SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                    FORM 10-Q

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

                For the Quarterly Period Ended December 31, 2000

                                       OR

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

                  For The Transition Period From _____________
                                To _____________

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

                         Commission File Number 0-25309
                                    VMIC, INC
             (Exact name of registrant as specified in its charter)

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

                                DELAWARE 63-0917261
                 (State or other jurisdiction of (I.R.S.Employer
               incorporation or organization) Identification no.)


             12090 S. Memorial Parkway Huntsville Alabama 35803-3308
                                 (256) 880-0444
     (Address, including zip code and telephone number of principal offices)
                          ----------------------------

                                    NO CHANGE
       (Former name, address and fiscal year if changed since last report)
                          ----------------------------

     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 the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.



                          COMMON STOCK, $.10 PAR VALUE
                4,681,668 shares outstanding on December 31, 2000

<PAGE>


                                    FORM 10-Q
                                   VMIC, Inc.

             QUARTERLY REPORT FOR THE PERIOD ENDED DECEMBER 31, 2000



                                      INDEX


                                                    Page

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Balance Sheets as of December 31, 2000 (Unaudited)
         and September 30, 2000...............................................1

         Condensed Statements of Operations for the Three Months Ended
         December 31, 2000 and December 31, 1999 (Unaudited)..................2

         Condensed  Statements of Cash Flows for the Three Months Ended
         December 31, 2000 and December 31, 1999 (Unaudited)..................3

         Notes to Condensed Financial Statements (Unaudited)..................4

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ...............................................7

Item 3.  Quantitative and Qualitative Disclosures About Market Risk..........12

Part II. OTHER INFORMATION

         Signatures..........................................................19




<PAGE>

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements


VMIC, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
                                                                                           December 31,     September 30,
                                                                                             2000              2000
                                                                                          (Unaudited)
                                                                                          -------------   ---------------
<S>                                                                             <C>                       <C>
                                     ASSETS

Current assets:

   Cash and cash equivalents                                                     $            1,593,044   $       593,400
   Accounts receivable, net of allowance for doubtful accounts of
     $250,603 at December 31, 2000 and September 30, 2000                                     6,678,516         6,369,480

   Inventories                                                                                7,565,968         7,641,513

   Prepaid expenses                                                                             197,041           132,826
   Income tax receivable                                                                         10,238             5,238

   Deferred income taxes                                                                        517,339           517,339
                                                                                  ---------------------   ---------------

          Total current assets                                                               16,562,146        15,259,796


Property, plant, and equipment, net                                                           8,543,326         8,885,123
Purchased product and software costs, net                                                       507,470           551,701
Software development costs, net                                                                 837,354           823,682
Deferred income taxes                                                                         1,624,399         1,624,399
                                                                                  --------------------    ---------------

                                                                                 $           28,074,695   $    27,144,701
                                                                                  =====================  ================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

   Accounts payable                                                              $            2,567,948   $     2,140,555
   Income tax payable                                                                           722,101            93,635
   Accrued liabilities                                                                        1,876,021         2,117,842
   Current portion of notes and mortgages                                                     3,331,083         5,070,255
                                                                                  ---------------------   ---------------


          Total current liabilities                                                           8,497,153         9,422,287


Notes and mortgages, less current portion above                                               6,514,324         6,298,980
                                                                                  --------------------    ---------------

          Total liabilities                                                                  15,011,477        15,721,267
                                                                                   --------------------   ---------------

Stockholders' equity:

   Common stock, par value $0.10 (10,000,000 shares authorized;  4,681,668

     and 4,668,403 shares issued and outstanding at December 31, 2000
     and September 30, 2000, respectively)                                                      468,167           466,840

   Additional paid-in capital                                                                 7,301,612         7,195,930
   Retained earnings                                                                          5,293,439         3,760,664
                                                                                  ---------------------    ---------------



          Total stockholders' equity                                                         13,063,218        11,423,434
                                                                                  ---------------------   ---------------

                                                                                 $           28,074,695   $    27,144,701
                                                                                  =====================   ================
See notes to condensed financial statements.

</TABLE>
                                       1
<PAGE>


VMIC, Inc.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
                                                                          Three months ended

                                                                      December 31,         December 31,
                                                                       2000                 1999
                                                                     -------------      ---------------
<S>                                                            <C>                    <C>

Sales:

    Hardware sales                                                $     12,689,038     $      8,152,625
    Software sales                                                         320,599              200,554
                                                                ------------------   ------------------
        Total sales                                                     13,009,637            8,353,179
                                                                ------------------   ------------------

Cost and expenses:

   Cost of products sold                                                 5,588,600            3,017,575
   Research and development expense                                      1,316,305            1,285,591
   Selling, general and administrative expense                           3,629,093            2,971,066
                                                                ------------------   ------------------
                                                                        10,533,998            7,274,232
                                                                -------------------  -------------------

          Operating income                                               2,475,639            1,078,947

Other expense, net                                                       (221,552)            (232,307)
                                                                 ------------------   -----------------

          Income before income taxes                                     2,254,087              846,640


Provision for income taxes                                                 721,308                   --
                                                                 ------------------   -----------------



          Net income                                              $      1,532,779     $       846,640
                                                                ===================  ==================

Net income per common and common equivalent share:

   Basic                                                                     $0.33                $0.18
                                                               ===================   ==================
   Diluted                                                                   $0.32                $0.18
                                                               ===================   ==================


Weighted average common and common equivalent

   shares outstanding:

     Basic                                                               4,674,279            4,594,912
                                                               ===================   ==================
     Diluted                                                             4,737,423            4,638,821
                                                               ===================   ==================



See notes to condensed financial statements.

</TABLE>


                                       2

<PAGE>



VMIC, Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>

<CAPTION>
                                                                               Three months ended

                                                                             December 31,     December 31,
                                                                                  2000             1999
                                                                          ----------------   -------------
<S>                                                                        <C>             <C>


Cash flows from operating activities:

   Net income                                                             $      1,532,779   $     846,640
    Adjustments  to  reconcile  net  income to net cash
      Provided  by  operating activities:
       Depreciation and amortization                                               691,425         622,042
       Stock issued in lieu of cash compensation                                        --          29,813
    Write-down of capitalized software costs                                        35,558              --
       Change in operating assets and liabilities:

          Accounts receivable                                                    (314,037)          67,589
          Inventories                                                               75,546       (475,634)
          Prepaid expenses                                                        (64,215)        (57,130)
          Income tax receivable                                                     10,238         101,315
          Accounts payable                                                         375,184       (162,459)
          Accrued liabilities                                                    (337,589)       (594,793)
          Income tax payable                                                       629,466              --
                                                                          ---------------- ---------------
              Total adjustments                                                  1,096,576       (469,257)
                                                                          ---------------- ---------------
              Net cash provided by operating activities                          2,629,355         377,383
                                                                          ---------------- ---------------
Cash flows from investing activities:

   Purchases of property, plant and equipment                                    (212,891)       (241,927)
   Software development costs and purchased product and
   software costs                                                                       --       (208,735)
                                                                           ---------------- --------------
               Net cash used in investing activities                             (212,891)       (450,662)
                                                                           ---------------- --------------
Cash flows from financing activities:

   Proceeds from issuance of long-term debt                                        788,918              --
   Principal payments on long-term debt                                        (2,312,747)       (396,263)
   Proceeds from issuance of Common Stock                                               --          89,475
                                                                           ---------------- --------------
               Net cash used in financing activities                           (1,416,820)       (306,788)
                                                                           ---------------- --------------
Net increase (decrease) in cash and
   cash equivalents                                                                999,644       (380,067)
Cash and cash equivalents, beginning of period                                     593,400         582,883
                                                                          ---------------- ---------------

Cash and cash equivalents, end of period                                  $    1,593,044     $     202,816
                                                                          ================ ===============

See notes to condensed financial statements.
</TABLE>

                                       3

<PAGE>





                                   VMIC, Inc.
                     Notes to Condensed Financial Statements
                                   (Unaudited)


1.     Basis of Presentation

       The accompanying  unaudited condensed financial  statements of VMIC, Inc.
       (the  Company)  have been  prepared  by  management  in  accordance  with
       generally   accepted   accounting   principles   for  interim   financial
       information  and in  conjunction  with the rules and  regulations  of the
       Securities and Exchange  Commission.  In the opinion of  management,  all
       adjustments  necessary for a fair  presentation of the interim  condensed
       financial  statements  have been included,  and all  adjustments are of a
       normal and recurring nature. The condensed financial statements as of and
       for  the  interim  period  ended  December  31,  2000  should  be read in
       conjunction  with the  Company's  financial  statements as of and for the
       year ended  September 30, 2000 included in the Company's  Form-10K  filed
       December 29, 2000.  Operating results for the three months ended December
       31,  2000  are not  necessarily  indicative  of the  results  that may be
       expected for the year ended  September  30, 2001.  The September 30, 2000
       balance sheet data  presented  herein was derived from audited  financial
       statements  but does not include all  disclosures  required by  generally
       accepted accounting principles.

2.     Stock Options

       The Company  granted 22,600 options to purchase shares of common stock on
       varying  dates  throughout  the quarter to  employees  under the Employee
       Stock Option Plan, at the market price as of the  effective  dates of the
       grants.  Also  options  to  purchase  7,465  shares of common  stock were
       exercised during the quarter.




                                       4

<PAGE>




                                   VMIC, Inc.
               Notes to Condensed Financial Statements (Continued)
                                   (Unaudited)

3.  Earnings Per Share (Unaudited)

Earnings Per Share:
A summary  of the  calculation  of basic and  diluted  earnings  per share is as
follows:
<TABLE>
<CAPTION>

                                                          Income               Shares          Per-Share
                                                        (Numerator)        (Denominator)         Amount
                                                   --------------------- ------------------ ----------------
<S>                                                <C>                   <C>                <C>

   Three months ended December 31, 2000

Basic EPS:

   Income available to common stockholders                 $    1,532,779          4,674,279       $    0.33
Effect of dilutive securities:
   Stock options                                                                      63,144

Diluted EPS                                                $    1,532,779          4,737,423       $    0.32

    Three months ended December 31, 1999

Basic EPS:

   Income available to common stockholders                 $      846,640          4,594,912       $    0.18
Effect of dilutive securities:
   Stock options                                                                      43,909

Diluted EPS                                                $      846,640          4,638,821       $    0.18
</TABLE>
<TABLE>
<CAPTION>

4.    Inventories

At December 31, 2000 and September 30, 2000,  inventories consist of
the following:

                                                         December 31,        September 30,
                                                            2000                 2000
                                                         (Unaudited)
                                                    --------------------- ------------------
<S>                                                 <C>                   <C>

Raw Materials                                             $     4,840,262     $    4,146,871
Work in Process                                                 1,429,541          2,361,306
Finished Goods                                                  1,563,361          1,400,532
                                                    --------------------  ------------------
                                                                7,833,164          7,908,709

Less: Reserve for Inventory Obsolescence                        (267,196)          (267,196)
                                                    --------------------  ------------------

                                                           $    7,565,968     $    7,641,513
                                                    ===================== ==================
</TABLE>

                                       5
<PAGE>




 5.    Segment Reporting (Unaudited)

       The Company's  reportable  segments are based on the Company's  method of
       internal  reporting  which  is  disaggregated   operationally.   The  two
       reportable segments, U.S. and International, are evaluated based on gross
       profit; therefore, selling, general, and administrative costs, as well as
       research and development expense,  interest income, interest expense, and
       provision for taxes is reported on an entity-wide basis only.

       The accounting  policies of the segments are the same as those  described
       in the  summary of  significant  accounting  policies  to the extent such
       policies  affect  the  reported  segment  information.   The  operational
       distributions  of the  Company's  revenues and gross margin for the three
       months ended December 31, 2000 and 1999 are summarized as follows:




                                          Three Months Ended

                                    December 31,      December 31,
                                        2000              1999
                                 ------------------  ------------------


Total Sales:

        U.S.                        $     10,373,115   $    6,821,959
        International                      2,636,522        1,531,220
                                 ------------------- -----------------
                                    $    13,009,637    $    8,353,179
                                 ================== =================
Gross Profit:

       U.S.                         $     5,967,546    $    4,522,325
       International                      1,453,491           813,279
                                 ------------------ -----------------
                                    $     7,421,037    $    5,335,604
                                 ================== =================



The Company's identifiable assets as of December 31, 2000 and 1999 relate
to the U.S. Segment only.

6.   Recently Issued Accounting Standards

     In 1999, the Company adopted  Statement of Financial  Accounting  Standards
     (SFAS) No. 131,  Disclosures  about  Segments of an Enterprise  and Related
     Information that requires the use of the management approach in identifying
     operating segments of the Company. Under the management approach, operating
     segments of an enterprise  are identified in a manner  consistent  with how
     the Company makes operating  decisions and assesses  performance.  SFAS No.
     131 also  requires  disclosures  about  products and  services,  geographic
     areas, and major customers. The adoption of SFAS No. 131 did not affect the
     Company's  results of operations  or financial  position but did affect the
     disclosure of segment  information  for the three months ended December 31,
     2000 and 1999 (see Note 13).

     In 1999,  the  Financial  Accounting  Standards  Board issued  Statement of
     Financial Accounting  Standards No. 133 (subsequently  amended by SFAS Nos.
     137 and 138), Accounting for Derivative Instruments and Hedging Activities,
     which  established  new accounting  and reporting  standards for derivative
     instruments.   This  statement   requires  the  Company  to  recognize  all
     derivatives  as  either  assets or  liabilities  on the  balance  sheet and
     measure the effectiveness of the hedges, or the degree that the gain (loss)
     for the hedging  instrument  offsets the loss (gain) on the hedged item, at

                                       6
<PAGE>

     fair value each reporting period. The effective portion of the gain or loss
     on the  derivative  instrument  will be recognized  in other  comprehensive
     income as a  component  of  stockholders'  equity  until the hedged item is
     recognized in earnings.  The ineffective portion of the derivative's change
     in fair value will be  recognized  in  earnings  immediately.  The  Company
     currently  does  not hold  derivative  instruments  or  engage  in  hedging
     activities.


     In 1999, the Securities and Exchange  Commission  released Staff Accounting
     Bulletin ("SAB") 101,  Revenue  Recognition in Financial  Statements.  This
     pronouncement  summarizes  certain  of the SEC  staff's  views on  applying
     generally  accepted  accounting  principles  to  revenue  recognition.  The
     Company has reviewed  the  requirements  of SAB 101 and  believes  that its
     existing  accounting  policies are in accordance with the guidance provided
     in the SAB.


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following  discussion and analysis  should be read in  conjunction  with the
Company's financial statements and notes thereto.

Except for  historical  information  contained  herein,  this  quarterly  report
contains forward-looking  statements as defined in Section 21E of the Securities
Exchange Act of 1934.  Such  forward-looking  statements  are subject to various
risks and  uncertainties  that could cause actual  results to differ  materially
from  those  projected  in  the  forward-looking  statements.  These  risks  and
uncertainties  are  discussed  in  more  detail  in the  following  Management's
Discussion and Analysis of Financial Condition and Results of Operations section
and the  Quantitative and Qualitative  Disclosures  About Market Risk section of
this  quarterly  report.  These  forward-looking  statements  can  be  generally
identified as such because the content of the  statements  will usually  contain
such words as the Company or management  "Believes",  "Anticipates",  "Expects",
"Plans" or words of similar  import.  Similarly,  statements  that  describe the
Company's  future plans,  objectives,  goals, or strategies are  forward-looking
statements.

The forward-looking  statements included in this Form 10-Q are also subject to a
number of risks and  uncertainties,  including,  but not limited  to,  economic,
competitive,  governmental  and  technological  factors  affecting the Company's
operations, markets, products, services, prices and other risk factors listed in
the  Company's  Form  10-K  for  the  year  ended  September  30,  2000.   These
forward-looking  statements are not guarantees of future  performance and actual
results,  developments and business decisions may differ from those expressed or
implied by these forward-looking statements.

Overview

VMIC is a supplier of standard bus boards,  software and systems  products which
are used in applications  involving  markets such as  telecommunications,  Fibre
Channel storage area networks (SANs), medical,  industrial automation,  test and
measurement  and  defense.  VMIC  supplies a variety of products to all of these
markets;  however,  the Company's focus is high-volume original equipment market
(OEM)   applications   involving  the  PC  single  board   computer   (SBC)  and
communications/networking  products.  VMIC has  entered  the SAN  market and the
computer  networking  industry  with Fibre  Channel  products that are also used
throughout  these markets.  SAN and computer  networking have wide  applications
throughout the computer industry.

The Company has focused its attention on two key product  revenue areas that are
experiencing high growth:

      * Embedded Intel(R) central processing units or CPUs
      * Communications/networking products, such as Fibre Channel, SCSI, gigabit
        Ethernet, and Reflective Memory networks
                                       7
<PAGE>

VMIC specializes in open architecture,  nonproprietary, standard computer buses,
such as VMEbus,  PCI bus,  CPCI,  PMC,  PCI-X,  and  PC-MIP.  Companies  such as
Motorola, Intel, Hewlett-Packard, Sun, Microsoft, Dell, Compaq and other leaders
in the industry support these open architecture buses. The Company  manufactures
its own products to enable it to meet its  customers'  demands for high quality,
responsiveness, reliability and low cost, while reducing time-to-market and life
cycle  costs.  The  Company's  manufacturing  facility  supports  medium-volume,
high-mix production and high-volume production using state-of-the-art equipment.
The Company  markets its  products  in more than 60  countries  through a direct
sales  staff  and a network  of  manufacturers'  representatives,  international
distributors  and remote offices in Texas,  the Carolinas,  Florida,  and Paris,
France.

The  Company's  objective  is to  become a  leading  supplier  of  standard  bus
board-level  products and software to the embedded  computer market with a focus
on  high-volume  OEM  applications.   Embedded   computers  are  different  from
general-purpose  computers in that  embedded  computers  are designed to perform
repetitive  tasks,  whereas  other  computers are more flexible in their use and
applications.  Embedded  computer  products are used throughout  markets such as
telecommunications,  SAN, defense,  medical,  industrial automation and test and
measurement.  The  Company  differentiates  itself  in these  markets  through a
feature-rich  hardware  product line and  supporting  software that obviates the
need for customers to invest in VMIC product-specific software development.

VMIC,  headquartered in Huntsville,  Alabama,  is a 16-year-old company with 230
employees, and operates from more than 77,000 square feet in four buildings.

VMIC  achieved  five design wins in the quarter  ended  December 31,  2000.  The
Company characterizes a design win as a project estimated to produce $500,000 or
more in revenue per year when in  production.  Of the five design  wins,  one is
expected  to  produce  $1  million  or more in  revenue  per  year  once in full
production.  Of these five design wins,  three  involve  SBCs for two  different
telecom customers and one defense/aerospace  customer. The other two design wins
involve VMIC  Reflective  Memory  products for two  different  telecommunication
customers.

Design wins typically result in production  volume  manufacturing  within 3 to 9
months  following  the design win. A variety of risks can affect these  programs
before the start of  production,  such as schedule  delays,  changes in customer
markets and customer product sales volume.

Management's  Discussion  and Analysis of Financial  Conditions  and Results of
Operations

The  Company's  development  and delivery of new products has been focused on PC
(Intel based) embedded SBCs, Fibre Channel,  SCSI, and gigabit Ethernet host bus
adapters (HBA) and software to support the Company's  focus on higher volume OEM
product sales.

During the quarter ended  December 31, 2000,  the Company  introduced  seven new
products.  VMIC  introduced the  VMIPMC-5790,  a dual-channel  Ultra160 SCSI HBA
board based on the PMC form  factor with a transfer  rate of up to 160 Mbyte per
channel. It is also backward compatible to previous generations of SCSI.

                                       8
<PAGE>

VMIC introduced the VMIPMC-5664,  a single-width PMC module  containing a single
Fibre Channel HBA with redundant external ports that is targeted at storage area
networks,  the server  clustering  environment,  Internet/Intranet  and  network
applications.

VMIC introduced the VMIPCI-5790,  a dual-channel  Ultra160 SCSI HBA based on the
PCI form factor and designed for servers, workstations and PC applications.  The
VMIPCI-5790  HBA provides  two  independent  Ultra160  SCSI  channels,  offering
increased  connectivity  without  utilizing  additional PCI slots.  Each channel
provides  one  internal  and one  external  connector  supporting  both  LVD and
single-ended SCSI with a transfer rate totaling up to 320 Mbyte/s.

VMIC  announced  the  VMIPCI-5760,  a  single  board,  highly  integrated  Fibre
Channel/Ultra160  dual SCSI HBA. VMIC has combined these two important functions
on a single  board that allows  premium  slot space to be spared for other uses.
The Fibre Channel component of the HBA connects the PCI bus to a 1 gigabit Fibre
Channel loop, fabric or to a point-to-point  network. It maximizes Fibre Channel
throughput while minimizing  transfer latency and host processor  overhead.  The
SCSI component of the HBA connects the PCI bus to two independent  Ultra160 SCSI
buses, each of which has a potential  throughput of up to 160 Mbyte/s.  Both the
Fibre Channel and Ultra160 SCDI portions of the HBA are backward compatible with
32-bit/33 MHz PCI.

VMIC  announced  the  Linux  Host  Software   Support  Package  (HSSP)  for  the
Intelligent  I/O  Controller   (IIOC)  product  line.  As  Linux  gains  greater
acceptance throughout the computer industry, it is essential to support Linux by
way of  application  and  hardware  compatibility.  The Linux  HSSP  allows  the
software engineer to easily and quickly integrate  application software with I/O
devices supported by the IIOC.

VMIC  introduced  the  VMICPCI-7715  that  brings the Intel  FC-PGA  Pentium III
processor to the CompactPCI(R)  (CPCI) bus, offering  processor speeds up to 850
MHz.  The  VMICPCI-7715  is a  single-slot  system  controller  featuring a rear
I/O-based design. The rear I/O is beneficial for applications requiring that the
I/O module be replaced without disturbing the cabling to the module.  This board
also  features a PMC  expansion  site and optional  LVDS rear I/O for flat panel
support. Such features are required for telecom applications.

VMIC  released  a  1  GHz  (1,000  MHz)  Intel  Pentium  III  processor  on  its
VMIVME-7697A SBC. The VMIVME-7697A also has real-time features such as 128 Mbyte
flash,  battery-backed  SRAM, three 32-bit timers, up to 192 Mbyte  CompactFlash
and a  software-selectable  watchdog  timer,  which  makes this  Pentium III SBC
offering ideal for embedded applications that require high-speed performance.

                                       9
<PAGE>

Three Months Ended December 31, 2000 Compared to Three Months Ended
December 31, 1999

Sales

Sales for the quarter ended December 31, 2000 were $13.0 million, a 54.8 percent
increase from sales of $8.4 million for the quarter ended December 31, 1999.

International  sales for the quarter  ended  December  31, 2000  increased  73.3
percent to $2.6 million  compared to $1.5 million for the quarter ended December
31, 1999.  Domestic sales for the quarter ended December 31, 2000 increased 52.9
percent to $10.4 million compared to $6.8 million for the quarter ended December
31, 1999.  Systems sales  increased 90.0 percent to $1.9 million for the quarter
ended  December 31, 2000 compared to $1.0 million for the quarter ended December
31,  1999.  Systems  sales  include the sale of a mixture of products  involving
input/output  hardware  and  software  typically   preconfigured  to  customers'
specifications.   Our   investment  in  PC-based   control   software  has  been
instrumental  in  expanding  our  I/O  systems   business  into  the  industrial
automation market arena.

Sales were generated  primarily from four product areas involving  input/output,
communications/networking,  SBCs and software.  Sales for input/output  products
increased  15.4 percent to $4.5 million for the quarter ended  December 31, 2000
compared   to  $3.9   million   for  the  same   period   in  1999.   Sales  for
communications/network  products  increased  36 percent to $3.4  million for the
quarter ended  December 31, 2000 compared to $2.5 million for the same period in
1999. Sales for SBCs increased 167 percent to $4.8 million for the quarter ended
December 31, 2000 compared to $1.8 million for the same period in 1999.

Sales for software  increased  59.7  percent to $321,000  for the quarter  ended
December 31, 2000 compared to $201,000 for the same period in 1999.

Sales  increases  were  generated  because  of new  products,  our  focus on new
markets,  OEM accounts and generally better business conditions during the first
quarter of fiscal year 2001.

                                       10

<PAGE>



Gross Profits

For the quarter ended December 31, 2000, gross profits increased 39.6 percent to
$7.4  million  from $5.3 million for the quarter  ended  December 31, 1999.  The
increase was generated  because the Company  increased  sales while  controlling
increases in cost of products sold.

Gross margins as a percentage of sales are expected to decrease as the Company's
lower margin products  business  becomes a larger portion of the Company's total
sales mix.

Selling, General and Administrative Expense

For the quarter ended  December 31, 2000,  selling,  general and  administrative
(SG&A) expense increased 20.0 percent to $ 3.6 million from $3.0 million for the
quarter  ended  December 31,  1999.  The  increase is  primarily  attributed  to
additional  sales and marketing costs and the addition of new employees in sales
and administration positions.

SG&A expense for the quarter ended  December 31, 2000  decreased as a percentage
of revenues to 27.9 percent from 35.6 percent for the quarter ended December 31,
1999, because of continued cost controls.

Research and Development Expense

For the quarter ended December 31, 2000,  research and development (R&D) expense
remained  constant at $1.3 million  compared to the quarter  ended  December 31,
1999.

R&D expense  decreased to 10.1 percent of sales for the quarter  ended  December
31, 2000 from 15.4 percent of sales for the quarter ended December 31, 1999.

Software Development Costs

During  the  quarter  ended  December  31,  2000,  VMIC  had two  categories  of
capitalized software products under development as follows:

<TABLE>
<S>                       <C>                           <C>                       <C>

     Software Product              Capitalized                 Write-Down                  Balance of
         Category                                                                      Capitalized Amount
-------------------------- ---------------------------  ------------------------- ----------------------------
IOWorks (PC-Based Control)                     $33,058                     $6,010                      $27,048
-------------------------- ---------------------------  ------------------------- ----------------------------
Board Drivers*                                 $35,438                    $13,580                     $236,488
-------------------------- ---------------------------  ------------------------- ----------------------------

*Includes software drivers for products such as SBCs, communications/networks and I/O
products.
</TABLE>

The write-downs  for  capitalized  software were taken because of recent studies
that  indicated  historical  sales and  forecasted  sales were  insufficient  to
continue  capitalization of certain software modules.  Accordingly,  the Company
elected  to  write-down  the  capitalized  value of some  software  modules  and
discontinued  the  capitalization  of research and  development  cost related to
other software modules.

Income Taxes

Provision for income taxes for the quarter ended December 31, 2000 was $721,308.
The Company's  effective tax rate of 32% is below the statutory  rate  primarily
due to research and experimentation  tax credits.  There was no tax provision in
the first  quarter  of the  prior  year,  as the  Company  had a full  valuation
allowance on its deferred tax assets

Net Income

Net income increased by 81.0% to $1.5 million for the quarter ended December 31,
2000  compared to $0.8 million for the quarter  ended  December  31, 1999.  This
increase was  attributed  to the Company's  increased  sales,  cost  containment
measures and controlled increases in operating expenses.

                                       11
<PAGE>


Liquidity and Capital Resources

Historically,  VMIC's cash flow from operations and available credit  facilities
has  provided  adequate  liquidity  and  working  capital to fully  fund  VMIC's
operational  needs. As of December 31, 2000,  VMIC's variable line of credit for
working capital was $8.0 million,  of which $1.2 million was used. The Company's
cash flow was sufficiently  positive during the quarter to reduce our borrowings
on our working line of credit from $3.0 million to $1.2  million.  The Company's
variable line of credit expires June 30, 2001.

The lines of credit require the Company to maintain  certain loan covenants and,
as of December 31, 2000, the Company was in compliance with such covenants.

Working  capital  was $8.1  million at  December  31,  2000 and $5.8  million at
September 30, 2000. Included in working capital are cash and cash equivalents of
$1.6  million at December 31, 2000  compared to $593,400 at September  30, 2000.
Operating  activities  for the quarter  ended  December 31, 2000  provided  $2.6
million of cash. Cash used in investing activities was $212,891 and cash used in
financing activities was $1.4 million for the quarter ended December 31, 2000.

Inventory turnover for the quarter ended December 31, 2000 was approximately 122
days  compared  to  approximately  153 days for the same  period  in 1999.  This
decrease is  attributable  to higher  sales and improved  inventory  management.
Accounts receivable from customers were outstanding on average  approximately 50
days for the quarter ended December 31, 2000 compared to  approximately  53 days
for the same period in 1999.

VMIC believes that its financial  resources,  including its internally generated
funds and debt  capacity,  will be sufficient to finance its current  operations
and capital expenditures for the next twelve months.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  Company's  business  and  financial  performance  are  subject to risks and
uncertainties, including those discussed below.

The  Company  may not be able to compete  effectively  in its  current or future
markets.

The  standard  bus  embedded  computer   industry  is  highly   competitive  and
fragmented, and the Company faces significant competition in each of its product
markets. The Company's  competitors differ depending on product type, geographic
market and application type.  Several of VMIC's competitors are well established
and have greater  assets and  financial  resources  than the  Company,  and have
larger marketing and research and development budgets.  Several of the Company's
competitors also have larger service organizations.

Competition in the Company's business areas is influenced by technical capacity,
customer support, product longevity,  supplier stability, and breadth of product
offerings,   reliability,   performance  and  price.  Accordingly,   even  small
competitors  who  develop  technologically  similar or advanced  products  could
successfully  compete  with the  Company.  Other  competitors  have  established
relationships  with  customers  or  potential   customers  that  afford  them  a
competitive  advantage.  There can be no assurance that the Company will be able
to compete effectively in its current or future markets or whether the Company's
technology and designs will be viable in the marketplace in the future.

                                       12
<PAGE>

The  Company  recently  entered  into new  product  markets and may be unable to
develop  the  technologies  or market  presence  necessary  to  succeed in these
markets.

VMIC's  recent  entry into  vertically  integrated  markets  such as  Industrial
Automation  and storage  area  networks  has required the Company to develop new
hardware and software  products.  However,  these new products,  while  offering
potential  new revenue  sources,  may not  achieve  market  acceptance,  and the
failure  to succeed  in these  markets  could  materially  impact the  financial
condition of VMIC.

The Company has diverted  research and development  resources from core products
to new technologies.

The Company has recently undertaken substantial research and development efforts
outside of its core business with the intent of increasing  its revenue base and
growth  potential.  This is  reflected  in the  Company's  strategy  of offering
PC-based   control   software  or  IOWorks,   embedded  PC  board  products  and
communication  products,  such as Fibre  Channel  and  Reflective  Memory to the
Storage Area Network,  Industrial Automation and Telecommunications  markets and
other more  vertically  integrated  markets.  To implement  this  strategy,  the
Company  reduced its research and  development  investments in its core business
while  significantly  increasing its investment in the new products  designed to
address these more vertical markets. If the Company is unsuccessful in these new
markets,  it will be  dependent  on its core  business  to  maintain  historical
operating  results.  VMIC may not be able to maintain its  historical  operating
results,  however,  because  it  has  substantially  reduced  its  research  and
development investments in its core business.

Sales of the  Company's  new products may not meet the growth  objectives of the
Company.

Some of the  Company's  new  hardware  products  will be  sold at  lower  profit
margins,  and the  Company  requires  significant  market  acceptance  of  these
products  to meet its  growth  objectives.  While  there  has  been  significant
customer interest in these new products,  Reflective  Memory,  Fibre Channel and
PC-based products  generated a significant  percentage of the Company's revenues
in 2000. There can be no assurance that these new products will be successful to
the extent necessary to meet VMIC's growth objectives. If these new products are
not successful, the Company's operating results and financial condition could be
materially adversely affected.

The Company has increased its debt level and working capital requirements.

Traditionally,  the  Company  has  utilized  long-term  liabilities  as a  major
financing  source.  Long-term  debt of the Company rose from $200,000 in 1986 to
approximately $6.5 million as of December 31, 2000. The Company's utilization of
long-term debt is somewhat higher than the average  company in this industry.  A
primary  reason for the increase in long-term  debt was the need for the Company
to manage its growth.  The Company  believes its current  revenue  level will be
sufficient to service its long-term debt.  However,  if the revenues and profits
of the Company substantially decrease, it will be more difficult for the Company
to service its long-term  debt,  meet its current  obligations and continue with
its current  business  plan.

The  Company's  products  may become  obsolete  and the Company may be unable to
respond to future market needs.

Most of the Company's products are developed to meet certain industry standards.
These  standards  continue to develop and are subject to change.  Elimination or
obsolescence  of all or  some  of  these  standards  could  affect  the  design,
manufacture,  and sale of the Company's products and may require costly redesign
to meet new or emerging standards.


                                       13
<PAGE>


In general,  technology  in the  computer  industry,  and the computer bus board
industry   specifically,   is  subject  to  rapid   technological   change.  The
introduction of new technology and products by others could adversely affect the
Company's business. There is no assurance that future advances in technology may
not make the Company's  existing  product line obsolete,  resulting in increased
competition  and requiring  the Company to undertake  costly  redesign  efforts.
There can be no  assurance  that the  Company  will be able to  incorporate  new
technology   into  its  product  lines  or  redesign  its  products  to  compete
effectively.

Moreover,  because new products and  technologies  require  commitments  well in
advance of sales,  decisions with respect to those  commitments  must accurately
anticipate  both future demand and the technology that will be available to meet
that  demand.  There  can be no  assurance  that  the  Company  will  be able to
successfully anticipate or adapt to future technological changes, and failure to
do so may materially adversely affect the


Company's business, financial condition, or results of operations.

The Company may  experience  reduced cash flows as a result of selling  products
with  smaller  margins,  fluctuations  in  operating  results and  increases  in
expenses.

The Company is  dependent  upon the success of its  recently  developed  IOWorks
software to increase the sales of I/O system products. The Company has also made
significant  investments  in  embedded  PC  board  products  and  communications
products such as Reflective  Memory and Fibre Channel to substantially  increase
revenue  growth.   Embedded  PC  boards  products  and  communications  products
typically yield smaller margins than the Company's  traditional  product mix and
the Company's profits could therefore erode in future periods.

In addition, the Company has experienced reduced net cash flows, attributable to
substantial  software  development,  inventory  expansion,  building  expansion,
purchased  technologies  associated  with  PC  SBCs,  expanded  use of  internal
products for software  development and  fluctuations in the Company's  operating
results. Moreover, because of the Company's high level of current fixed expenses
and working  capital  requirements,  and because the Company  believes it should
continue its current  business  strategy of expending  substantial  resources on
research and  development,  VMIC may experience a negative cash flow position in
future periods.

The Company may not be able to successfully  protect its  intellectual  property
and confidential information.

The Company's  success is, to a significant  degree,  attributable to the unique
features  of  its  software,   proprietary  technology  and  other  confidential
information.  Unfortunately,  the software and information technology industries
have experienced widespread  unauthorized  reproduction of software products and
other proprietary  technology.  While the Company has some patent protection for
its hardware  products,  the Company's  software is not  patented,  and existing
copyright  law  offers  only  limited  practical  protection.  For  most  of its
intellectual  property protection,  VMIC relies on a combination of trade secret
laws, copyright  protection,  common law intellectual  property rights,  license
agreements, nondisclosure and other contractual provisions. The Company does not
sell its software source code or provide its customers access to the source code
associated with its software products.

There is no assurance that the Company will be able to protect its trade secrets
or  that  others  will  not  independently  develop   substantially   equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade  secrets.  There is no assurance that foreign  intellectual  property laws
will protect the  Company's  intellectual  property  rights.  In  addition,  the
computer industry is characterized by frequent  litigation  regarding patent and
other  intellectual  property  rights,  and  litigation has been, and may in the
future be necessary to enforce the Company's  trade secrets or to defend against
claims of patent  infringement.  While VMIC believes that its proprietary rights
do not infringe upon the proprietary rights of others,  third parties may assert
infringement  claims against the Company in the future and such assertion  could
cause the Company to enter into a license agreement or royalty  arrangement with
the party asserting the claim. The Company may also be required to indemnify its
customers  for claims made against  them.  Responding  to and defending any such
claims,  developing  noninfringing  intellectual  property or acquiring licenses
could  have a  material  adverse  affect on the  Company's  business,  financial
condition or results of operations.


                                      14
<PAGE>

The Company may not be able to adequately finance its continued growth

The  Company has been  growing  since  1986,  during  which time the Company has
experienced   increased  debt,  sales  growth,  high  research  and  development
expenditures,  and an increased asset base.  There are certain risks inherent in
any growing company  arising from such factors as increased  working capital and
capital  expenditure  requirements.  Moreover,  the Company's  business strategy
calls for  substantial  continued  investment in new products.  The Company also
anticipates  expanding its inventory and  increasing its investment in equipment
and  other  fixed  assets.  There  is no  assurance  that  the  Company  will be
successful in obtaining  additional  long-term debt or equity  financing,  or if
obtained, there can be no assurance that the debt or equity financing will be on
terms favorable to the Company or its  stockholders.  The failure of the Company
to obtain  additional funds, or the obtaining of such funds on unfavorable terms
could adversely  affect the financial  performance and prospects of the Company.
Any equity investment on unfavorable  terms could cause substantial  dilution to
the stockholders.

The Company will be required to expense certain  software  development  costs if
software  sales  are  not  sufficient  to  amortize  the  capitalized   software
development costs over a five-year period.

In  fiscal  year  1996,  the  Company  began  to  capitalize  development  costs
associated with its IOWorks software and certain other products.  The Company is
required to amortize its capitalized  software costs against future sales of the
software products over a five-year period after the release of the products. The
Company  accounts  for  these  software  development  costs in  accordance  with
Statement of Financial  Accounting Standards No. 86, Accounting for the Costs of
Computer  Software  to be  Sold,  Leased  or  Otherwise  Marketed.  The  Company
capitalizes  certain costs incurred in the production of computer  software once
technological  feasibility  of the product to be marketed has been  established.
Capitalization  of these costs ceases when the product is  considered  available
for general release to customers.

The  establishment  of technological  feasibility and the ongoing  assessment of
recoverability of capitalized  software  development costs require  considerable
judgment by the Company.

If software sales are not sufficient to amortize the capitalized  costs over the
five-year period, the Company is required to expense those capitalized costs. In
1999,  the  Company  recorded a $5.3  million  write-down  of  certain  software
development costs and purchased product and development costs.


                                      15
<PAGE>

The Company relies on suppliers for many of its electronic  components,  some of
which can only be obtained from a single source.

Most of the  Company's  products  contain  state-of-the-art  digital  electronic
components and integrated circuits.  The Company is dependent upon third parties
for the continuing  supply of most of these components and all of its integrated
circuits.  Some of these  components  are obtained from a sole supplier (such as
QLogic, Altus, Triquent,  Intel, AMD, Tundra and Cypress) or a limited number of
suppliers for which alternative sources would be difficult to locate.  Recently,
the Company has experienced  difficulties in purchasing components for its Fibre
Channel  products  from QLogic.  The Company has also  experienced  shortages of
integrated  circuits  and  other  key  components  from  time to time.  This has
sometimes resulted in delays in product deliveries.  The Company has also had to
terminate its marketing of certain products, even newly developed products, when
a  component  supplier  terminated  its  production  of  a  critical  component.
Moreover,   suppliers  may   discontinue  or  upgrade  some  of  the  components
incorporated  into the  Company's  products,  which could require the Company to
redesign a product to incorporate newer or alternative technology.  Although the
Company  believes it maintains good  relationships  with its suppliers,  and has
arranged  for  an  adequate   supply  of  components  to  meet  its   short-term
requirements, any unavailability of components could cause delayed shipments and
lead to customer  dissatisfaction.  Any sustained  unavailability  of components
could materially  adversely affect the Company's operating results and financial
condition.

The Company has limited manufacturing facilities and must rely on subcontractors
to complete some of the Company's products.

The Company relies on  subcontractors  for  manufacturing  some of the Company's
products.  The  contractors may experience  delays because of quality  problems,
backlog,  component availability,  financial difficulty or other situations that
could have an adverse  effect on the  Company's  operating  results and customer
relationships.  In this event,  the Company may be required to find  alternative
subcontractors,  and there  can be no  assurance  that the  Company  could  find
suitable subcontractors.

The loss of one or more major  customers or a number of smaller  customers could
adversely affect the Company's revenues and profits.

Sales to two major customers  accounted for approximately 12.7 percent of VMIC's
sales in 1999 and 9.6 percent of VMIC's sales during 2000.  If either or both of
these customers discontinued purchasing products from the Company, the Company's
operating  results  and  financial  condition  could  be  materially   adversely
affected.  In  addition,  in fiscal year 1999,  approximately  31 percent of the
Company's sales were derived directly or indirectly from various agencies of the
U. S.  Department of Defense.  Although the  percentage  of the Company's  sales
derived from  governmental  contracts has decreased from a high of 75 percent in
1986, the Company  expects that the government will continue to be a significant
source of sales. It is possible that changes in national policy or other factors
could  result in reduced  defense  spending,  which could  materially  adversely
affect the operating results and financial condition of the Company.

                                       16

<PAGE>
Lack of a public market and certain transfer restrictions.

There presently  exists no public market for the shares of the Company's  stock,
nor is there any  likelihood of one  developing in the near future.  A holder of
the Company's Common Stock may not be able to liquidate his or her position when
liquidity is needed and may be required to retain the securities indefinitely.

Control by existing stockholders.

Carroll  E.  Williams  and Mary W.  Williams  own 35  percent  of the  Company's
outstanding Common Stock. Together, all of the current officers and directors of
the  Company  (including  Carroll  E.  Williams  and  Mary  W.  Williams)  own a
substantial  majority  of  the  Company's  Common  Stock.  Consequently,   these
individuals,  and  particularly  Carroll E. Williams and Mary W. Williams,  will
control  virtually  all  aspects of the  Company's  business  by virtue of their
ability  to  nominate  and elect  the Board of  Directors  and  officers  of the
Company.  As directors and officers of the Company,  they will (subject to their
fiduciary  duties) be entitled to develop and implement the Company's  course of
business.  Neither the Company's Articles of Incorporation nor its Bylaws permit
cumulative voting. Consequently, the remaining stockholders will not be entitled
to elect a representative to the Company's Board of Directors.


The Company Does Not Anticipate Paying Dividends.

Since its  incorporation,  the  Company  has never paid  dividends  and does not
anticipate paying cash dividends in the foreseeable future. The Company projects
that it will retain  future  earnings,  if any, to provide  working  capital and
implement the Company's business strategy. Also, pursuant to its loan agreement,
the Company's ability to pay dividends is substantially limited because the loan
agreement  requires the Company to maintain  certain  financial  ratios that the
Company believes would not be maintained if dividends were paid.

The Company may not be able to make acquisitions and the Company's  acquisitions
may not be successful.

Part of the Company's strategy for growth includes acquisitions of complementary
technologies  or businesses  that would enhance the  Company's  capabilities  or
increase  the  Company's   customer  base.  The  Company's   ability  to  expand
successfully through  acquisitions  depends on many factors,  including business
and  management's   ability  to  effectively   integrate  and  operate  acquired
companies.  The Company may compete  for  acquisition  opportunities  with other
companies that have  significantly  greater financial and management  resources.
There can be no assurance  that the Company will be  successful  in acquiring or
integrating any such technologies or businesses.



The Company may be subject to product liability claims.

The  Company's  products  and  services  may be subject to product  liability or
electronics  manufacturing  errors or omissions  liability  claims.  The Company
maintains  product  recall  insurance  with an aggregate  limit of $1.0 million,
primary  product  liability  and  electronics  errors  or  omissions   liability
insurance with a general  aggregate limit of $2.0 million,  and $1.0 million per
occurrence,  with a $2.0 million excess policy. While the Company has never been
the subject of any such claims, given the wide use of the Company's products and
the propensity of claimants to initially  pursue all possible  contributors in a
legal action,  there can be no assurance  that such coverage will be adequate to
protect the Company from liability. Further, the Company may be unable to obtain
insurance in the future at rates  acceptable  to the Company.  In the event of a
successful  lawsuit  against the Company,  insufficiency  of insurance  coverage
could have a material adverse effect upon the Company.


                                       17




<PAGE>




The  Company may not be able to retain and  recruit  key  employees  and skilled
personnel necessary to maintain or grow the business.

The Company's success will depend in large part on the continued services of its
key management, and technical personnel. The loss of the services of one or more
of the Company's key employees or the inability to hire additional key personnel
as needed  could  have a  material  adverse  effect on the  Company's  business,
financial  condition and results of  operations.  There can be no assurance that
the Company will be  successful in attracting  and retaining  needed  personnel.
While the Company is currently experiencing relatively low rates of turnover for
skilled  employees,  there can be no assurance that these rates of turnover will
not increase in the future.  The  inability of the Company to hire,  train,  and
retain a sufficient  number of qualified  employees  could impair the  Company's
ability to compete in its markets  resulting in a material adverse effect on the
Company's business, financial condition and results of operations.








                                       18
                                     <PAGE>






                                   FORM 10-Q
                                   VMIC, Inc.

PART II - OTHER INFORMATION

SIGNATURES

MANAGEMENT REPRESENTATION


           The  accompanying  Balance Sheets at December 31, 1999, and September
30,  1999 as  well  as the  Statements  of  Income,  Statements  of  Changes  in
Stockholders'  Equity and Statements of Cash Flows for the three months December
31, 1999, and 1999, have been prepared in accordance  with  instructions to Form
10-Q  and do not  include  all of the  information  and  footnotes  required  by
generally accepted accounting principles for complete financial  statements.  In
the opinion of management, all adjustments,  consisting only of normal recurring
accruals, considered necessary for a fair presentation have been included.





January 11, 2000
---------------                       By: Gordon Hubbert
Date
                                          Gordon Hubbert
                                          Vice President and Chief
                                          Financial Officer (Principal Financial
                                          and Accounting Officer)


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





January 11, 2000                           By: Carroll E. Williams
----------------

Date                                            Carroll E. Williams
                                                President and Chief
                                                Executive Officer










                                       19
                                     <PAGE>