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 March 31, 2001

                                       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
                 4,688,595 shares outstanding on March 31, 2001



<PAGE>
                                    FORM 10-Q
                                   VMIC, Inc.

              QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2001



                                      INDEX


                                                                            Page

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

         Condensed Balance Sheets as of March 31, 2001 (Unaudited)
         and September 30, 2000................................................1

         Condensed Statements of Operations for the Three and Six Months Ended
         March 31, 2001 and 2000 (Unaudited)...................................2

         Condensed Statements of Cash Flows for the Six Months Ended
         March 31, 2001 and 2000  (Unaudited)..................................4

         Notes to Condensed Financial Statements (Unaudited)...................5

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ................................................9

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........16

Part II. OTHER INFORMATION

         Signatures...........................................................23





<PAGE>




PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

VMIC, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>

                                                                                        March 31,         September 30,
                                                                                          2001                2000
                                                                                   -------------------- ------------------
                                     ASSETS                                             (Unaudited)
<S>                                                                                <C>                  <C>
Current assets:
    Cash and cash equivalents                                                           $    1,052,284       $    593,400
    Accounts receivable, net of allowance for doubtful accounts of
      $250,603 at March 31, 2001 and September 30, 2000
                                                                                             6,903,542          6,369,480
    Inventories                                                                              9,495,136          7,641,513
    Prepaid expenses                                                                           224,487            132,826
    Deferred income taxes                                                                      517,339            517,339
    Income tax receivable                                                                       10,238              5,238
                                                                                   -------------------- ------------------

           Total current assets                                                             18,203,026         15,259,796

Property, plant and equipment, net                                                           8,238,918          8,885,123
Purchased product and software costs, net                                                      463,238            551,701
Software development costs, net                                                                780,848            823,682
Deferred income taxes                                                                        1,624,399          1,624,399
                                                                                   -------------------- ------------------

                                                                                         $  29,310,429       $ 27,144,701
                                                                                   ==================== ==================

                      LIABILITIES AND STOCKHOLDERS' EQUITY


Current
liabilities:
    Accounts payable                                                                     $   2,806,754       $  2,140,555
    Current portion of notes and mortgages                                                   2,745,955          5,070,255
    Accrued liabilities                                                                      3,084,853          2,211,477
                                                                                   -------------------- ------------------

           Total current liabilities                                                         8,637,562          9,422,287

Notes and mortgages, less current portion above                                              6,128,274          6,298,980
                                                                                   -------------------- ------------------

           Total liabilities                                                                14,765,836         15,721,267
                                                                                   -------------------- ------------------

Stockholders' equity:
    Common stock, par value $.10 (10,000,000 shares authorized; 4,688,595 and
      4,668,403 shares issued and outstanding at March 31, 2001
      and September 30, 2000, respectively)                                                    468,860            466,840
    Additional paid-in capital                                                               7,353,461          7,195,930
    Retained earnings                                                                        6,722,272          3,760,664
                                                                                   -------------------- ------------------

           Total stockholders' equity                                                       14,544,593         11,423,434
                                                                                   -------------------- ------------------

                                                                                         $  29,310,429       $ 27,144,701
                                                                                   ==================== ==================
</TABLE>



The  accompanying  notes  are an  integral  part of  these  condensed  financial
statements.



                                       1
<PAGE>




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

                                                                         Three months ended
                                                                    March 31,            March 31,
                                                                       2001                2000
<S>                                                             <C>                  <C>
                                                                -------------------  ------------------
Sales:
Hardware sales                                                        $ 11,514,821         $ 8,953,659
Software sales                                                             240,806             297,909
                                                                -------------------  ------------------
        Total sales                                                     11,755,627           9,251,568
                                                                -------------------  ------------------

Cost and expenses:
    Cost of products sold                                                4,337,111           3,366,713
    Research and development expense                                     1,410,174           1,280,096
    Selling, general and administrative expense                          3,725,879           3,257,352
                                                                -------------------  ------------------

                                                                         9,473,164           7,904,161
                                                                -------------------  ------------------

           Operating income                                              2,282,463           1,347,407

Other expense, net                                                       (181,245)           (233,863)
                                                                -------------------  ------------------

           Income before income taxes                                    2,101,218           1,113,544

Provision for (benefit from) income taxes                                  672,389         (2,471,008)
                                                                -------------------  ------------------

           Net income                                                 $  1,428,829        $  3,584,552
                                                                ===================  ==================

Net income per common and common equivalent share:
    Basic                                                                    $0.31               $0.78
                                                                ===================  ==================

    Diluted                                                                  $0.30               $0.78
                                                                ===================  ==================

Weighted average common and common equivalent shares outstanding:
      Basic                                                              4,683,729           4,600,058
                                                                ===================  ==================

      Diluted                                                            4,743,107           4,625,454
                                                                ===================  ==================

</TABLE>


The  accompanying  notes  are an  integral  part of  these  condensed  financial
statements.




                                       2
<PAGE>




VMIC, Inc.
Condensed Statements of Operations
(Unaudited)

<TABLE>
<CAPTION>

                                                                            Six months ended
                                                                    March 31,            March 31,
                                                                       2001                2000
<S>                                                             <C>                  <C>
                                                                -------------------  ------------------
Sales:
Hardware sales                                                        $ 24,203,859        $ 17,106,284
Software sales                                                             561,405             498,463
                                                                -------------------  ------------------
        Total sales                                                     24,765,264          17,604,747
                                                                -------------------  ------------------

Cost and expenses:
    Cost of products sold                                                9,925,711           6,384,288
    Research and development expense                                     2,726,479           2,565,687
    Selling, general and administrative expense                          7,354,972           6,228,418
                                                                -------------------  ------------------

                                                                        20,007,162          15,178,393
                                                                -------------------  ------------------

           Operating income                                              4,758,102           2,426,354

Other expense, net                                                       (402,797)           (466,170)
                                                                -------------------  ------------------

           Income before income taxes                                    4,355,305           1,960,184

Provision for (benefit from) income taxes                                1,393,697         (2,471,008)
                                                                -------------------  ------------------

           Net income                                                 $  2,961,608        $  4,431,192
                                                                ===================  ==================

Net income per common and common equivalent share:
    Basic                                                                    $0.63               $0.96
                                                                ===================  ==================

    Diluted                                                                  $0.63               $0.96
                                                                ===================  ==================

Weighted average common and common equivalent shares outstanding:
      Basic                                                              4,679,004           4,606,422
                                                                ===================  ==================

      Diluted                                                            4,738,441           4,640,192
                                                                ===================  ==================

</TABLE>


The  accompanying  notes  are an  integral  part of  these  condensed  financial
statements




                                       3
<PAGE>




VMIC, Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
                                                                                  Six months ended
                                                                              March 31,       March 31,
                                                                                2001             2000
                                                                           ---------------- ---------------
<S>                                                                        <C>              <C>

Cash flows from operating activities:
    Net income                                                                 $ 2,961,608     $ 4,431,192
     Adjustments to reconcile net income to net cash
     provided by operating activities:
        Depreciation and amortization                                            1,291,945       1,518,922
        Stock issued in lieu of cash compensation                                       --          29,813
        Gain on disposal of property and equipment                                   6,023              --
        Change in operating assets and liabilities:
           Accounts receivable                                                   (534,062)         (2,657)
           Inventories                                                         (1,853,623)     (1,355,870)
           Prepaid expenses                                                       (91,661)         (6,279)
           Income tax receivable                                                   (5,000)         101,315
           Income tax payable                                                      600,855         627,279
           Deferred income taxes                                                        --     (3,098,287)
           Accounts payable                                                        613,990         154,179
           Accrued liabilities                                                     353,700       (641,076)
                                                                           ---------------- ---------------
               Total adjustments                                                   382,165     (2,672,661)
                                                                           ---------------- ---------------
               Net cash provided by operating activities                         3,343,773       1,758,531
                                                                           ---------------- ---------------

Cash flows from investing activities:
    Purchases of property, plant and equipment                                   (418,139)       (822,197)
    Software development costs and purchased product and
    software costs                                                               (131,296)       (120,813)
                                                                           ---------------- ---------------
               Net cash used in investing activities                             (549,435)       (943,010)
                                                                           ---------------- ---------------

Cash flows from financing activities:
    Proceeds from issuance of long-term debt                                       788,919         827,995
    Principal payments on long-term debt                                       (3,283,924)     (1,427,602)
    Proceeds from issuance of common stock                                         159,551         197,812
                                                                           ---------------- ---------------
               Net cash used in financing activities                           (2,335,455)       (401,795)
                                                                           ---------------- ---------------

               Net increase in cash and cash equivalents                           458,884         413,726

Cash and cash equivalents, beginning of period                                     593,400         582,883
                                                                           ---------------- ---------------

Cash and cash equivalents, end of period                                      $  1,052,284       $ 996,609
                                                                           ================ ===============
</TABLE>


The  accompanying  notes  are an  integral  part of  these  condensed  financial
statements




                                       4
<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 March
     31,  2001  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 10-K filed on January 13, 2000.  Operating  results for the
     six months  ended  March 31,  2001 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  3,000  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  date of each grant.
     Options to purchase 8,840 shares of common stock were exercised  during the
     quarter.








                                       5
<PAGE>



                                   VMIC, Inc.

               Notes to Condensed Financial Statements (Continued)



 3.  Earnings Per Share


<TABLE>
<CAPTION>



Earnings Per Share:
A summary of the calculation of basic and diluted earnings per share is as
follows:
                                                       Income (Loss)           Shares           Per-Share
                                                        (Numerator)         (Denominator)        Amount
<S>                                                 <C>                   <C>                <C>
                                                    --------------------- ------------------ ----------------
           Three months ended March 31, 2001

Basic EPS:
    Income available to common stockholders                  $ 1,428,829          4,683,729           $ 0.31
Effect of dilutive securities:
    Stock options                                                                    59,378


Diluted EPS                                                  $ 1,428,829          4,743,107           $ 0.30

             Three months ended March 31, 2000

Basic EPS:
    Income available to common stockholders                  $ 3,584,552          4,600,058           $ 0.78
Effect of dilutive securities:
    Stock options                                                                    25,396

Diluted EPS                                                  $ 3,584,552          4,625,454           $ 0.78


                                                       Income (Loss)           Shares           Per-Share
                                                        (Numerator)         (Denominator)        Amount
                                                    --------------------- ------------------ ----------------
            Six months ended March 31, 2001

Basic EPS:
    Income available to common stockholders                  $ 2,961,608          4,679,004           $ 0.63
Effect of dilutive securities:
    Stock options                                                                    59,437

Diluted EPS                                                  $ 2,961,608          4,738,441           $ 0.63

               Six months ended March 31, 2000

Basic EPS
    Income available to common stockholder                   $ 4,431,192          4,606,422           $ 0.96
Effect of dilutive securities:
    Stock options                                                                    33,770

Diluted EPS                                                  $ 4,431,192          4,640,192           $ 0.96

</TABLE>


                                       6
<PAGE>


4.   Inventories

     At March 31,  2001 and  September  30,  2000,  inventories  consist  of the
     following:




                                            March 31,          September 30,
                                               2001                2000
                                         ------------------- ------------------

Raw Materials                                   $ 5,120,650        $ 4,146,871
Work in Process                                   2,851,456          2,361,306
Finished Goods                                    1,790,226          1,400,532
                                         ------------------- ------------------
                                                  9,762,332          7,908,709

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

                                                $ 9,495,136        $ 7,641,513
                                         =================== ==================



5.    Segment Reporting

     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 operational distributions of the Company's revenues and gross margin
     for the three and six months ended March 31, 2001 and 2000 are summarized
     as follows:


<TABLE>
<CAPTION>

                                          Three Months Ended                    Six Months Ended
                                      March 31,         March 31,           March 31,         March 31,
                                        2001               2000               2001               2000
                                  ------------------ ----------------- -------------------- ---------------
<S>                               <C>                <C>               <C>                  <C>


Total Sales:
        U.S.                            $ 8,047,227       $ 6,697,350         $ 18,420,342    $ 13,519,309
        International                     3,708,400         2,554,218            6,344,922       4,085,438
                                  ------------------ ----------------- -------------------- ---------------
                                       $ 11,755,627       $ 9,251,568         $ 24,765,264    $ 17,604,747
                                  ================== ================= ==================== ===============

Gross Profit:
        U.S.                            $ 5,397,574       $ 4,363,255         $ 11,365,120     $ 8,885,580
        International                     2,020,942         1,521,600            3,474,433       2,334,879
                                  ------------------ ----------------- -------------------- ---------------
                                        $ 7,418,516       $ 5,884,855         $ 14,839,553    $ 11,220,459
                                  ================== ================= ==================== ===============
</TABLE>

The Company's identifiable assets as of March 31, 2000 and September 30, 2001
relate to the U.S. Segment only.


                                       7
<PAGE>


6.   Recently Issued Accounting Pronouncements

     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
     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 portions 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.



7.       Income Taxes

     The provision for (benefit from) income taxes for the three months and six
     months ended March 31, 2001 and 2000 consists of the following:
<TABLE>
<CAPTION>


                                          Three Months Ended                    Six Months Ended
                                      March 31,         March 31,           March 31,         March 31,
                                        2001               2000               2001               2000
                                  ------------------ ----------------- -------------------- ---------------
           <S>                    <C>                <C>               <C>                  <C>

           Income tax expense             $ 672,389       $   627,279          $ 1,393,697     $   627,279
           Reversal of valuation
            allowance                            --       (3,098,289)                   --     (3,098,289)
                                  ------------------ ----------------- -------------------- ---------------
                                  ------------------ ----------------- -------------------- ---------------
                                          $ 672,389     $ (2,471,008)          $ 1,393,697   $ (2,471,008)
                                  ================== ================= ==================== ===============

</TABLE>

     The ultimate  realization of the net deferred  income tax assets depends on
     the Company's ability to generate  sufficient taxable income in the future.
     Based on the Company's results of operations during the quarter ended March
     31,  2000,  management  believes  that it is more  likely than not that the
     Company's  deferred  income tax assets will be realized.  Accordingly,  the
     valuation allowance was reversed during the quarter ended March 31, 2000.


                                       8
<PAGE>


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.


                                       9
<PAGE>

Company Overview

VMIC is a supplier  of  embedded  standard  bus  boards,  software  and  systems
products,   which  are  used  in   applications   involving   markets   such  as
telecommunications,  medical  industrial  automation,  test and  measurement and
defense.

The Company has focused its attention on two key product  revenue areas that are
experiencing  high  growth  while  maintaining  its legacy I/O  business in data
acquisition and control, these revenue areas are:

o        Embedded Intel(R)central processing units or CPUs
o        Communications/networking products, such as Fibre Channel,
         Gigabit Ethernet and Reflective Memory networks

The company is focusing on OEM applications  involving these two strategic areas
of growth.

VMIC specializes in open architecture,  nonproprietary, standard computer buses,
such as VMEbus,  PCI bus,  CompactPCI(R),  PMC, PCI-X and DIN rail applications.
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  both  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, Florida, the Carolinas 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  higher-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,   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 14-year-old company with 238
employees.  The Company operates from its ten-acre, four building,  campus which
contains approximately 75,000 square feet of office, warehouse and manufacturing
space.


                                       10
<PAGE>


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

The Company  continued to announce new products during the second  quarter,  and
released  several  new  products  incorporating  single-board  computers,  Fibre
Channel and supporting software drivers.

VMIC achieved five design wins in the second quarter. 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 for a Fibre  Channel
product,  three are computer boards and the fourth  involves  SBC's,  Reflective
Memory and serial I/O for fiber winding systems plant upgrades.

Design wins ramp into production volume over time intervals that range from 3 to
9 months  after the win  occurs.  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 volumes.

The Company's  management was pleased with VMIC's second quarter performance and
believes that new business awards combined with its continuing cost  containment
program, should allow the Company to achieve its financial goals for fiscal year
2001.


Results of  Operations  (Six Months Ended March 31, 2001  Compared to Six Months
Ended March 31, 2000)

Sales

For the six-month  period ended March 31, 2001,  sales increased 40.7 percent to
$24.8 million compared to $17.6 million for the six-month period ended March 31,
2000.

International  sales for the six months  ended  March 31,  2001  increased  53.6
percent to $6.3 million  compared to $4.1 million for the six months ended March
31, 2000.  Domestic sales for the six months ended March 31, 2001 increased 36.3
percent to $18.4  million  compared to $13.5  million  for the six months  ended
March 31, 2000.

Sales were generated  primarily from four product areas involving  input/output,
communications/networking,  SBC's and software.  Sales for input/output products
increased 13.7 percent to $9.1 million for the six-month  period ended March 31,
2001  compared  to  $8.0  million  for  the  same  period  in  2000.  Sales  for
communications/network  products  increased 14.8 percent to $6.2 million for the
six-month  period  ended  March 31, 2001  compared to $5.4  million for the same
period in 2000.  The increase in sales for  communications/network  products was
primarily  from the new Fibre Channel  product line.  Sales for SBC's  increased
140.5  percent to $8.9  million for the  six-month  period  ended March 31, 2001
compared to $3.7 million for the same period in 2000.  The increase in sales was
generated as a result of new design wins in telecommunications, medical, defense
and industrial automation.

Sales for software  increased 12.7 percent to $561,000 for the six-month  period
ended March 31, 2001  compared  to  $498,000  for the same period in 2000.  This
increase in sales was generated  because of improved  acceptance of our PC-based
control software.


                                       11
<PAGE>


Gross Profit

For the  six-month  period ended March 31, 2001,  gross  profit  increased  32.3
percent or $3.6 million to $14.8  million from $11.2  million for the  six-month
period ended March 31, 2000. Gross profits as a percentage of sales decreased to
59.9 percent from 63.7 percent for the six-month period ended March 31, 2001.

Gross  profit as a  percentage  of sales  decreased  due to the our lower margin
products  representing a significant  portion of our total sales mix for the six
months ended March 31, 2001.


Selling, General and Administrative Expenses

For  the  six-month   period  ended  March  31,  2001,   selling,   general  and
administrative expenses increased 18.1 percent to $7.4 million from $6.2 million
for the six-month period ended March 31, 2000.

Selling,  general  and  administrative  expenses  increased  as a result  of the
Company's  increase in sales revenue for the six months ended March 31, 2001. As
a result of this  increase in sales  revenue,  the Company  incurred  additional
selling costs, sales commissions and administrative salaries.


Research and Development Expenses

For the six-month period ended March 31, 2001, research and development expenses
increased 6.3 percent to $2.7 million from $2.6 million for the six-month period
ended  March  31,  2000.  Capitalized  software  development  expenses  for  the
six-month  period ended March 31, 2001  decreased  84.0 percent to $0.08 million
compared  to  $0.5  million  for  the  same  period  in  2000.

Income Taxes

Provision  for income  taxes for the six months  ended  March 31,  2001 was $1.4
million. Income taxes for the six months ended March 31, 2000 were a net benefit
of $2.5  million,  comprised  of a provision  for income  taxes of $0.6  million
offset by a $3.1 million  benefit  resulting  from the reversal of the Company's
deferred tax asset valuation allowance.


Net Income and Earnings Per Share

Net income was  $2,961,608  for the six months ended March 31, 2001  compared to
$4,431,192  for the six months ended March 31,  2000.  Earnings per common share
(diluted)  were $0.63 for the six months ended March 31, 2001  compared to $0.96
for the six months  ended March 31, 2000  taking into  consideration  a tax loss
carryforward for the period ended March 31, 2000.


                                       12
<PAGE>


Results of  Operations  (Three  Months  Ended March 31,  2001  Compared to Three
Months Ended March 31, 2000)

Sales

Revenues for the second quarter ended March 31, 2001 were $11.8 million,  a 27.1
percent  increase  from revenues of $9.3 million for the quarter ended March 31,
2000.

International  sales for the  second  quarter  increased  42.3  percent  to $3.7
million compared to $2.6 million for the quarter ended March 31, 2000.  Domestic
sales for the second quarter  increased 19.4 percent to $8.0 million compared to
$6.7 million for the quarter ended March 31, 2000.

Sales were generated  primarily from four product areas involving  input/output,
communications/networking,  SBC's and software.  Sales for input/output products
increased 11.9 percent to $4.7 million for the second  quarter  compared to $4.2
million for the same period in 2000. Sales for  communications/network  products
decreased  3.4 percent to $2.8 million for the second  quarter  compared to $2.9
million   for   the   same   period   in   2000.    The   sales   decrease   for
communications/network  products  was  primarily  due to the delayed  release of
software  drivers  for our new  Fibre  Channel  product  line.  Sales  for SBC's
increased 115.8 percent to $4.1 million for the second quarter  compared to $1.9
million for the same period in 2000.

Sales for software  decreased  19.1  percent to $241,000 for the second  quarter
compared to $298,000  for the same period in 2000.  Sales of software  decreased
because fewer board  software  drivers were shipped  during the second  quarter.
However,  this  decrease was  partially  offset by a 137.0  percent  increase in
industrial automation software sales.

Sales  increases  were  generated  because  of new  products,  our  focus on new
markets, OEM accounts and generally better business conditions.


                                       13
<PAGE>


Gross Profit

For the three-month  period ended March 31, 2001,  gross profits  increased 26.1
percent or $1.5 million to $7.4  million  from $5.9 million for the  three-month
period ended March 31, 2000. The increase was generated  because of increases in
revenues.

The Company's gross margin decreased to 63.1 percent for the second quarter from
63.6 percent in the quarter ended March 31, 2000.

Gross  profit as a  percentage  of sales  decreased  due to the our lower margin
products representing a significant portion of our total sales mix for the three
months ended March 31, 2001.

Selling, General and Administrative Expenses

For  the  three-month  period  ended  March  31,  2001,  selling,   general  and
administrative  (SG&A) expenses increased 14.4 percent to $3.7 million from $3.3
million for the  three-month  period  ended March 31,  2000.  This  increase was
primarily due to rep and inside sales commissions because of our revenue growth.

SG&A for the second  quarter  decreased  as a  percentage  of  revenues  to 31.7
percent from 35.2 percent for the quarter  ended March 31, 2000.  This  decrease
resulted from sales efficiencies  associated with the Company's  transition from
market niches to OEM product sales.

Research and Development Expenses

For the  three-month  period  ended March 31,  2001,  research  and  development
expenses  (R&D)  increased 7.7 percent to $1.4 million from $1.3 million for the
three-month period ended March 31, 2000.

R&D expenses decreased to 12.0 percent of sales for the second quarter from 13.8
percent of sales for the quarter ended March 31, 2000.  This  decrease  resulted
from efficiency  improvements in the Company's allocation of R&D resources.  The
Company is  concentrating  its R&D investments in areas  beneficial to those key
accounts  where  customers  have  committed  to placing  volume  orders with the
Company.

Income Taxes

Provision  for income  taxes for the three  months ended March 31, 2001 was $0.7
million.  Income  taxes for the three  months  ended  March 31,  2000 were a net
benefit of $2.5  million,  comprised  of a  provision  for income  taxes of $0.6
million  offset by a $3.1  million  benefit  resulting  from the reversal of the
Company's deferred tax asset valuation allowance.


                                       14
<PAGE>


Net Income and Earnings Per Share

Net income was  $1,428,829  or $0.30 per common share  (diluted) for the quarter
ended  March 31,  2001.  Net income for the  quarter  ended  March 31,  2000 was
$3,584,552 including the $3,098,287 reversal of the Company's deferred tax asset
valuation  allowance.  Earnings  per common share  (diluted)  were $0.78 for the
quarter ended March 31, 2000.

Net income excluding the valuation allowance reversal of $3,098,287 was $486,265
or $0.11 per common share (diluted) for the quarter ended March 31, 2000.

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 March 31, 2001,  VMIC's  variable  line of credit for
working capital was $8.0 million,  of which $0.8 million was used. The Company's
cash  flow was  sufficiently  positive  during  the  second  quarter  to  reduce
borrowings  on its  working  line of credit from $1.2  million to $0.8  million.
During the second quarter,  VMIC renewed its $8.0 million working line of credit
and negotiated a $2.0 million open, unused line of credit (as of March 31, 2001)
for capital  equipment  procurements.  The variable line of credit expires March
31, 2002.

The lines of credit require the Company to maintain  certain loan covenants and,
as of March 31, 2001, the Company was in compliance with such covenants.

Working  capital was $9.6 million at March 31, 2001  compared to $5.8 million at
September 30, 2000. Included in working capital are cash and cash equivalents of
$1.1 million at March 31, 2001  compared to $0.6 million at September  30, 2000.
Total working  capital  increased as a result of the profit  experienced for the
six months ended March 31, 2001 and changes in operating assets and liabilities.
Current liabilities were $8.6 million at March 31, 2001 compared to $9.4 million
at September 30, 2000. Operating activities for the six-month period ended March
31, 2001 provided $3.3 million of cash.  Cash used for investing  activities was
$0.5 million for the six months ended March 31, 2001,  of which $0.4 million was
used for  capital  expenditures.  Cash used for  financing  activities  was $2.3
million for the six months ended March 31, 2001.

Inventory turnover for the six months ended March 31, 2001 was approximately 172
days compared to approximately  170 days for the same period in 2000.  Inventory
turnover  has  increased  because of short lead times and  end-of-life  buys for
certain legacy products.  Accounts receivable from customers were outstanding on
average  approximately  53 days for the six months ended March 31, 2001 compared
to approximately 50 days for the same period in 2000.

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 12 months.


                                       15
<PAGE>


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,  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.

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.  However,  VMIC may not be able to maintain  its  historical
operating  results due to its  substantially  reduced  research and  development
investments in the Company's core business.


                                       16
<PAGE>


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 the growth  objectives  of the  Company.  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 1999.  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  $6.1 million as of March 31, 2001.  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.  As of March 31, 2001,  the Company had  sufficient
current assets to liquidate all of its current liabilities.

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 require costly  redesign to
meet new or emerging standards.

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.


                                       17
<PAGE>


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 the future.


In addition, the Company has experienced reduced net cash flows, attributable to
substantial  software  development,  inventory  expansion,  building  expansion,
purchased  technologies  associated with PC SBC's, the Company's 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 the future.


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, 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.


                                       18
<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  investments 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 and 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

The  Company,  in  fiscal  year  1996,  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 VMIC.

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 software costs.


                                       19
<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,  TriQuint,  Intel, AMD, Tundra,  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,  and this has
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 produce 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 which
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 9.6 percent of VMIC's
sales in 2000 and 9.4 percent of VMIC's sales during 2001.  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 2000,  approximately 31.0 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 75.0 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.



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.


                                       20
<PAGE>


Control by existing stockholders

Carroll E.  Williams  and Mary W.  Williams  own 36.0  percent of the  Company's
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 to stockholders.

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.


                                       21
<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.



The VMIC logo is a registered trademark of VMIC. Intel is a registered trademark
of Intel  Corporation.  CompactPCI is a registered  trademark of PCI  Industrial
Computer  Manufacturer's  Group. Other registered trademarks are the property of
their respective owners.





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Part II - Other Information

Signatures

Management Representation

The accompanying Condensed Balance Sheets as of March 31, 2001 and September 30,
2000, as well as the Condensed Statements of Operations and Condensed Statements
of Cash Flows for the periods  ended March 31, 2001 and 2000 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.

May 11, 2001
------------                            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.

May 11, 2001                            By: Carroll E. Williams
------------

Date                                        Carroll E. Williams
                                            President and Chief
                                            Executive Officer








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