows a user to call into a  computer  and  access  various
     information systems using a touch-tone telephone or voice commands.

     Interactive  Web  Response  (IWR)  allows  the  interactive  communications
     platform to handle  web-originated  input as it would data collected from a
     standard  phone  interaction.  IWR  performs  activities  such as  database
     lookups, outgoing faxes, conferencing, or sending information to agents for
     customer  callbacks.  Acting  as the  interface  between a web site and the
     interactive communications system, IWR passes information collected through
     a web contact using CGI and sockets. The results are delivered though a web
     page that is sent back to the user.

     Local Database provides similar functionality to interactive communications
     systems as IVR,  but allows  the data of  interest  to reside on the system
     rather  than  a  host  mini-  or  mainframe   computer.   This  provides  a
     cost-effective approach for many interactive  communications  applications.
     It also allows large  interactive  communication  applications  to do local
     batch   processing  of  data  by   downloading   to  the  system  for  data
     manipulation.

     Multiple  Languages  Interface Software allows system messages to be played
     in multiple languages. It also interfaces TDD terminals to VCS 3500 systems
     over telephone lines. The interface enables TDD users to interact with most
     VCS 3500-software modules as if voice communications were being used. Users
     simply type  messages  onto their TDD  terminals and send them to the voice
     processing  system,  which  understands  the input and responds with menus,
     prompts and messages  which are printed on the TDD  terminal.  It has broad
     application  in areas  where  the  hearing-impaired  must  have  access  to
     information sources.

     Outbound Dialing permits an organization to send messages  automatically to
     large lists of external  phone  numbers  and to record  responses  to those
     messages,  if necessary.  This flexible  software can handle multiple lists
     with  thousands  of names  per list.  It can draw from a library  of 50,000
     messages and send different  combinations  of messages to individual  phone
     numbers as directed.  The software also generates  management reports about
     the number of successful connections,  the length of calls, and the content
     of responses.

     Release Line Trunking  (RLT) provides the ability to transfer the same call
     several times. After the call to each transfer destination is complete, the
     telephone line to that  destination  is released.  A call may, for example,
     initially be transferred to a phone number,  which can provide  information
     required  for the second  transfer.  In the Microlog  applications,  RLT is
     often used for long distance transfers.

                                       4
<PAGE>

     Speech Recognition allows the caller to speak responses that are understood
     by the  VCS  3500  and  Intela  systems.  Continuous  and  discrete  speech
     recognition  can be combined in a single  system.  The standard  vocabulary
     includes digits "0-9", "yes", and "no" responses. Microlog has incorporated
     speech  recognition  technology from several U.S. and  international  based
     companies.  All technologies are speaker  independent and therefore require
     no special training or development to recognize  individual voice or speech
     patterns.

     Text-to-Speech  converts  typed ASCII data,  resident on host  computers or
     databases,  to  computer-generated  synthetic  speech on demand.  It has an
     extensive vocabulary,  since it can pronounce any string of letters,  which
     are sent to it. Microlog's  text-to-speech module is ideal for applications
     requiring  information  from large text databases.  Because  text-to-speech
     works with external databases,  the module works with the interactive voice
     response  module  that  provides  the link  between  the VCS 3500 or Intela
     interactive communications system and the customer's database.

     Transaction  Processing allows the inbound caller to place orders,  request
     information,  respond to surveys or  complete  other  transactions  without
     personal  handling by a live  operator,  using either  touch-tone  or voice
     commands. The caller can initiate transactions any hour of any day, and the
     company  can  process  the  transactions  at  its  convenience,   including
     processing  outside normal business hours. Such  transactions  allow orders
     and  requests  to be  filled  faster  and at lower  cost  than  traditional
     methods.

     Voice  Mail  provides  an  organization  with  "voice  mailboxes"  in which
     internal or external callers may leave detailed,  confidential  messages at
     any time.  Voice mail  overcomes  many  limitations  of telephone  systems,
     allowing  people to exchange  information  and  transact  business  without
     having  to be on the  phone  together.  It  eliminates  paperwork  and adds
     meaning and content,  which  written  messages  can not  reflect.  Benefits
     include, increased office productivity through fewer interruptions,  timely
     and  accurate  message  delivery,  increased  message  detail,  and reduced
     callbacks and "telephone tag." Messages may be left for groups of people as
     well as individuals.  Callers may edit messages, reviewing and re-recording
     until satisfied.  Mailbox owners may review, save, forward or discard voice
     messages.

     uniQue(TM)

     Microlog's  new  uniQue  product  family  will  offer   comprehensive  open
     architecture, cross platform solutions for customer contact centers. uniQue
     is designed for the contact  center with 5 to 5,000  agents and  seamlessly
     integrates  all of the contact  center's  telephony,  computer and business
     applications.  uniQue is designed for the contact center manager and offers
     the agent appropriate tools necessary to handle customer interactions.

     The uniQue product includes the following features:

     Multiple  Media - uniQue  accepts  and  intelligently  routes all  customer
     contacts,  whether from a traditional  telephone call, Web contact,  email,
     facsimile,  or even simple  postal mail.  By accepting  any type of contact
     from the  customers,  uniQue  becomes the single  source  repository of all
     customer  interaction  providing the user with a powerful  information tool
     that   summarizes   customer   behavior   and  provides   better   customer
     satisfaction.

     Contact Prioritization - In addition to handling all types of media, uniQue
     prioritizes  the contact  based upon the rules  established  by the contact
     center  manager  in order to ensure  that all of the user's  customers  are
     handled  in the  most  appropriate  manner,  such  as  servicing  the  most
     important customers first.

     Intelligent  Routing - uniQue  leverages the  effectiveness of skills-based
     routing by matching  the  customer  contact to the most  appropriate  agent
     skill   required   to  service  the   contact.   uniQue's   simple   system
     administration  feature  allows the supervisor to quickly and easily add or
     remove  skills to any agent  on-line.  This  allows  the  contact  center's
     management to schedule and maintain the most appropriate level of agents at
     all times.


                                       5
<PAGE>

     Easy Configuration & Remote  Administration - Being a completely  Web-based
     Java  application,   uniQue  offers  the  contact  center  management  zero
     administration  at the agent 's  workstation.  The Java applet is hosted on
     the uniQue server. It is loaded only once, and each time an agent logs into
     the application, the uniQue applet is downloaded to the agent's workstation
     eliminating any agent workstation configuration or administration.

     Web-Based  System  -  Keeping  with the  concept  of open  systems,  uniQue
     operates on any agent computer with any operating  system provided there is
     a properly configured Java-enabled Web browser on the agent's desktop. This
     concept  frees the user from being tied to a single  computer  environment,
     system  architecture  or  operating  system.  uniQue  will  operate  in  an
     environment where there may be multiple types of computers. The open system
     approach provides  tremendous  flexibility to a contact center's  computing
     requirements and simplifies the task of integration.

     Reporting - Included with uniQue is a powerful  statistical  data capturing
     and reporting component. Contact center managers can generate any number of
     statistical  reports from the system.  uniQue stores each customer  contact
     along with the detailed information about the contact. Detailed information
     which could be stored  include but are not  limited to:  contact  duration,
     agent wrap-up time, total contact length,  contact outcome,  contact result
     and contact  reason.  With  uniQue,  contact  center  managers  are able to
     develop  their own reports  which  summarize  agent  productivity,  contact
     center accomplishments, and even business success statistics.

     INTELA

     The Intela platform is an interactive  communications  product designed for
     simultaneous support of multiple  applications and interactive  information
     solutions.  Prices for Intela  systems are dependent on the number of ports
     in the system (from 4 to over 1000), the amount of voice storage,  the need
     for additional equipment,  and in the case of direct sales, the time needed
     to develop a customized application.

     Microlog has installed Intela for many different customers, with one of our
     largest Intela customers being the Internal Revenue Service (IRS). Projects
     for the IRS  included  Voice  Balance  Due (VBD),  which  enables  eligible
     taxpayers to check the status of their debt to the U.S.  Government and set
     up repayment plans.  The Refund Inquiry  application  enables  taxpayers to
     call the IRS and, by selecting the Refund Inquiry on Intela,  automatically
     obtain their refund  status,  including the amount of the refund.  Microlog
     also employed the Intela for call center  solutions in Europe for companies
     such as, Sykes, KLM Royal Dutch Airlines, and Xerox.

     Intela is based on an Intel Pentium(R)  hardware platform  utilizing a UNIX
     operating  system with a Graphical  User  Interface  (GUI) for  application
     development.  The Intela system has a  non-proprietary  open  architecture.
     User  screens,  voice  prompts,  and  documentation  are  available in many
     foreign languages. Intela also supports text-to-speech, speech recognition,
     remote and local databases, host connectivity, web and fax.

     Each Intela system incorporates multiple servers with hard disk storage and
     several voice cards. Intela uses distributed servers, each of which handles
     a part  of the  total  processing  task,  rather  than  one  large  central
     processor.  By  increasing  the  number of voice  cards  and the  number of
     distributed   servers,   the  Company   can   configure   the   interactive
     communications  systems with a greater number of ports and hours of message
     storage.  Depending upon customer  specifications,  systems are provided as
     tabletop,  floor-standing,  or  rack  mounted  units.  These  units  can be
     networked to create a larger system with  thousands of ports,  and they can
     be configured to run on -48 volt DC for use in a Central Office (CO).

     The Intela  architecture  supports a variety  of  configurations  that meet
     varying  functional,  processing,  and voice port and storage  needs.  This
     platform is designed  for  simultaneous  support of multiple  applications,
     including  both voice  response and voice  messaging  services.  Within the
     architecture, particular hardware configurations may be proposed to provide
     cost-effective  solutions  to a wide  range  of  system  requirements.  All
     systems can be configured with built-in  redundancy so that at least 50% of
     total system capacity is 


                                       6

<PAGE>

     maintained  across any  single  component  failure.  Growth  capability  is
     achieved by the modular upgrade of application servers,  port servers, disk
     storage,  additional  communications  links,  and additional voice response
     units. The Intela system includes a monitor,  keyboard,  and printer. These
     are used to program the system,  organize the storage of information (which
     will be accessible to users), produce reports, and monitor system activity.
     Customers that contract for the Company's system maintenance  services also
     purchase  modems  so  that  the  Company  can  perform  remote   diagnostic
     procedures.

     The basic Intela  architecture  consists of three major system  components:
     the Application Server(s),  the Port Server(s), and the Intelaware software
     platform.

     Application  Server defines the computing  environment in which  Intelaware
     software resides and provides  centralized  management and control, as well
     as optional secure voice storage.  The application server can be a personal
     computer,  a  workstation,  or  mini-computer.  It  interfaces  to a  voice
     processing  peripheral,  or Intela port server, via a command link on a LAN
     or a serial communications link.

     Port  Server  consists of  tabletop,  tower,  and  rackmount  models,  each
     providing call and speech processing, as well as voice storage. Interfacing
     to either a CO- or PBX-based  telephone  system,  these units answer calls,
     and process and store speech,  all under the  direction of commands  coming
     from Intelaware software on the application server across a command link.

     Intelaware  Software Platform is an application  development and deployment
     environment for  interactive  communications  applications,  supporting the
     on-line  creation  and  administration  of multiple  applications.  From an
     X-Windows  graphic  terminal  connected to the  application  server,  users
     access  major  functions  of  the  software  through  several   interfaces:
     Application Editor, Prompt Loading and Management,  System  Administration,
     Reports and Database  Access,  Integration  Manager,  Agency  Manager,  and
     Calendar Manager.

     Through these  interfaces,  users control the  development and operation of
     their voice applications,  using a graphical user interface. This interface
     provides the  developer  with a set of tools to create voice  applications.
     Following is a description of each of these interfaces.

     Application  Editor is used to create and edit applications and is oriented
     towards  programmer  productivity,  with several  developers able to access
     different applications  simultaneously.  The editor is GUI-based and allows
     programmers to develop call flows using a click-and-place  approach similar
     to many standard drawing  packages.  Cells from a palette are placed onto a
     drawing  pane  and are  connected  using a set of mouse  actions.  Standard
     Windows(R)-like  pull-down menus allow file control, editing features (cut,
     copy, and paste),  object search (by cell number,  name, or type), and user
     preferences  for appearance of the palette.  Applications  can be developed
     and tested on-line without interrupting those currently running.

     Prompt Loading and Management  Facility  provides the capability for prompt
     creation,  a major  function  in voice  applications.  With the  Intelaware
     prompt  loading  facility,  prompts can be reviewed,  recorded,  installed,
     deleted,  backed up to removable  media,  restored,  and distributed over a
     local or wide-area data network (LAN/WAN).  They can be loaded on-line over
     the telephone,  a microphone,  or from a tape, and the process can be semi-
     or fully- automatic,  depending on whether dual-tone  multifrequency (DTMF)
     tones are  coded on the tape to  identify  the  prompts.  Users can  record
     individual  prompts, a list of prompts, or record with DTMF prompt numbers,
     and the prompts  will be replaced  only after they have been  reviewed  and
     accepted.  New or updated  prompts  will be phased in  automatically  while
     applications remain on-line.

     Prompt  Manager  allows  users to retrieve a prompt from  storage on a port
     server and have the graphical  representation  shown in a window.  The user
     can modify the prompt simply by clicking on the window and  performing  any
     of the following actions:  cut, copy, paste,  delete, trim silence,  adjust
     again, convert sections of a prompt to silence, and change sampling rate.

     System Administration allows for the loading and unloading of applications,
     and  the  management  of the  port  servers  connected  to the  application
     processor.  If a system has network  hardware in the system  


                                       7
<PAGE>

     configuration,  administration  can be performed through one central point.
     Administrators  can bring up a new  revision of an  application  or move an
     application  to  another  trunk  while the system is  on-line.  If a caller
     happens to be on the line at the time,  the changes on that trunk will take
     effect after the caller hangs up.  Intelaware can support  multiple  Intela
     systems to expand to larger port and storage capacity by networking systems
     and clusters of systems together.

     Centralized  System  Management  provides a graphical  means to address the
     operation,  administration, and maintenance (OA&M) of a distributed system.
     It provides a graphical  representation  of the application  server and its
     attached Intela systems,  including the command link mode used, Ethernet or
     serial links. Further, by clicking on the Intela icon, an additional window
     is displayed.  In this window, a graphic of the Intela display panel,  with
     active  trunk  status  indicators  and disk  usage  indicators,  is  shown.
     Clicking  on a trunk  status  indicator  opens an  additional  window  that
     depicts information about the running application.

     Reports  are  designed to track  significant  statistical  information  for
     activities  such as billing and to justify  services.  Intelaware  offers a
     choice of reports that can be created and viewed without  interrupting  the
     operation of an  application.  These  reports can then be sent to a printer
     for a hard copy  print-out.  Available  reports  include call detail,  cell
     usage,   trunk  usage,   subscriber   information,   and  transaction  log.
     Statistical requirements beyond those addressed by the standard reports can
     be met from the raw call data records (CDRs).

     Database  Access  allows  interfaces  to be built  between  Intelaware  and
     Standard Query Language (SQL) relational databases, such as Oracle, Sybase,
     Informix and Ingress.  The  Application  Editor  contains an SQL cell type,
     which  allows  information  to  be  extracted  from  databases  to  support
     interactive  communication  applications.  This cell type  allows  users to
     delete,  insert,  select,  and update data.  Intelaware  also  supports two
     internal  proprietary  databases:  message and information  databases.  The
     message  database  used in voice mail  applications,  consists of mailboxes
     associated  with a number,  usually  the phone  number of the user who will
     access the box for the  messages  deposited  in it.  More than one  message
     database  can  be  supported  within  Intelaware  to  accommodate  multiple
     applications.  Messages can be retrieved  either first in, first out (FIFO)
     or last in, first out (LIFO), determined on a system basis.

     In 1998, the Company delivered Intela System Release 6 (SR6), and completed
     work on several functional  enhancements to the product. In addition,  work
     was completed to support  Dialogic SCbus  capabilities  and improvements in
     speech  technology  services.  Additional  Intela features  released in SR6
     included  IntelaSMS(TM)  that provides Simple Network  Management  Protocol
     (SNMP)  capabilities  and a standard  Management  Information Base (MIB) to
     allow centralized  management of distributed Intela systems.  IntelaWeb(TM)
     combines   the   best   of   traditional   touch-tone   based   interactive
     communications  and the Web experience.  IntelaWeb allows  traditional call
     flows and applications to be Web-enabled,  without complex redesign or code
     rewrites.  IntelaWeb  also supports  industry  standard  HTML, CGI and Java
     Script.

     System enhancements provided in the SR6 release include:

     o    Year  2000  Compliance;  

     o    SCbus  Support  - a real  time,  high-speed  communications  bus  that
          provides  for  transmission  of  digital   information  between  SCbus
          compliant   products.   SCbus  allows  systems  to  efficiently  share
          resources so that multiple  technologies can be connected to each port
          as needed which  provides more scaleable IVR systems at a cost savings
          because of more  efficient  resource  deployment;  

     o    Enhanced Speech  Recognition  and  Text-to-Speech  services  including
          integration  of  Dialogic's  Antares DSP  platform,  dynamic  language
          specification   for  both  Automatic  Speech   Recognition  (ASR)  and
          Text-To-Speech  (TTS),  improved  ASR  and  TTS  cut-through  support,
          addition of PureSpeech and VCS ASR  technologies,  and the addition of
          Centigram TTS.



                                       8
<PAGE>

     THE AUTOMATED COLLECTOR

     The Automated Collector is a flexible,  robust,  interactive communications
     application that automates the process of collecting  outstanding debt from
     consumers.  It is designed to handle both inbound and outbound  calls.  The
     Automated  Collector uses scripted  messages to collect  promises to pay --
     debtors are asked to either  commit to pay their debt in full, or are given
     the opportunity to negotiate a payment schedule over a period of months.

     Microlog  created The  Automated  Collector  based on a custom  application
     developed  for the  Internal  Revenue  Service  (IRS),  one of the  largest
     collections  call centers in the world. The IRS required an automated means
     of allowing taxpayers in arrears to commit to a federal tax repayment plan.
     This application, called Voice Balance Due (VBD), has lead to a significant
     increase in incremental  collections  by the IRS. Based on the  application
     developed  for the IRS, the Company  created The  Automated  Collector  for
     commercial customers.

     The Automated  Collector can operate  24-hours per day, 7 days a week,  365
     days a year. The Automated Collector verifies right party contact by asking
     debtors to enter an  identification  number,  such as their social security
     number or other  data known only to them.  When  necessary,  the caller can
     choose to transfer to a live collector. The Automated Collector is flexible
     enough to  accommodate a variety of debt  collection  strategies  including
     small balance accounts, and most-likely-to-pay accounts.

     The Automated Collector can: 
     o    Handle both inbound and outbound collections calls
     o    Verify "Right Party Contact"
     o    Collect  Promises to Pay or set up payment  schedules 
     o    Accommodate a variety of debt collection strategies

     Automating Collections will:
     o    Increase contact rates
     o    Increase productivity
     o    Drive down variable costs
     o    Increase capacity
     o    Expand hours of operations

     RETAIL SOLUTIONS

     Retail Solutions consists of several applications designed and manufactured
     specifically for the retail pharmacy industry.  These applications  include
     the  Automated  Prescription  Refill  System  (APRS(R)),  Photo  Ready(TM),
     Prescription Ready(TM), and the ProNouncer(R).

     AUTOMATED PRESCRIPTION REFILL SYSTEM (APRS)

     APRS is the primary product  available under  Microlog's  Retail  Solutions
     product  line.  The  APRS  product  helps  pharmacies   improve   operating
     efficiencies  and customer  service.  Prices for APRS are  dependent on the
     number of ports in the system (from 4 to 16), the amount of voice  storage,
     the need for additional  equipment,  and the need for any  customization of
     the  application.  Patients  calling  into the APRS can use the  touch-tone
     keypad on their phone to enter their  prescription  refill orders,  inquire
     about store  location and hours of  operation,  and request a transfer to a
     specific  department.  This system processes calls 24 hours a day, 7 days a
     week,  allowing  pharmacy staff to spend more time consulting with in-store
     patients.  As managed  care  continues  to change  the way  health  care is
     delivered,  APRS  technology  becomes  a  part  of the  pharmacist's  newly
     evolving  role -- that of providing a broad range of pharmacy care services
     by assisting pharmacists with the traditional dispensing of medications.


                                       9
<PAGE>

     APRS is a UNIX-based system available as a stand-alone configuration,  or a
     "board-and-software"   solution.  The   "board-and-software"   solution  is
     designed for  customers who already have an in-store  processor  with spare
     capacity.  Customized management software allows selected control functions
     to be executed  from a remote,  central  location.  Such  features  include
     loading of new software  modules,  running  diagnostics,  and  implementing
     system changes.  Enhanced features of the system include more comprehensive
     out-dial reports, GUI for system administration, multi-level passwords, and
     easy expandability of systems through the use of a variety of voice cards.

     A  direct  link  can be  established  between  the  APRS  and the  pharmacy
     database,  enabling the  automated  refill  system to access the  extensive
     medical,  customer,  and  marketing  information  stored  on  the  pharmacy
     database as a part of every call.  For instance,  the APRS can provide drug
     interaction  information  to customers  calling in to place refill  orders,
     promote complementary  over-the-counter  products available for purchase at
     the same store,  alert  patients when they are about to run out of refills,
     and so on.

     The APRS product includes the following features:

     Doctor's  Messaging  -  Doctors  can  leave  refill   authorizations,   new
     prescription instructions, and other important messages on a voice mailbox.
     Physicians needing to speak with a pharmacist about an urgent matter during
     normal operating hours can immediately transfer out of the system to a live
     pharmacist.

     Caller  ID - The APRS can  accept  Caller  ID  information  from the  local
     telephone  company.  This  allows  pharmacies  to  automatically   transfer
     pre-defined patients and doctors directly to pharmacy staff. Pharmacies are
     also able to capture the  caller's  telephone  number and verify it against
     their prescription number for validation purposes.

     Call Routing - The APRS can answer all incoming calls, greet customers with
     a store-specific  recording, and then, based on call routing,  transfers to
     the desired department.

     Multi-Language  Capability - Callers of varying  nationalities  can use the
     system at the same time,  and yet hear  prompts  spoken in their own native
     tongue. The APRS product supports 24 different languages, including Mexican
     and Cuban Spanish,  Canadian and Franco-French,  Slavic languages including
     Ukrainian  and  Polish,  and a number  of  Asian  languages.  This  enables
     pharmacies to better serve ethnically diverse customer bases.

     In-Store  Paging - When calls are  transferred,  pages can be made over the
     store public  address  system (PA) or the dedicated  APRS  pharmacy  paging
     subsystem.  This allows physicians to quickly reach  pharmacists  regarding
     urgent  patient  matters  and  expedites  customer  and staff  calls to the
     manager, among other functions.

     In-store Patient Notification - APRS in-store notification enables patients
     waiting for their  prescription  refills to shop throughout the rest of the
     store.  When the  prescription  is ready,  the  customer  is paged by their
     prescription number.

     Voice  Mail - Each  pharmacy  employee  can be  assigned  a voice  mailbox,
     enabling better  communication  among employees as well as with management.
     The system can also be designed to enable outside callers to leave messages
     for  employees.  This level of  flexibility  is  particularly  valuable  in
     supporting  communication  across multiple shifts and between part-time and
     full-time workers.

     Prescription Pick-up Time - The APRS can prompt callers for their preferred
     pick-up  time,  and then  confirm  for the  patient the time by which their
     refill  will be  ready  for  pick-up.  This  can  help  pharmacy  staff  in
     scheduling personnel workloads.

     Prescription  Status Check - Prescription  Status Check enables patients to
     call and directly  query the pharmacy  system to  determine  whether  their
     prescription has been filled and what time it will be ready for pick-up.


                                       10
<PAGE>


     Prescription   Ready(TM)   Out-Dial  -  The  Prescription   Ready  Out-Dial
     capability  enhances a pharmacy's  compliance  program by placing  reminder
     calls  to  those  patients  who have  not  used  all  their  refills.  This
     capability also reduces  restocking costs and increases  pharmacy  revenue.
     Pharmacy staff can either create the lists of patients to be called, or the
     lists can be automatically  generated through a direct link to the pharmacy
     database.

     System  Performance  Reports - The  product's  reporting  functionality  is
     designed to help  pharmacies  gauge how well the system is operating and to
     measure  performance  activity.  Reports can be printed  automatically on a
     daily   basis  and  can  also  be   generated   on  demand  by  the  system
     administrator.

     OTHER RETAIL SOLUTIONS PRODUCTS

     Photo Ready Out-Dial - The Photo Ready Out-Dial  feature calls customers to
     remind them to pick up their film  development  order(s).  Photo department
     staff  prepare the list of customers to be called,  or a direct link can be
     established  with the photo  database for  automatic  generation of calling
     lists.

     ProNouncer  -  Pharmacies  and  grocery  stores  can  complement  their own
     store-specific or chain-wide  advertising  efforts with Microlog's patented
     automated  digital  in-store  announcement  system.  The ProNouncer  guides
     customers to specific  promotional items, giving an added boost to sales of
     perishable  and/or  high-margin  products,  and helping to promote  impulse
     purchases.  The ProNouncer can also automate a store's closing  messages or
     holiday  greetings  and  can be  used to  make  repetitive  public  service
     messages.

     KeyStar(TM) - KeyStar is a separate  hardware device that connects directly
     to a set of incoming  telephone  lines,  the APRS,  and the  store/pharmacy
     telephone  system.   KeyStar  provides  all  the  necessary  interface  and
     switching to receive and transfer calls to the in-store  telephone  system.
     KeyStar provides an interface to a PA system amplifier for in-store paging,
     a music  on hold  interface  for an  external  music  source,  and a system
     administration telephone interface.

     KeyStar  offers a number of key benefits  designed for the retail  pharmacy
     market.  It allows APRS to  interface  to any  existing  telephone  system,
     supports Caller ID, and minimizes telephone system add on/upgrade expenses.
     KeyStar  provides a direct modem  connection  to the APRS for remote system
     access, alleviating the need to reallocate or purchase additional telephone
     lines.  Automated/bypass  routing of all  incoming  telephone  lines  under
     failure conditions - KeyStar is available in two configurations: all-in-one
     packaging with Microlog's APRS and software, or as a stand-alone device.

VCS 3500

     The  Microlog  VoiceConnect  System 3500 (VCS 3500) is a  DOS-based  system
     which accommodates varying numbers of ports,  utilizes proprietary software
     modules,  and  can  support  up to 12  separate  voice  response  or  voice
     messaging applications.

     Due to the greater versatility of the UNIX System (Intela),  as compared to
     the DOS operating  system (VCS 3500),  there has been a shift in sales from
     the VCS 3500 to Intela.  Consequently,  VCS 3500 is not  actively  sold and
     will be discontinued in 1999. The Company  continues to support its base of
     VCS 3500  customers and receives  service  revenues from this support,  but
     expects  these  revenues  to decline  since the Company has not updated the
     product, including with respect to Year 2000 compliance,  since fiscal year
     1996.
 
                                       11
<PAGE>

SALES AND MARKETING

The Company's Retail Solutions  systems are sold primarily through direct sales.
The Intela and The Automated  Collector  products are sold through a combination
of direct sales, value added resellers,  original equipment  manufacturers,  and
government contract vehicles.  It is expected that during the first two quarters
of 1999,  uniQue will be sold  directly,  followed by sales  through our channel
partners and resellers.

For 1999,  Microlog's strategy will be to focus on the contact center by selling
Intela, The Automated Collector, and uniQue into selected vertical markets.

Channel Sales - A Channel  Business team of marketing and sales has been created
to obtain technology partners, as well as resellers of the Microlog's products.

Direct  Sales Force - The direct  sales  force has a sales  manager in charge of
North America,  sales personnel,  sales engineers,  marketing manager, and sales
support  personnel.  The Company's  direct sales force is presently based in the
Washington-Baltimore  metropolitan  area  with a  satellite  office in Salt Lake
City, Utah. The Company  compensates its direct and distribution sales personnel
through a base salary plus commissions,  which generally  represent a percentage
of the net sales for which they are responsible.

The Company's direct sales personnel will continue to focus on national accounts
assigned to them and on certain vertical markets, including retail, health care,
debt  collection,  wagering,  and  Federal,  state  and  local  government.  The
principal  potential  customers  for the  Company's  interactive  communications
applications  and products in these  vertical  markets are  organizations  which
receive or make a large volume of telephone  calls that primarily are repetitive
in nature,  and the caller desires  information stored on the organizations data
system.

International  Sales - The  international  sales force  currently  has a general
manager in charge of international sales, sales personnel,  sales engineers, and
sales support personnel.  The sales force and support group is presently located
in  the   Washington-Baltimore   metropolitan   area,  and  in  Eindhoven,   The
Netherlands.

In addition to a significant  reduction in its  international  voice  processing
operations  which  occurred  as a result of the  restructuring,  the  Company is
currently  evaluating  options for the transfer or sale of its existing Microlog
Europe interactive voice response  operations,  sales, and support activities to
organizations in similar lines of business. The Company is continuing to explore
uniQue opportunities in Europe through these organizations.

The  Company  has  entered  into  non-exclusive   distribution  agreements  with
international companies,  including Philips Communication Systems B.V. (Philips)
of The  Netherlands,  and Jebson and Jessen in Singapore,  along with five other
companies in Europe, Asia, and the Middle East, to market and support the Intela
product line worldwide.  Philips markets the Intela  interactive  communications
system as the VoiceManager  800 series.  In 1997, the Company signed PTT Telecom
of The  Netherlands  to a five-year  distribution  agreement to sell  Microlog's
Intela product within the Dutch interactive  communications  market. PTT Telecom
is  a  full  service   telecommunications  company  providing  a  wide-range  of
communication   products  to  businesses  and  consumers  both   nationally  and
internationally.

Marketing  - The  marketing  organization  currently  has a vice  president  who
manages  the  Company's  product  and  marketing-related  activities.  Marketing
consists  of product  managers  and  marketing  communications  personnel.  This
organization  interfaces with direct and international  sales in marketing,  and
selling the Company's products, applications, and services.

Promotional  Activities - In support of Microlog's sales and marketing  strategy
for the coming year, an increased  advertising campaign directed specifically at
contact  centers,  collections,  and  interactive  communications  industries is
underway. In addition, an increased presence at industry-specific trade shows is
planned,  as well as a direct mail  campaign,  and the  development of new sales
tools and collateral.

SERVICES


                                       12
<PAGE>


The Company  provides  limited  warranties  for parts and labor on its  products
ranging from 90 days to two years,  from the date of delivery.  The Company also
offers its  customers  annual  maintenance  contracts  under  which the  Company
maintains  and  services  the  systems.   Microlog  charges  an  annual  fee  of
approximately  10% to 16% of the purchase  price of its systems for  maintenance
contracts  covering normal  business  hours.  The fee is highest for maintenance
contracts providing for 24-hour or weekend assistance.

The Company generally  performs  maintenance for its interactive  communications
systems in the Washington, D.C. metropolitan area from its Germantown,  Maryland
headquarters, where an inventory of spare parts is maintained. Microlog also has
an  agreement  with  a  subcontractor  to  perform  on-site  maintenance  on its
interactive  communications  systems nationwide.  The Company operates a hotline
which customers with maintenance  contracts may use to request  assistance or to
ask questions concerning operation of the Company's  interactive  communications
systems.   Microlog  can  perform  many  diagnostic   procedures  remotely  and,
historically,  has been able to correct many of the difficulties  experienced by
its customers  through  telephone  consultation.  International  maintenance  is
performed by the third party  distributor  and is supported by Microlog  service
personnel in  Eindhoven,  The  Netherlands,  and  Microlog's  service  center in
Germantown, Maryland.

Microlog also offers a variety of other services to its customers. Microlog will
customize interactive  communications  systems to a customer's specific needs by
using the application  software matrix in the VCS 3500 or the GUI in its Intela,
or by  making  appropriate  changes  in the  underlying  source  code  in all of
Microlog's  products.  The  Company  may charge  for this  service on a time and
materials  basis,  or may include  the service in the price of the system  being
sold.  Training on system operations also is offered to customers.  In addition,
the Company generally provides certain improvements to its software modules free
of charge to customers who contract for its system maintenance services.

BACKLOG

As of October 31, 1998,  the Company had a backlog of existing  orders for voice
processing systems totaling $2.0 million.  The backlog,  as of October 31, 1997,
was $2.9 million.  The Company has  experienced  fluctuations  in its backlog at
various  times  during the past  attributable  primarily to the  seasonality  of
governmental  purchases.  The Company  anticipates  that all of the  outstanding
orders at October  31,  1998 will be  shipped  and the sales  recognized  during
fiscal year 1999.  Although  the  Company  believes  that its entire  backlog of
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.

COMPETITION

The interactive  communications  industry is highly  competitive and the Company
believes that  competition  will  intensify.  The Company  competes with a large
number of companies,  which produce interactive communications products offering
one or more of the 14  major  voice  processing  applications  performed  by the
Company's  products.  Microlog's  competitors  include  companies  such  as IBM,
InterVoice,   Inc.,  Lucent,  Periphonics,   Brite  and  Syntellect,  that  have
emphasized sales of systems with interactive voice response applications. Direct
competition with the Company's  interactive  communications  systems also arises
from a substantial number of companies, such as Centigram and Active Voice, that
focus on the market for small or  medium-size  voice  messaging  (voice  mail or
automated  attendant)  systems.  In  addition,  the Company also  competes  with
dealers  and   distributors   that  sell  voice  products  of  these  and  other
competitors.  New or  enhanced  products  can be  expected  from  the  Company's
competitors.  It is also  likely  that  there  will  be new  entrants  into  the
interactive  communications  industry  because  of  the  absence  of  any  major
technological barriers to entry.

The  contact  center  marketplace  in which the uniQue  product is  expected  to
compete  is also very  competitive.  New  competitors  are  entering  the market
frequently.  Some are long  established  telephony  vendors  with a large market
share  such as  Lucent,  Nortel,  and  Aspect,  while  others  are new  start-up
companies such as Interactive Intelligence,  ATIO, and Apropos. Since the market
is large and expanding rapidly,  the Company believes  competition will continue
to emerge  among  existing  vendors and expects  new  competitors  to enter this
marketplace.


                                       13
<PAGE>

Competition for the sale of interactive communications systems has been based in
part on the  application  required by the customer.  In marketing its Intela and
VCS 3500  products,  the Company  places  emphasis  on the 12 major  interactive
communications functions (refer to "Products" section) that can be performed and
the  ability  of  these  systems  to  be  expanded  to  incorporate   additional
applications.  As a result of this emphasis on openness and  expandability,  the
Company believes that many of its competitors'  products cannot be customized as
easily to the user's specific needs as the Intela and VCS 3500.

In marketing its Retail  Solution,  the Company places  emphasis on the suite of
applications and solutions that these applications  offer.  Potential  customers
have the ability to add additional  solutions as the need arises. The Company is
also able to customize these  applications to meet the user's needs. The Company
is  actively  developing  additional  features  to the Retail  Solution  and new
solutions for release in fiscal 1999.

Marketing and product  recognition  also play a substantial  role in competition
within the interactive  communications  industry and within particular  vertical
markets.  Most of the Company's competitors have considerably greater financial,
marketing,  and sales resources than Microlog.  Many of these  competitors  have
concentrated on one or two voice  applications or on specific  vertical  markets
and may enjoy advantages in selling to customers seeking only those applications
or to companies in those  markets.  The Company  believes that it has advantages
over some  competitors  in sales to  government  and retail  pharmacy  customers
because of its  experience  in  marketing  products  to these  customers  and in
participating in competitive procurements.

The Company believes that the other principal factors  affecting  competition in
the interactive  communications  market are product  applications  and features,
quality and reliability, customer support and service, and price.
The Company believes that it competes favorably with respect to these factors.

RESEARCH AND DEVELOPMENT AND PRODUCT ENGINEERING

Research and  development  expenses  for 1998 were  focused on the Intela,  TAC,
APRS,  and  uniQue  products.  uniQue  Agent  was  announced  and  substantially
completed in November 1998 as a product offering available for customer trial in
the contact  center  market.  uniQue Agent is the first in a series of offerings
the Company is developing to provide a comprehensive  range of solutions  within
the contact center market in fiscal year 1999. The uniQue development activities
will also be a major focus in fiscal year 1999 for the  Company's  research  and
development  efforts.  Intela  was  enhanced  for new  features  and  Year  2000
compliance  in the  System  Release  6 (SR6)  version  of the  product.  TAC was
enhanced to meet market  requirements to readily  integrate with both custom and
widely  available  collections  databases  in use in  customer  sites.  APRS was
extended and customized for a number of customer opportunities in 1998 which did
not materialize. A significant amount of custom engineering is undertaken by the
Company in  providing  special  features,  application  development,  and system
integration services to our customers.  The Company is subject to the risks that
it may not have the financial  resources to support its research and development
strategy.

The following table sets forth for the periods indicated the Company's  research
and development  expenditures  and the percentage of interactive  communications
net sales represented by these expenditures.

Research and Development Expenditures

(In thousands, except percentage amounts)

<TABLE>
<CAPTION>
                                                       YEAR ENDED OCTOBER 31,
                                                       ----------------------

                                                1996              1997            1998
                                                ----              ----            ----
<S>                                           <C>                 <C>           <C>
Research and development expense               $2,094            $3,579          $3,256

         Percentage of voice
         processing net sales                      13%               19%             22%
</TABLE>

                                       14
<PAGE>

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.

MANUFACTURING AND OPERATIONS

The Company  assembles  its own equipment  using  standard  parts  obtained from
outside sources.  The proprietary aspects of the Company's systems are primarily
in the software  provided with the  equipment  and in the specific  applications
development  designed for the customer.  Systems are built to order as they vary
in size and sophistication of software modules.  Equipment assembly,  along with
testing  and  quality  control,  are  performed  at its  Gaithersburg,  Maryland
facility.  The  Company has a lease on a  manufacturing  and  training  facility
located in  Gaithersburg,  Maryland which expires in September,  1999.  Microlog
currently has 6 employees in its manufacturing group. The Company generally uses
standard  parts and components  obtained from a variety of computer  vendors and
specially  configures  these components to produce the hardware for its systems.
Certain components used in the Company's  products are presently  available from
limited sources.  To date, the Company has been able to obtain supplies of these
components in a timely manner from these sources.

RESTRUCTURING OF OPERATIONS

In February 1999, the Company  restructured its voice  processing  operations in
order to bring expenses in line with  forecasted  revenues.  In connection  with
this  restructuring,  the Company  reduced  its voice  processing  workforce  by
approximately  25%  and  wrote  off  equipment  associated  with  its  headcount
reductions.

The Company will incur a restructuring  charge of approximately  $260,000 in the
second  quarter  of  fiscal  1999,  for  severance  and  benefits  costs for the
reduction of  approximately 25 employees in February 1999.  Temporary  employees
and contractors will also be reduced.  Included in the restructuring charge is a
write-off of assets of  approximately  $50,000  which  includes the write-off of
equipment associated with headcount reductions.

As a result of these restructuring activities, the Company expects to reduce its
annual voice processing operating expenses,  in the form of reduced salaries and
wages, by  approximately  $1.8 million.  The Company expects to complete most of
the actions  associated with the  restructuring by the end of the second quarter
of fiscal year 1999.

The  Company  expects  to also  decrease  expenses  as a result  of the  reduced
headcount  in  areas  such as  travel,  training  and  communications  expenses.
Additionally,  the Company is initiating a cost  reduction plan in areas such as
advertising,  recruiting, office and computer supplies, and professional fees to
further  reduce  voice  processing  operating  expenses.  As  a  result  of  the
restructuring  and cost reduction plan the Company expects to reduce total voice
processing  operating  expenses  by  approximately  $4.0  million  annually  and
approximately  $2.3 million for the  remainder of fiscal year 1999,  starting in
the second quarter of fiscal year 1999.

In addition to a significant  reduction in its  international  voice  processing
operations  which  occurred  as a result of the  restructuring,  the  Company is
currently  evaluating  options for the transfer or sale of its existing Microlog
Europe interactive voice response  operations,  sales, and support activities to
organizations in similar lines of business. The Company is continuing to explore
uniQue opportunities in Europe through these organizations.

SOFTWARE PROTECTION, TECHNOLOGY LICENSES, AND TRADEMARKS

The Company regards its software as proprietary  and has implemented  protective
measures  both of a legal and a  practical  nature to ensure  that the  software
retains  that  status.  The  Company  derives  protection  for its  software  by
licensing  only the  object  code to  customers  and  keeping  the  source  code
confidential.  Like  many  other  companies  in the  interactive  communications
industry,  Microlog does not have patent  protection for its software  (although
some  of  the  inventions  for  which  Microlog  has  received  patents  can  be
implemented  in software).  It,  therefore,  relies upon the  copyright  laws to
protect  against  unauthorized  copying of the object code of its software,  and
upon  copyright  and trade secret laws for the  protection of the source code of
its software. Despite this protection, competitors could copy certain aspects of
the  Company's  software  or hardware  or obtain  information  which the Company
regards as a trade secret.


                                       15
<PAGE>

The Company  has  patents on an  Interactive  Audio  Telecommunications  Message
Storage,  Forwarding and Retrieval  System,  Software Switch for Digitized Audio
Signals, Automated Telephone System Using Multiple Languages, Telecommunications
System for Transferring  Calls without a Private Branch  Exchange,  Detection of
TDD Signals in an Automated  Telephone System,  Automated  Telephone System with
TDD Capabilities,  Automated  Announcement System, and Methods for Communicating
with a  Telecommunications  Device for the Deaf (TDD).  The  Company  also has a
pending patent  application on an Apparatus and Method for Coupling an Automated
Attendant to a Telecommunications System. EVR, Microlog, Call Installer, Truant,
CINDI,  ProNouncer,   CallStar,  CallStar  FXD,  and  APRS  are  all  registered
trademarks owned by the Company.  Intela,  Intelaware,  Intelaview,  VCS Intela,
Intela0Powerdial,  KeyStar,  Connecting  People to a World of  Information,  The
Automated Collector, uniQue, uniQue Agent, and uniQue The Best Seat In The House
are all  trademarks or service marks which are the subject of  applications  for
registration  owned by the Company which are pending in the United States Patent
and Trademark  Office.  INTEL  Corporation has filed  oppositions  with the U.S.
Trademark  Trial and Appeal  Board to  registration  by the Company of the marks
Intela, VCS Intela, Intelaware,  and Intelaview.  Discovery is currently ongoing
in this consolidated opposition proceeding.  The Company is currently using, and
claims common law rights in the following additional,  unregistered marks: Voice
Connect,  Genesis, Voice Path, VCS 3500, Retail Solution,  RLT, and Release Line
Trunking. In addition,  the Company enters into confidentiality  agreements with
its employees, distributors, and customers and limits access to and distribution
of its software,  documentation, and other proprietary information. There can be
no  assurance  that the steps taken by the  Company to protect  its  proprietary
rights will be adequate to deter  misappropriation  of its technology.  Further,
there  can be no  assurance  that  any  patent  issued  or that  its  registered
copyrights can be successfully defended. In any event, the Company believes that
factors such as technological innovation and expertise and market responsiveness
are more important than the legal protections described above.

PERFORMANCE ANALYSIS AND SUPPORT SERVICES

GENERAL

Since the early  1970s,  the Company and its  subsidiaries  have been  providing
performance   analysis  and  technical  and   administrative   support  services
(principally  in the  form of data  processing  and  analysis,  engineering  and
scientific  analysis,  and  computer  services)  to  government  and  commercial
customers.  These  services,  which comprised the Company's  original  business,
presently are provided  through the Company's  subsidiary,  Old Dominion Systems
Incorporated of Maryland. The Company believes that its performance analysis and
support  services  business  will  continue to provide a stable stream of sales,
although its interactive  communications  business offers greater  potential for
growth.

The principal customer for the Company's  performance analysis and technical and
administrative  support  services  is The  Johns  Hopkins  University's  Applied
Physics Laboratory (APL), a United States Navy contractor, for which the Company
or its  subsidiaries  have been  performing  services  since  1972.  Sales  from
contracts with APL accounted for 38%, 39% and 44% of the Company's net sales for
fiscal 1996, 1997, and 1998, respectively.

The Company's  performance  analysis and support  services  personnel  perform a
variety  of  analytical  and  science-related  support  services  under  several
contracts. These services usually are performed on the customer's premises or at
test-site  locations.  The  Company's  technical  staff works  jointly  with the
customer's  scientists and engineers in the acquisition,  processing,  analysis,
and  management of certain major weapon  systems data.  This work is directed to
quantifying  and reducing the impact of current and future threats to the United
States'  submarine fleet through the use of ocean sensor systems.  The technical
support rendered by the Company  includes  real-time data  acquisition,  digital
signal  processing,   software  development  and  systems   applications,   data
management, and data analysis.

In addition,  the Company supports naval strategic  programs through its role as
an independent evaluator of the performance of submarine-based strategic missile
systems.  This is  accomplished  through  extensive data  processing,  technical
evaluation,  and  data  analysis  relating  to  sonar,  fire  control,  missile,
launcher, and navigation subsystems.


                                       16

<PAGE>

The Company's performance analysis and support services employees also engage in
communications   testing  and  evaluation  for  mobile  communications   network
exercises.   The   Company's   communications   analysts   assist  in  preparing
presentations  to the  Navy and in  designing  and  implementing  communications
analysis software.

The Company's employees perform various technical support services in connection
with several  Ballistic  Missile Defense  Organization  (BMDO)  projects.  These
include   advanced   technical   support  in  the   design,   development,   and
implementation of space-qualified equipment, systems analysis, and the operation
of a VAX computer-based mission control center for the MSX mission.

CONTRACTS

The Company's  contracts are  generally  one-year in duration,  and many of such
contracts  contain two one-year  extension  options,  with a fixed level of work
authorized  under the contract.  Several of the Company's  larger contracts with
APL have been renewed or  re-awarded to the Company  annually,  and the level of
work  authorized  at the time of  contract  renewal  has  provided  for,  in the
aggregate, the same or a greater level of services.

The Company  provides  services under three types of contracts.  The majority of
contracts  are on a  time-and-materials  basis,  pursuant  to which the  Company
receives a pre-set fee for all services  provided  under the  contract,  without
regard to the Company's cost of supplying these services, and is reimbursed only
for the cost of materials.  Other  contracts are on a purchase order basis which
operates similar to a time and materials contract,  and on a cost plus fixed fee
basis. Occasionally, the Company experiences delays in contract awards, contract
funding,  and payment,  which the Company  believes is customary under contracts
which involve performance of services for Federal Government agencies.

The Company  monitors  performance  under  existing  contracts  and requests for
proposal (RFPs) for performance  analysis and support services by contractors or
government  agencies.  The Company has received a number of blanket contracts by
responding  to RFPs.  In order to increase the new  contracts,  the Company must
locate skilled programmers and other technical personnel with the qualifications
specified  by the open  requisitions.  The Company  uses  agencies  and internal
resources to locate these personnel. The Company believes that its reputation in
the industry  enables it to attract  qualified  individuals for inclusion in the
Company's proposals.

COMPETITION

The Company's  Government  contracts can be opened to  competitive  bidding upon
their  expiration  at the  discretion  of the  contractor  or  agency.  Although
contracts presently  comprising a substantial  percentage of the Company's sales
have  been  renewed  annually,  these  contracts  may  and  have  been  open  to
competitive  bidding.  There can be no assurance  that these  contracts  will be
awarded to the Company if competitive bidding occurs.

The  Company  encounters  substantial  competition  in  its  procurements.   The
Company's competitors include,  Allied Signal,  Comsys, EISI, Orbital, SAIC, and
Sachs/Freeman  Associates.  The Company has  instituted  policies and procedures
designed  to maintain a low  overhead  to enhance  its  ability to compete  with
respect to new  contracts  and to existing  contracts  that are to be renewed or
extended. During the last three years, the contracts that have been lost through
competitive  bidding or otherwise have not been material to the Company,  either
individually or in the aggregate. During this three-year period, the Company has
received several new contracts as a result of competitive  procurements and also
increases  in the  level of work  authorized  under  contracts  which  have been
renewed or re-awarded to the Company.

The Company has had no success in obtaining  contracts with government  agencies
or  contractors  other than APL. Many of these  contracts have been renewed with
the incumbent on a sole source basis,  rather than being  competitively  bid. In
the case of contracts that have been opened to competitive bidding, the contract
incumbents  generally have had advantages  because of their prior  relationships
with the agencies  and the  experience  of their  personnel  in  performing  the
requested  services.  In addition,  incumbents or other  competitors  often have
substantially greater financial and other resources than the Company.

BACKLOG


                                       17
<PAGE>

As of October  31,  1998,  the  Company  had a backlog  of  funding on  existing
contracts for performance  analysis and support services  totaling $0.2 million.
By comparison, the backlog as of October 31, 1997 was $2.9 million. The decrease
in backlog was primarily  due to the types of contracts  that the Company had in
backlog at October  31,  1998,  as  compared  to October  31,  1997.  At October
31,1998,  the Company's contracts  consisted  primarily of indefinite  delivery,
indefinite  quantity  (IDIQ)  contracts  which  generally  do not have a funding
amount and  therefore  are not  included in backlog.  At October 31,  1997,  the
Company  had a  contract  portfolio  which  included  fixed  price  and time and
materials contracts which have a funding amount, as well as IDIQ contracts which
generally do not have a funding  amount.  The Company  estimates that the entire
$0.2  million  of backlog at October  31,  1998 will be  recognized  as sales in
fiscal year 1999.  Because of the delays inherent in the government  contracting
process or possible  changes in defense  priorities  or spending,  the Company's
backlog as of any particular  date may not be indicative of actual sales for any
future  period.  Although  the Company  believes  that its backlog of funding on
existing  contracts  is firm,  the  possibility  exists  that  funding  for some
contracts on which the Company is  continuing  to work,  in the  expectation  of
renewal,  may not be  authorized.  In addition,  the Government has the right to
cancel contracts,  whether funded or not funded,  at any time,  although to date
this has not occurred.

GOVERNMENT REGULATION

In order to maintain  contracts  with  contractors or Government  agencies,  the
Company  must comply with a variety of  regulations  and  Department  of Defense
guidelines,  including  regulations  or  guidelines  covering  security,  record
keeping, and employment practices. The majority of the employees assigned to the
Company's  contracts with  contractors or agencies are required to have security
clearances.  The  Company  historically  has  not  experienced  any  significant
difficulty in obtaining the necessary security  clearances.  The Company's sales
under these contracts are subject to audit by the Defense  Contract Audit Agency
(the  DCAA).  The  DCAA  has  completed  audits  through  fiscal  1992,  and any
adjustments  required  as  a  result  of  these  audits  have  been  minor.  The
implementation by the Federal  Government of spending  cutbacks,  or a change in
national defense priorities, could reduce the Company's sales.

EMPLOYEES

At January 15, 1999,  the Company and its  subsidiaries  employed a total of 263
persons,  including  three  part-time  employees.  Of these  personnel,  106 are
engaged  principally  in  the  Company's  interactive   communications   systems
operations,151 are engaged in performance analysis and support services, and six
serve as officers or managers or perform administrative services for the Company
and all of its subsidiaries.

In  February  1999,  the Company  restructured  its  interactive  communications
systems  operations which included a workforce  reduction of approximately  25%.
The Company's  interactive  communications  systems operations currently employs
approximately  77 persons and six will continue to serve as officers or managers
or perform administrative services for the Company and all of its subsidiaries.

The Company  believes that its success will continue to depend,  in part, on its
ability to attract  and  retain  skilled  sales and  marketing,  technical,  and
management  personnel.  Because of the high turnover rate  typically  associated
with sales and marketing personnel, the Company anticipates that it will need to
replace some of the sales and marketing  personnel who do not meet the Company's
performance  expectations.  The  Company  has not  experienced  any  significant
difficulty in hiring qualified technical personnel.  Neither the Company nor any
of its  subsidiaries is a party to a collective  bargaining  agreement,  and the
Company considers its employee relations to be satisfactory.

ITEM 2. PROPERTIES

In May 1998, the Company entered into a 15 year non-cancelable lease commitment,
commencing on or about June 1999, for office space  intended to consolidate  the
Company's headquarters,  warehouse, and training facilities. The Company and its
new landlord are in the process of discussing potential alternatives  concerning
the new facility.  At this time management  cannot predict the potential outcome
of these  discussions.  In August 1998,  the Company sold its 24,000 square foot
office  building and land and committed to lease back the building  prior to its
occupation of the new leased space.


                                       18
<PAGE>

The Company  presently  leases and  occupies a 24,000  square  foot  building in
Germantown,  Maryland, which it uses for its principal executive offices and its
interactive  communications  operations  center.  The Company also leases 22,700
square  feet of  office  space in  Rancho  Cordova,  California,  which  was the
headquarters of Genesis Electronics  acquired by the Company in 1991, under a 10
year lease, which began in 1989 and expires in 1999.  Additionally,  the Company
leases and occupies 12,000 square feet in Gaithersburg,  Maryland, which it uses
for production and warehousing of its interactive  communications  products.  In
February 1993, the Company  entered into a sublease for a five-year term for its
Rancho  Cordova  facility.  The  sublease  was  extended  in  1998  and  is  now
coterminous with the lease that expires in April 1999.

ITEM 3. LEGAL PROCEEDINGS

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  effect on the  Company's  financial
position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The information  required by this item is incorporated  herein by reference from
"Price Range of Common Stock" and "Dividend  Policy" on page 35 of the Company's
Annual Report to Shareholders.

ITEM 6. SELECTED FINANCIAL DATA

The information  required by this item is incorporated  herein by reference from
"Selected Consolidated Financial Data" on page 36 of the Company's Annual Report
to Shareholders.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The information  required by this item is incorporated  herein by reference from
pages 30 through 36 of the Company's Annual Report to Shareholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated  Financial  Statements of the Company,  including  Consolidated
Statements of Operations  for the years ended October 31, 1998,  1997, and 1996,
Consolidated  Balance  Sheets as of  October  31,  1998 and  1997,  Consolidated
Statements  of Changes in  Stockholders'  Equity for the years ended October 31,
1998, 1997, and 1996,  Consolidated Statements of Cash Flows for the years ended
October 31, 1998, 1997, and 1996 and Notes to Consolidated Financial Statements,
together with the report thereon of  PricewaterhouseCoopers  LLP dated March 17,
1999,  are  incorporated  by reference from pages 10 through 27 of the Company's
Annual Report to Shareholders.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

                                       19
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Shown  below  are the  names of all  Directors  and  executive  officers  of the
Company,  the age of each such person as of January 18, 1999,  all positions and
offices held by each such person, the period during which each person has served
as such, and the principal occupations and employment of each such person during
the last five years:

     RICHARD A. THOMPSON, age 52, has been President and Chief Executive Officer
of the Company  since  January 1, 1997.  He was  President  and Chief  Operating
Officer of the Company from June 1992 through  January 1, 1997. Mr. Thompson was
elected a director of the Company in September 1992.  Prior to joining  Microlog
Corporation,  Mr.  Thompson was  President  and a director of General  Kinetics,
Inc., a diversified  manufacturing  company from October 1989 to December  1991.
Other  positions he has held have been as President  of Thompson  Associates,  a
management  consulting  firm from  1988 to 1989 and as  Marketing  Manager  with
General  Electric  Company from 1985 to 1988. Mr.  Thompson is also a Captain in
the U. S. Naval Reserve.

     JOE J. LYNN,  age 67,  presently  serves as a part-time  consultant  to the
Company,  having retired from his position as Chief  Development  Officer of the
Company,  in which he served from  January 1, 1997  through  January  15,  1998.
Previously, Mr. Lynn was Chief Executive Officer of the Company from May 1, 1991
through  January 1, 1997 and  President of the Company from October 1989 to June
1992, and prior thereto he served as Executive Vice President of the Company and
as President of the Company's  subsidiary,  Microlog Corporation of Maryland. He
has been a director of the Company since its formation in 1969.  From 1966 until
1970,  Mr. Lynn was employed as a manager with DBA  Systems,  Inc.  From 1961 to
1966, he served as a manager at the Kennedy  Space Flight Center for RCA,  which
is presently a subsidiary of General Electric Company.

     ROBERT E. GRAY, JR., age 57, has been a director of the Company since 1977.
He is currently  Executive  Vice  President  of  Prosperity  Bank and Trust,  in
Springfield,  Virginia.  Mr. Gray was appointed to  Prosperity  Bank and Trust's
Board of Directors in December  1997.  He was employed by Hallmark  Bank & Trust
Co. from 1985 to 1992 - as Director and Executive  Vice  President  from 1989 to
1992, and prior thereto as Senior Vice President and Chief Lending Officer. From
1992 to 1993,  he served as Senior Vice  President of Suburban Bank of Virginia,
NA in McLean, Virginia.

     DAVID M.  GISCHE,  age 49, has been a director of the  Company  since April
1985. Mr. Gische,  an attorney,  has been  associated with the law firm of Ross,
Dixon & Bell in Washington,  D.C. since November 1983. From September 1978 until
November 1983, Mr. Gische was associated with the  Washington,  D.C. law firm of
Hogan & Hartson LLP, counsel to the Company.

     DAVID B. LEVI,  age 64, has been a director of the Company  since  December
1997.  Since  November,  1998,  Mr. Levi also has served as a consultant  to the
Company.  Mr. Levi served as President of Natural  MicroSystems  Corporation,  a
provider   of   hardware   and   software   for    developers    of   high-value
telecommunications solutions from June 1991 to April 1995. In November 1995, Mr.
Levi became President of Voice  Processing  Corp.  (VPC). and Mr. Levi served as
Chief  Operating  Officer of VCS until his retirement in October 1997.  Prior to
1991,  Mr.  Levi  held  Chief  Executive  Officer  and Chief  Operating  Officer
positions at Raytheon  Data Systems (a division of Raytheon  Corp.),  Centronics
Data Computer Corp.,  and Raster  Technologies,  Inc., and consulted to Regional
Bell Operating Companies.

     STEVEN R. DELMAR, age 43, the Company's  Executive Vice President and Chief
Financial  Officer,  has been  Executive  Vice  President  of the Company  since
October  1989  and  was  President  of  Microlog   Corporation  of  Maryland,  a
wholly-owned  subsidiary of the Company,  from May 1991 to July 1992. Mr. Delmar
was Microlog's Chief Financial  Officer from January 1987 to May 1991. He served
as Chief Operating  Officer of Microlog  (rather than Chief  Financial  Officer)
from May 1991 until July  1992,  and  following  the hiring of Mr.  Thompson  as
President and Chief Operating Officer,  Mr. Delmar resumed his position as Chief
Financial  Officer.  He was Vice  President  of the Company from January 1987 to
October 1989.  Since 1979, Mr. Delmar has held various  offices with the Company
and its subsidiaries,  including  Assistant  Comptroller,  Comptroller,  General
Manager and Vice  President.  


                                       20
<PAGE>

A certified public accountant, Mr. Delmar held accounting positions with Bechtel
Power   Corporation,   a  commercial   construction   firm,   and  the  Veterans
Administration prior to his employment with Microlog.

     DEBORAH  M.  GROVE,  age 46, has been  President  of Old  Dominion  Systems
Incorporated of Maryland,  a wholly-owned  subsidiary of the Company,  since May
1991.  From 1983 until May 1991,  Ms.  Grove was Vice  President of Old Dominion
Systems Incorporated of Maryland and from 1985 until May 1991, Vice President of
Old  Dominion  Services,  Inc.  Ms.  Grove  holds a Master of Science  degree in
Business   and   Finance   and  a  Bachelor   of  Science   degree  in  Business
Administration.

     JOHN C.  MEARS,  age  45,  has  been  the  Senior  Vice  President  Product
Development  for Microlog  since August 1996.  Mr. Mears was with  International
Business Machines (IBM) from 1990 to 1996 in key management positions associated
with their IVR, CTI, and Network product departments.  From 1978 to 1990 he held
various technical,  business  development,  and management positions in multiple
divisions  of IBM. Mr.  Mears holds both a  bachelor's  and  master's  degree in
electrical engineering from the University of Florida.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Each director and officer of the Company,  and each person who beneficially
owns more than 10% of the Company's  Common Stock,  is required by Section 16(a)
of the  Securities  Exchange Act of 1934 to file reports with the Securities and
Exchange  Commission  ("SEC") of beneficial  ownership of the  Company's  equity
securities  and certain  changes to such  ownership.  Based on its review of the
reports and written  representations  furnished by the persons  required to file
reports under Section 16(a), Richard A. Thompson and Steven R. Delmar each filed
one late report with the SEC of one transaction  involving changes in beneficial
ownership.  This was due to the fact  that the  purchase  was made  through  the
Company's  401k plan which  could not  provide  share price and number of shares
purchased in a timely manner.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

     The following  table shows,  for the fiscal years ending  October 31, 1996,
1997, and 1998, the salary,  bonus, and certain other forms of compensation paid
or accrued  for those years by the  Company  and its  subsidiaries  to the Chief
Executive  Officer and each of the three other  executive  officers whose salary
and bonus  compensation  exceeded  $100,000  in fiscal  1998  ("named  executive
officers").

<PAGE>
<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE
                             
                                                   ANNUAL COMPENSATION                  LONG TERM COMPENSATION
                                                   -------------------                  ----------------------
                                                                                           AWARDS           PAYOUTS
                                                                                           ------           -------
                                                                                                SECURITIES
                                                                                   RESTRICTED   UNDERLYING
                                                                   OTHER ANNUAL       STOCK      OPTIONS/     LTIP      ALL OTHER
                             FISCAL YEAR  SALARY     BONUS ($)     COMPENSATION     AWARD(S)       SARS      PAYOUTS   COMPENSATION
NAME AND PRINCIPAL POSITION                ($)(A)                     ($)(B)           ($)         (#)         ($)        ($)(C)
---------------------------  ------------ ---------- ----------- ----------------- ------------ ----------- ---------- ------------
<S>                               <C>       <C>          <C>              <C>          <C>       <C>             <C>     <C>       
Richard A. Thompson               1998      215,000                      22,952                                           11,491
President and Chief               1997      181,664                      23,952                                           12,035
Executive Officer                 1996      164,994      31,500          16,341                  150,000 (d)              13,000


Steven R. Delmar                  1998      165,006                       6,855                                           11,443
Executive Vice President          1997      143,333                       9,479                                           10,618
and Chief Financial Officer       1996      135,000      25,500           8,861                                           10,555


Deborah M. Grove                  1998      135,013                      23,674                                           10,525
President of subsidiary,          1997      123,334      10,000          18,332                                            9,732
Old Dominion Systems              1996      115,003      23,500          12,609                                            9,117
Incorporated of Maryland


Joe J. Lynn                       1998      160,158                      25,288                                            4,172
Retired Chief Executive           1997      191,671                      16,489                                           11,424
Officer and Chief Development     1996      184,206      24,500          22,410                                           10,908
Officer


John Mears (e)                    1998      135,013                       7,000                                           10,281
Senior Vice President Product
Development
</TABLE>

(a)  Includes deferred compensation and consulting fees.
     For fiscal 1998, 1997, and 1996 Mr. Lynn's deferred  compensation  included
     in his  salary  was  $14,679,  $15,188,  and  $14,200,  respectively.  Also
     included in the 1998 compensation is deferred  compensation that was earned
     in his account of $20,509.  Mr. Lynn retired in January  1998.  The amounts
     shown in the table  include  consulting  fees from January 1998 through the
     end of the fiscal year of $90,576.
(b)  Other annual  compensation  consists primarily of reimbursements  under the
     Company's  Executive Medical  Reimbursement  Plan, paid personal leave, and
     personal use of automobiles.
(c)  All other compensation consists of 401k matching  contributions and pension
     plan  contributions.  For fiscal  1998 Mr.  Thompson's  401k  matching  and
     pension contributions were $1,891, and $9,600 respectively. For fiscal 1998
     Mr.  Delmar's  401k  matching and pension  contributions  were $1,843,  and
     $9,600 respectively.  For fiscal 1998 Ms. Grove's 401k matching and pension
     contributions  were $1,801,  and $8,724  respectively.  For fiscal 1998 Mr.
     Lynn's  401k  matching  and  pension  contributions  were $646,  and $3,526
     respectively.
(d)  Mr. Thompson also received  options to purchase 100,000  additional  shares
     based upon  achieving  certain  targets;  such targets were not met and the
     options expired.
(e)  Mr. Mears became an executive officer following  determination of the Board
     in  January  1999.  His salary  for 1999 has been set at  $165,000,  and he
     received stock options in fiscal 1999 of 30,000 shares.

STOCK OPTIONS

     The following  table contains  information  with respect to grants of stock
options to each of the named  executive  officers  during the fiscal  year ended
October 31, 1998. All such grants were made under the Employee Plan.

                                       21

<PAGE>
                        OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                                                                                  POTENTIAL
                                                                                             REALIZABLE VALUE AT
                                                    INDIVIDUAL GRANTS                           ASSUMED ANNUAL
                             ------------------------------------------------------------   RATES OF STOCK PRICE
                                                  % OF TOTAL                                   APPRECIATION FOR
                                                OPTIONS GRANTED                                 OPTION TERM (A)    
                               NUMBER OF         TO EMPLOYEES      EXERCISE    EXPIRATION -----------------------
                             OPTIONS GRANTED    IN FISCAL YEAR   PRICE ($/SH)     DATE        5% ($)      10% ($)
                             ---------------    --------------   ------------     ----    -----------     -------
<S>                           <C>                <C>             <C>            <C>        <C>           <C>     
Richard A. Thompson (b)                 0                0%          $0.000        N/A            $0          $0
Steven R. Delmar (b)                    0                0%          $0.000        N/A            $0          $0
Deborah M. Grove (b)               10,000              0.9%          $0.9375      2008        $7,925     $18,225
John Mears (b)                     30,000              2.9%          $0.9375      2008       $23,775     $54,675
</TABLE>

--------------------
(a) Share prices for Mr. Thompson assuming a 5% and 10% annual  appreciation at
    the end of the term of his option are $0 and $0, respectively; share prices
    for Mr. Delmar assuming a 5% and 10% annual  appreciation at the end of the
    term of his option are $0 and $0  respectively;  share prices for Ms. Grove
    assuming  a 5% and 10%  annual  appreciation  at the end of the term of her
    option are $1.73 and $2.76,  respectively,  and shares prices for Mr. Mears
    assuming  a 5% and 10%  annual  appreciation  at the end of the term of her
    option are $1.73 and $2.76, respectively.

(b) These  options  vest over a five year period with 20% vesting at the end of
    each year.

     The following table provides  information  concerning the exercise of stock
options by the named executive officers during fiscal 1998.

                   AGGREGATED OPTION EXERCISES IN LAST FISCAL
                     YEAR, AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                      NUMBER OF SECURITIES     VALUE OF UNEXERCISED
                                                                           UNDERLYING        IN-THE-MONEY OPTIONS AT
                                                                       UNEXERCISED OPTIONS          FISCAL YEAR
                                                                          AT FISCAL YEAR              END ($)
                                                                            END (#)
                               SHARES ACQUIRED          VALUE             EXERCISABLE/             EXERCISABLE/
            NAME               ON EXERCISE (#)       REALIZED ($)         UNEXERCISABLE         UNEXERCISABLE (A)
            ----               ---------------       ------------         -------------         -----------------
<S>                            <C>                   <C>                <C>                     <C>                 
Richard A. Thompson                   0                   0             190,000 / 40,000              $0 / $0

Deborah M. Grove                      0                   0              19,000 / 16,000            $625 / $0

Steven R. Delmar                      0                   0               59,000 / 6,000              $0 / $0

John Mears                            0                   0              12,000 / 33,000              $0 / $0
</TABLE>
-----------------------------
(a) Calculations based on closing price of stock of $1.0625 on October 31, 1998.

EMPLOYMENT, DEFERRED COMPENSATION AND CONSULTING AGREEMENTS

     The Company is a party to an employment  agreement with Mr.  Thompson.  The
agreement provides for employment of Mr. Thompson through December 31, 1999. Mr.
Thompson's  annual salary under his employment  agreement is subject to increase
and discretionary bonuses each year as determined by the Board of Directors. The
employment contract entitles Mr. Thompson to certain fringe benefits,  including
insurance  coverage  and various  executive  perquisites.  Upon  termination  of
employment without cause, the existing base salary,  plus all benefits,  will be
paid in monthly  installments for twelve months.  The employment  agreement also
entitles  Mr.  Thompson to continue to serve as a director of the Company for so
long as he continues to be an officer of the Company.

     The  Company is a party to a  consulting  agreement  with Mr.  Lynn,  which
provides for Mr. Lynn to serve as a consultant  through  December 31, 1999.  The
consulting  agreement  provides  for Mr.  Lynn to  perform  consulting  services
reasonably  requested by the Company. Mr. Lynn is to receive annual compensation
of  approximately  $118,000  per  year and  certain  benefits,  generally  those
available to the Company's executive officers,  but not including  participation
in the incentive stock option plan or executive bonus plan.

     The Company is a party to a noncontributory deferred compensation agreement
with Mr. Lynn under which the Company is obligated to make  payments to Mr. Lynn
(or his beneficiaries) over the ten-year period subsequent to his retirement (on
or after age 65), permanent  disability,  or death. The aggregate amount owed to
Mr. Lynn under this  agreement is payable  either in equal monthly  installments
over the ten-year period or in an  appropriately  discounted  single sum payment
(at the election of Mr. Lynn).  This amount is determined by multiplying  $2,500
by the number of months of employment during the period April 1, 1988 to January
1, 1995 and adding an initial  

                                       22
<PAGE>
contribution  of $10,000.  During the fiscal year ended  October 31,  1998,  the
Company accrued $14,679 in interest for Mr. Lynn under this contract.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     None.

COMPENSATION OF DIRECTORS

     Compensation  of Mr.  Gische,  Mr. Gray,  and Mr. Levi through fiscal 1998,
consisted of $2,500 per quarter with a maximum of $10,000 per year for each such
director (no per meeting fees were paid).  Employee  directors  are not paid for
attending meetings of the Board of Directors.

     The Company has a  non-employee  director  stock option plan (the "Director
Plan"), which was approved by the shareholders, pursuant to which 250,000 shares
of Common Stock are presently reserved for issuance to non-employee directors of
the Company  upon  exercise  of options  granted  under the Plan.  The Board has
adopted  amendments  to  the  Director  Plan,  including  the  ability  to  make
discretionary  grants to directors serving as consultants,  which amendments are
subject to shareholder approval.  The Company believes that options issued under
the  Director  Plan create an  incentive  for  non-employee  directors to expend
maximum  effort for the growth and  success of the  Company.  Options  for 4,000
shares of Common  Stock  were  granted  during  fiscal  1998 to each of  Messrs.
Gische,  Gray, and Levi under the Director Plan. The option price of all options
granted  under the  Director  Plan  equal the fair  market  value of the  shares
underlying the option on the date of grant.  Options  granted under the Director
Plan expire if not exercised  within ten years from the date of the grant of the
option.

     Since  November,  1998 Mr. Levi has been a  non-employee  member of the new
Microlog Office of the President.  The company has been compensating Mr. Levi in
the amount of $1,000 for each Meeting of the Office of the President he attends,
commencing with the first meeting on November 5, 1998, and proposes to grant Mr.
Levi an option to purchase 20,000 shares of the Company's  common stock pursuant
to the Company's  Director Plan, if the proposed  amendment to the Director Plan
is approved by the  shareholders.  This arrangement is expected to continue into
the third quarter of fiscal 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets forth  information  as of February 10, 1999 with
respect to the ownership of shares of Common Stock by (i) owners of more than 5%
of the Company's  outstanding  Common Stock,  (ii) each director and nominee for
director  of the  Company,  (iii) each of the named  executive  officers  of the
Company,  and (iv) all  directors  and  officers of the Company as a group.  The
information  is based on the most recent filings with the SEC by such persons or
upon  information  provided by such  persons to the  Company.  Unless  otherwise
indicated,  the persons  shown in the table are believed to have sole voting and
investment power with respect to the entire number of shares reported.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF                                  NUMBER OF SHARES                          PERCENTAGE OF
BENEFICIAL OWNER (1)                                 BENEFICIALLY OWNED                        OWNERSHIP (2)
--------------------                                 ------------------                        -------------
<S>                                                  <C>                                      <C> 
Hathaway & Associates, Ltd                                    373,000                                  8.7%
119 Rowayton Avenue
Rowayton, Connecticut 06853

Joe J. Lynn                                                   310,000                                  7.2%
20270 Goldenrod Lane
Germantown, MD  20876-4070

Richard A. Thompson                                           222,000 (3)                              5.0%
20270 Goldenrod Lane
Germantown, MD  20876-4070
</TABLE>


                                       23
<PAGE>

<TABLE>
<CAPTION>
<S>                                                  <C>                                      <C> 
Steven R. Delmar                                              112,300 (4)                              2.6%
20270 Goldenrod Lane
Germantown, MD  20876-4070

Deborah M. Grove                                               53,711 (5)                              1.2%
20270 Goldenrod Lane
Germantown, MD  20876-4070

David M. Gische                                                48,000 (6)                              1.1%
20270 Goldenrod Lane
Germantown, MD  20876-4070

John C. Mears                                                  44,000 (7)                              1.0%
20270 Goldenrod Lane
Germantown, MD  20876-4070

Robert E. Gray, Jr.                                            35,520 (8)                                 *
20270 Goldenrod Lane
Germantown, MD  20876-4070

David B. Levi                                                  12,000 (9)                                 *
20270 Goldenrod Lane
Germantown, MD  20876-4070

All officers and directors as
a group (10 persons)                                          821,081 (10)                            17.6%
</TABLE>
----------------------------

 *    Less than 1% of the shares outstanding.

(1)   In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
      person is deemed to be the beneficial  owner of a security for purposes of
      the Rule if he or she has or shares voting power or investment  power with
      respect to such security or has the right to acquire such ownership within
      60 days. As used herein, "voting power" is the power to vote or direct the
      voting of shares, and "investment power" is the power to dispose or direct
      the disposition of shares.

(2)   For  the  purpose  of  computing  the  percentage  of  ownership  of  each
      beneficial owner, any securities which were not outstanding but which were
      subject to options,  warrants,  rights,  or conversion  privileges held by
      such  beneficial  owner  exercisable  within  60 days  were  deemed  to be
      outstanding in determining the percentage owned by such person but are not
      deemed  outstanding  in  determining  the  percentage  owned by any  other
      person.

(3)   Includes  190,000  shares that may be acquired by Mr.  Thompson  within 60
      days  of  the  record  date  upon  the  exercise  of  stock   options  and
      approximately 25,000 shares in a 401k Plan. Does not include 40,000 shares
      that may be  acquired by Mr.  Thompson  more than 60 days after the record
      date upon the exercise of stock  options.  The  percentage of ownership as
      been rounded up to 5.0%,  but Mr.  Thompson is not, as of the date hereof,
      the beneficial owner of 5% or more of the Common Stock.

(4)   Includes  59,000  shares that may be acquired by Mr. Delmar within 60 days
      of the record date upon the  exercise of stock  options and  approximately
      24,300  shares in a 401k Plan.  Does not include  6,000 shares that may be
      acquired  by Mr.  Delmar  more than 60 days after the record date upon the
      exercise of stock options.

                                       24
<PAGE>

(5)   Includes 21,000 shares that may be acquired by Ms. Grove within 60 days of
      the record  date upon the  exercise  of stock  options.  Does not  include
      24,000  shares that may be  acquired by Ms.  Grove more than 60 days after
      the record date upon the exercise of stock options.

(6)   Includes  35,000 shares that may be acquired  within 60 days of the record
      date upon the exercise of stock options. Includes 3,000 shares held by Mr.
      Gische's spouse. Mr. Gische disclaims beneficial ownership of such shares.

(7)   Includes 16,000 shares that may be acquired by Mr. Mears within 60 days of
      the record  date upon the  exercise  of stock  options  and  approximately
      28,000 shares in a 401k Plan.  Does not include  59,000 shares that may be
      acquired  by Mr.  Mears more than 60 days  after the record  date upon the
      exercise of stock options.

(8)   Includes  25,000 shares that may be acquired  within 60 days of the record
      date upon the exercise of stock options that have been  granted.  Includes
      6,500 shares held by Mr.  Gray's  spouse.  Mr. Gray  disclaims  beneficial
      ownership of such shares.

(9)   Includes  12,000  shares  that may be  acquired by Mr. Levi within 60 days
      after the record date upon the exercise of stock options. Does not include
      6,000  shares that may be acquired by Mr. Levi more than 60 days after the
      record date upon the exercise of stock options.

(10)  Includes  368,550 shares that may be acquired within 60 days of the record
      date upon the exercise of stock options.  Does not include  173,100 shares
      that may be  acquired  more than 60 days  after the  record  date upon the
      exercise of stock options.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)  Financial Statements

The following  financial  statements  are included on pages 10 through 27 of the
Company's  printed Annual Report to Shareholders and are incorporated  herein by
reference.

     Consolidated Statements of Operations for the years ended October 31, 1998,
     1997, and 1996

     Consolidated Balance Sheets as of October 31, 1998 and 1997

     Consolidated  Statements of Changes in  Stockholders'  Equity for the years
     ended October 31, 1998, 1997, and 1996

     Consolidated Statements of Cash Flows for the years ended October 31, 1998,
     1997, and 1996

     Notes to Consolidated Financial Statements

     Report of Independent Accountants

(a)(2)  Financial Statement Schedule

                                       25
<PAGE>

Unaudited   supplementary  data  entitled  "Selected  Quarterly  Financial  Data
(unaudited)" is  incorporated  herein by reference in Item 8 (included in "Notes
to Consolidated Financial Statements" as Note 16).

The following  financial  statement  schedule and auditor's report in connection
therewith are attached hereto as pages F-1 and F-2:

F-1     Schedule II Valuation and Qualifying Accounts and Reserves

F-2     Report of Independent Accountants on Financial Statement Schedule

All other  schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

(a)(3)  Exhibits


                                       26
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number                                               Description
-------                                              -----------
<S>               <C>
         3.1      Amended and Restated Articles of Incorporation of Registrant, as amended 1/

         3.2      By-laws of Registrant, as amended 1/

         4.1      Specimen Stock Certificate 1/

         10.1     Employment Agreement between the Company and Joe J. Lynn 9/

         10.2     Deferred Compensation Agreement between the Company and Joe J. Lynn 2/

         10.3     Employment Agreement between the Company and Richard A. Thompson 9/

         10.4     Microlog Corporation Medical Reimbursement Plan 3/

         10.5     Microlog Corporation 1989 Non-Employee Director Non-Qualified Stock Option Plan 10/

         10.6     Microlog Corporation 1995 Employee Stock Option Plan 8/

         10.7     Agreements with Farmers & Mechanics National Bank 7/

         10.8     Amendments to Farmers & Mechanics National Bank Agreements 9/

         10.9     Sub-contracting Agreement with Aspect Telecommunications Corporation 4/

         10.10    Sub-contracting Agreement with Applied Physics Laboratory 4/

         10.11    Agreement with Philips Communication Systems B.V.*/ 6/

         13       Annual Report to Shareholders for the fiscal year ended October 31, 1998

         22       Subsidiaries of the Registrant 11/

         24       Consent of PricewaterhouseCoopers LLP
</TABLE>

---------

  */ Confidential treatment has been granted for portions of this document.
  1/ Filed  as an  Exhibit  to  Registration  Statement  on Form  S-1,  File No.
     33-31710, and incorporated herein by reference.
  2/ Filed as an Exhibit to Annual Report on Form 10-K for the fiscal year ended
     October 31, 1988.
  3/ Filed as an Exhibit to Annual Report on Form 10-K for the fiscal year ended
     October 31, 1991.
  4/ Filed as an Exhibit to Annual Report on Form 10-K for the fiscal year ended
     October 31, 1992.
  5/ Filed as an Exhibit to Annual Report on Form 10-K for the fiscal year ended
     October 31, 1993.
  6/ Filed as an Exhibit to Annual Report on Form 10-K for the fiscal year ended
     October 31, 1994.
  7/ Filed as an Exhibit to Annual Report on Form 10-K for the fiscal year ended
     October 31, 1995.
  8/ Filed  as an  Exhibit  to  Registration  Statement  on Form  S-8,  File No.
     333-07981, and incorporated herein by reference.
  9/ Filed as an Exhibit to Annual Report on Form 10-K for the fiscal year ended
     October 31, 1997.
 10/ Filed  as an  Exhibit  to  Registration  Statement  on Form  S-8,  File No.
     333-69025, and incorporated herein by reference.
 11/ Filed as an Exhibit to Annual Report on Form 10-K for the fiscal year ended
     October 31, 1998.

       Reports on Form 8-K

No reports on Form 8-K were filed by the  Company  during the fiscal  year ended
October 31, 1998.


                                       27
<PAGE>

OTHER MATTERS
-------------
For the purposes of complying  with the  amendments to the rules  governing Form
S-8 (effective  July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by  reference  into  registrant's  Registration  Statements  on Form  S-8,  Nos.
33-30965 (filed September 11, 1989) and 33-34094 (filed March 30, 1990):

Insofar as indemnification  for liabilities  arising under the Securities Act of
1933 may be permitted to  directors,  officers  and  controlling  persons of the
registrant pursuant to the foregoing  provisions,  or otherwise,  the registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such indemnification is against public policy as expressed in the Securities Act
of  1933  and is,  therefore,  unenforceable.  In the  event  that a  claim  for
indemnification  against  such  liabilities  (other  than  the  payment  by  the
registrant of expenses  incurred or paid by a director,  officer or  controlling
person of the  registrant  in the  successful  defense  of any  action,  suit or
proceeding)  is  asserted by such  director,  officer or  controlling  person in
connection with the securities being registered,  the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.


                                       28