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, 1999


                                       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                                                63-09172
(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
                 4,539,716 SHARES OUTSTANDING ON March 31, 1999
                          ----------------------------


<PAGE>
                                   VMIC, Inc.

              QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1999




                                      INDEX



                                                                           Page

Part I.    FINANCIAL INFORMATION

Item 1     Condensed Financial Statements

           Balance Sheets as of March 31, 1999 (Unaudited)
           and September 30, 1998........................................... 2

           Statements of Income for the Three and Six-Months Ended
           March 31, 1998 and March 31, 1999 (Unaudited).................... 3

           Statements of Cash Flows for the Six-Months Ended March 31, 1998
           and March 31, 1999  (Unaudited).................................. 5

           Notes to Condensed Financial Statements (Unaudited).............. 6

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



Part II.   OTHER INFORMATION


           Signatures....................................................... 13


                                       1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

VMIC, Inc.
Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                                                             March 31,       September 30,
                                                                                               1999               1998
                                     ASSETS                                               (Unaudited)
<S>                                                                                       <C>                 <C>    
Current assets:
    Cash and cash equivalents                                                             $    238,276        $   527,972
    Accounts receivable (includes allowance for doubtful accounts of
      $408,383 and $384,383 at March 31, 1999 and September 30, 1998,
      respectively)                                                                          4,803,442          4,366,330
    Inventories                                                                              5,365,715          4,943,239
    Prepaid expenses                                                                           211,110            250,733
    Income tax receivable                                                                      219,454            573,771
    Deferred income taxes                                                                      954,929            954,929
                                                                                          ------------        -----------

           Total current assets                                                             11,792,926         11,616,974
Property, plant, and equipment, net                                                          8,557,681          9,033,922
Purchased product and software costs, net                                                      990,592            967,852
Software development costs                                                                   4,947,572          3,543,030
                                                                                          ------------        -----------

                                                                                         $  26,288,771      $  25,161,778
                                                                                         =============      =============
                      LIABILITIES AND STOCKHOLDERS' EQUITY
  
Current
liabilities:
    Accounts payable                                                                     $   1,204,497       $  2,367,397
    Current portion of notes, mortgages, and capital leases                                  4,961,996          2,104,777
    Accrued liabilities                                                                      1,985,518          2,421,180
                                                                                         -------------       ------------
           Total current liabilities                                                         8,152,011          6,893,354
Notes, mortgages, and capital leases, less current portion above                             6,023,571          5,713,086
Deferred income taxes                                                                          808,101            808,101
                                                                                         -------------       ------------

           Total liabilities                                                                14,983,683         13,414,541
                                                                                         -------------       ------------
Stockholders' equity:
    Common stock, par value $.10 (10,000,000  shares  authorized;  4,539,716 and
      4,462,917 shares issued and outstanding at March 31, 1999
      and September 30, 1998, respectively)                                                    453,972            446,292
    Additional paid-in capital                                                               6,684,160          6,432,799
    Retained earnings                                                                        4,166,956          4,868,146
                                                                                         -------------       ------------

           Total stockholders' equity                                                       11,305,088         11,747,237
                                                                                         -------------       ------------
                                                                                         $  26,288,771      $  25,161,778
                                                                                         ==============     ==============
</TABLE>

See notes to condensed financial statements.
                                       2
<PAGE>
VMIC, Inc.
Condensed Statements of Income
(Unaudited) 
<TABLE>
<CAPTION>
                                                                          Three months ended
                                                                     March 31,           March 31,
                                                                        1999               1998
<S>                                                               <C>                <C>

Sales:
Hardware sales                                                         $ 6,500,062         $ 7,562,320
Software sales                                                             171,635             126,786
                                                                  -----------------  ------------------

                                                                  -----------------  ------------------
        Total sales                                                      6,671,697           7,689,106
                                                                  -----------------  ------------------

Cost and expenses:
    Cost of products sold                                                2,461,357           2,687,037
    Research and development expense                                     1,465,372           1,461,457
    Selling, general, and administrative expense                         3,129,330           3,140,612
                                                                  -----------------  ------------------

                                                                         7,056,059           7,289,106
                                                                  -----------------  ------------------

        Operating (loss) income                                          (384,362)             400,000

Other income (expense)                                                   (173,914)           (111,523)
                                                                  -----------------  ------------------

        (Loss) income before income taxes                                (558,276)             288,477

Benefit (provision) for income taxes                                       148,235            (92,314)
                                                                  -----------------  ------------------

         Net (loss) income                                           $   (410,041)         $   196,163
                                                                  
                                                                  =================  ==================

Net (loss) income per common and common equivalent share:
    Basic                                                                 $(0.090)              $0.044
                                                                  =================  ==================
    Diluted                                                               $(0.090)              $0.043
                                                                  =================  ==================

Weighted average common and common equivalent shares outstanding:
      Basic                                                              4,538,118           4,416,587
                                                                  =================  ==================
      Diluted                                                            4,538,118           4,566,442
                                                                  =================  ==================

See notes to condensed financial statements..

</TABLE>

                                       3
<PAGE>



VMIC, Inc.
Condensed Statements of Income
(Unaudited) 
<TABLE>
<CAPTION>
                                                                      
                                                                             Six months ended
                                                                      March 31,           March 31,
                                                                        1999                1998
<S>                                                               <C>                <C>

Sales:
Hardware sales                                                        $ 14,004,649        $ 14,999,988
Software sales                                                             372,146             273,349
                                                                  -----------------  ------------------

                                                                  -----------------  ------------------
        Total sales                                                     14,376,795          15,273,337
                                                                  -----------------  ------------------

Cost and expenses:
    Cost of products sold                                                5,312,637           5,217,529
    Research and development expense                                     3,047,625           2,940,435
    Selling, general, and administrative expense                         6,664,853           6,237,542
                                                                  -----------------  ------------------

                                                                        15,025,115          14,395,506
                                                                  -----------------  ------------------

           Operating (loss) income                                       (648,320)             877,831

Other income (expense)                                                   (312,218)           (233,826)
                                                                  -----------------  ------------------

           (Loss) income before income taxes                             (960,538)             644,005

Benefit (provision) for income taxes                                       259,345           (206,082)
                                                                  -----------------  ------------------

           Net (loss) income                                         $   (701,193)         $   437,923
                                                                  
                                                                  =================  ==================

Net (loss) income per common and common equivalent share:
    Basic                                                                 $(0.155)              $0.100
                                                                  =================  ==================
    Diluted                                                               $(0.155)              $0.097
                                                                  =================  ==================

Weighted average common and common equivalent shares outstanding:
      Basic                                                              4,519,100           4,374,779
                                                                  =================  ==================
      Diluted                                                            4,519,100           4,524,634
                                                                  =================  ==================
See notes to condensed financial statements..
</TABLE>

                                       4
<PAGE>
VMIC, Inc.
Condensed Statements of Cash Flows

<TABLE>

<CAPTION>
 
                                                                               Six months ended
                                                                             March, 31       March, 31
                                                                                1999           1998
<S>                                                                         <C>             <C>
Cash flows from operating activities:
    Net (loss) income                                                       $   (701,193)   $    437,923
     Adjustments to reconcile net (loss) income to net cash
     (used in) provided by operating activities:
        Depreciation and amortization                                           1,486,745      1,247,128
        Provision for losses on accounts receivable                                24,000         45,000
        Stock issued in lieu of cash compensation                                  21,794         75,000
        Gain on disposal of property and equipment                               (39,957)              0
        Change in operating assets and liabilities:
           Accounts receivable                                                  (461,112)      (277,695)
           Inventories                                                          (422,476)      (256,678)
           Prepaid expenses                                                        39,623       (27,503)
           Income tax receivable                                                  354,317         81,082
           Accounts payable                                                   (1,162,900)        465,346
           Accrued liabilities                                                  (435,662)        209,989
                                                                           --------------- --------------
               Total adjustments                                                (595,628)      1,561,669
                                                                           --------------- --------------
               Net cash (used in) provided by operating activities            (1,296,821)      1,999,592
                                                                           --------------- --------------

Cash flows from investing activities:
    Capital expenditures                                                        (725,221)    (1,701,089)
    Software development costs and purchased product and software costs       (1,712,505)      (940,743)
    Proceeds from dispositions of property, plant,
     and equipment                                                                 39,957              0
                                                                           --------------- --------------
               Net cash used in investing activities                          (2,397,769)    (2,641,832)
                                                                           --------------- --------------

Cash flows from financing activities:
    Proceeds from issuance of long-term debt                                    3,167,704        280,725
    Principal payments on long-term debt                                                0              0
    Proceeds from issuance of common stock                                        237,190      1,779,438
                                                                           --------------- --------------
               Net cash provided by financing activities                        3,404,894      2,060,163
                                                                           --------------- --------------
               Net (decrease) increase in cash and
                  cash equivalents                                              (289,696)      1,417,923
Cash and cash equivalents, beginning of year                                      527,972        339,101
                                                                           --------------- --------------

Cash and cash equivalents, end of period                                   $      238,276  $   1,757,024
                                                                           =============== ==============

Supplemental disclosure of cash flow information:
    Cash paid during the period for interest                               $      367,000  $     266,000
                                                                           =============== ==============

    Cash paid during the period for income taxes                           $            0  $     125,000
                                                                                                
                                                                           =============== ==============
</TABLE>
See notes to condensed financial statements.

                                       5
<PAGE>


                                   VMIC, Inc.
                     Notes to Condensed Financial Statements

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, 1999 should be read in  conjunction
with the Company's  financial  statements as of and for the year ended September
30, 1998  included in the  Company's  Form-10  filed March 29,  1999.  Operating
results for the three and six-months ended December 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended  September 30,
1999. The September 30, 1998 balance sheet data presented hereinwas derived from
audited  financial  statements but does not include all disclosures  required by
generally accepted accounting principles.


 2.    Stock Options
       Options to purchase  5,500 shares of common stock were granted on varying
       dates throughout the quarter to employees under the Employee Stock Option
       Plan,  at the market price as of the  effective  date.  Also,  options to
       purchase 4,560 shares of common stock were exercised during the quarter.



  3.   Comprehensive Income



       The Company does not have any  difference  between net income as reported
and comprehensive income.




                                       6
<PAGE>


                                   VMIC, Inc.
                    Notes to Financial Statements-(Continued)





4.       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
                                                                 --------------------    -----------------    ----------------
                            Three months ended

                              March 31, 1999
<S>                                                                   <C>                  <C>               <C>

Basic EPS:

   Loss available to common stockholders                              $   (410,041)        4,538,118          $   (0.090)

Effect of dilutive securities:

   Stock Options                                                                                   0



Diluted EPS                                                           $   (410,041)        4,538,118          $   (0.090)



                                                                     ----------------    -----------------     ---------------
                              Three months ended

                                March 31, 1998
Basic EPS:

   Income available to common stockholders                            $     196,163        4,416,587          $   0.044

Effect of dilutive securities:

   Stock Options                                                                             149,855



Diluted EPS                                                           $     196,163        4,566,442          $   0.043




</TABLE>
                                       7
<PAGE>

<TABLE>



<CAPTION>
                                                                        Income                Shares             Per-Share
                                                                      (Numerator)         (Denominator)            Amount
                                                                 --------------------    -----------------    ----------------
                             Six months ended

                              March 31, 1999
<S>                                                                   <C>                  <C>                <C>
Basic EPS:

   Loss available to common stockholders                              $   (701,193)        4,519,100          $   (0.155)

Effect of dilutive securities:

   Stock Options                                                                                   0



Diluted EPS                                                           $   (701,193)        4,519,100          $   (0.155)



                                                                     ----------------    -----------------     ---------------
                               Six months ended

                                March 31, 1998
Basic EPS:

   Income available to common stockholders                            $     437,923        4,374,779          $   0.100

Effect of dilutive securities:

   Stock Options                                                                             149,855


Diluted EPS                                                           $     437,923        4,524,634          $   0.097

</TABLE>






                                       8

<PAGE>


                                   VMIC, Inc.

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

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 COMPANY'S REGISTRATION ON FORM
10, AND IN THE  FOLLOWING  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL
CONDITION  AND RESULTS OF OPERATIONS  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.


OVERVIEW

         VMIC is a leading  independent  designer and  manufacturer  of embedded
computer  solutions  based upon a wide variety of open standard bus designs such
as VME, CPCI, PCI, PMC,  Multibus,  ISA, and special custom buses. The Company's
products  are  used  by  original  equipment  manufacturers  ("OEMs"),   systems
integrators  and  end-users  in  various  industries;   including  manufacturing
automation,   Telecommunications,   Simulation   and   Training,   environmental
monitoring, and Test and Measurement.

         The  Company  markets  and  sells  more  than  200  different  products
worldwide,   including   application-specific   embedded  computer   subsystems,
board-level  modules,  control and driver  software,  and network  products.  In
addition to offering standard  commercial  products,  the Company is involved in
the development of custom products for high-volume applications.

         VMIC  continues  to  invest  heavily  in new and  enhanced  technology,
including software,  and has focused its attention on highly vertical markets to
support faster growth, more consistent  profitability,  and enhanced shareholder
value.



         SALES. Sales decreased 13.2% to $6.7 million for the three-month period
ended March 31,  1999,  from $7.7 million for the three month period ended March
31, 1998. Hardware sales accounted for $6.5 million of the company sales for the
three-month period ended March 31, 1999 compared to $7.6 million during the same
period in 1998. The reduction of sales was caused by a weak backlog coupled with
continued weakness in orders during the first and second quarters of fiscal year
1999.  Software sales increased 35% to $0.17 million for the three-month  period
ended  March 31, 1999 from $0.13  million  for the same  period in 1998.  Of the
hardware sales, sales of the Company's  reflective Memory products accounted for
$1.9 million of the Company's sales for the  three-month  period ended March 31,
1999, compared to $2.2 million for the same period in 1998.

         Sales  decreased  5.9% to $14.4 million for the six-month  period ended
March 31,  1999,  from $15.3  million for the  six-month  period ended March 31,
1998.  Hardware sales accounted for $14.0 million of the Company's sales for the
six-month period ended March 31, 1999, compared to 15.0 million during the same
period in 1998.  Software sales increased 36% to $0.37 million for the six-month
period ended March 31, 1999,  from $0.27 million for the same period in 1998. Of
the hardware sales, sales of the Company's  reflective Memory products accounted
for $4.1 million,  or 28% of the Company's sales for the six-month  period ended
March 31, 1999, compared to 29%, or $4.4 million for the same period in 1998.

        

                                       9
<PAGE>

                            VMIC, Inc.

         GROSS MARGINS. The Company's average gross margin decreased from 65% in
the  three-month  period ended March 31, 1998 to 63% in the  three-month  period
ended  March 31,  1999.  For the same  periods  the gross  margin  for  hardware
decreased from 65% to 61% and software margins  decreased from 46% to 10.4%. The
decline in software  margins  was  attributable  to  increased  amortization  of
software  development  costs in the second quarter.  The Company's average gross
margin decreased from 66% in the six-month period ended March 31, 1998 to 63% in
the six-month  period ended March 31, 1999.  During this period the gross margin
for hardware  decreased from 66% to 64% and software margins  decreased from 51%
to 23%.


     COST OF SALES.  Cost of sales  decreased  8.4% from  $2.7  million  for the
three-month  period  ended  March 31, 1998 to $2.5  million for the  three-month
period ended March 31, 1999. The decrease is less than the percentage  reduction
in  sales  because  of the  increased  sales  of  lower-margin  single-board  PC
computers,  increased warranty expense and the amortization  associated with the
Company's capitalized software product investment.  Cost of sales increased 1.8%
from $5.2 million for the six-month  period ended March 31, 1998 to $5.3 million
for the six-month period ended March 31, 1999 primarily  because of increases in
software  development  amortization,  increases  in  warranty  expenses  and the
increased sale of lower margin products.

         SELLING,  GENERAL,  AND  ADMINISTRATIVE  EXPENSES.  For the three-month
period ended March 31,  1999,  selling,  general,  and  administrative  expenses
decreased  approximately  0.4%,  from $3.14 million for the  three-month  period
ended March 31, 1998 to $3.13 million for the three-month period ended March 31,
1999.  This  decrease is primarily  attributed  the  reduction of the  Company's
administrative  work force.  For the  six-month  period  ended  March 31,  1999,
selling, general, and administrative expenses increased approximately 6.9%, from
$6.24 million for the six-month period ended March 31, 1998 to $6.66 million for
the six-month period ended March 31, 1999. This increase is primarily attributed
the growth of the sales organization in the first quarter.

         RESEARCH AND  DEVELOPMENT  EXPENSE.  For the  three-month  period ended
March 31, 1999,  research and  development  (R&D) expense  increased  0.3%, from
$1.46 million for the  three-month  period ended March 31, 1998 to $1.47 million
for the three-month  period ended March 31, 1999. R&D expense as a percentage of
sales  increased to 22.0% for the  three-month  period ended March 31, 1999 from
19.3% in the three-month  period ended March 31, 1998. This percentage  increase
was caused by the  decrease in product  sales.  For the  six-month  period ended
March 31, 1999, R&D expense increased 3.6%, from $2.94 million for the six-month
period  ended March 31, 1998 to $3.05  million for the  six-month  period  ended
March 31, 1999. R&D expense as a percentage of sales  increased to 21.1% for the
six-month  period ended March 31, 1999 from 19.3% in the six-month  period ended
March 31, 1998.  This  increase was mainly  caused by increased  investments  in
software development made in the first quarter.

         INCOME  TAXES.  Income taxes as a percentage of income before taxes was
32.0% for the three-month period ended March 31, 1998 as compared to 26% for the
three-month  period ended March 31, 1999. Income taxes as a percentage of income
before taxes was 32.0% for the six-month period ended March 31, 1998 as compared
to 27.0% for the six-month period ended March 31, 1999.

         EARNINGS PER SHARE.  For the  three-month  period ended March 31, 1999,
net loss per weighted  average common and common  equivalent  share was $(0.090)
per  basic  share  compared  to net  income of  $0.044  per basic  share for the
three-month  period ended March 31, 1998. For the three-month period ended March
31, 1999,  net loss per weighted  average  common and common  equivalent  share,
assuming  dilution,  was  $(0.090) per diluted  share  compared to net income of
$0.043 per diluted share for the  three-month  period ended March 31, 1998.  For
the six-month  period ended March 31, 1999, net loss per weighted average common
and common  equivalent share was $(0.155) per basic share compared to net income
of $0.10 per basic share for the six-month  period ended March 31, 1998. For the
six-month  period ended March 31, 1999, net loss per weighted average common and
common  equivalent  share,  assuming  dilution,  was $(0.155) per diluted  share
compared  to net income of $0.097 per  diluted  share for the  six-month  period
ended March 31, 1998.


LIQUIDITY AND CAPITAL RESOURCES

      Historically, the Company's cash flow from operations and available credit
facilities  have provided  adequate  liquidity and working capital to fully fund
the Company's operational needs.

                                       10
<PAGE>
                                   VMIC, Inc.

      Working  capital was $4.7 million and $3.64  million at September 30, 1998
and March 31, 1999, respectively.  Cash used in operating activities was $(1.30)
million for the three months  ended March 31, 1999 as compared to cash  provided
by operating  activities  of $2.00  million for the three months ended March 31,
1998 this  decrease  occurred  as a result of the net loss  experienced  for the
quarter  ended March 31, 1999 and changes in operating  assets and  liabilities.
Cash used for  investing  activities  was $(2.40)  million for the three  months
ended March 31, 1999 as compared to $(2.64) million for the same period in 1998.
Cash  provided by financing  activities  was $3.40 million and $2.06 million for
the three months ended March 31, 1999 and 1998, respectively.

      The  Company  believes  that  its  financial   resources,   including  its
internally generated funds and debt capacity,  will be sufficient to finance the
Company's current operations and capital expenditures for the next 12 months.

EFFECTS OF INFLATION

      Substantially  all  contracts  awarded to the  Company  have been based on
proposals which reflect estimated cost increases due to inflation. Historically,
inflation has not had a significant impact on the Company.


YEAR 2000

      OVERVIEW.  Historically,  certain computerized systems have had two digits
rather than four digits to define the  applicable  year,  which could  result in
recognizing  a date using "00" as the year 1900 rather than the year 2000.  This
could cause significant  software failures or  miscalculations  and is generally
referred to as the "Year 2000" problem.

       The Company  recognizes  that the impact of the Year 2000 problem extends
beyond  its  computer   hardware  and  software  and  may  affect   utility  and
telecommunication  services,  as well as the systems of customers and suppliers.
The Year 2000  problem  is being  addressed  by a team  within the  Company  and
progress is  reported  periodically  to  management.  The Company has  committed
resources to conduct  extensive risk assessments and to take corrective  action,
where appropriate, within each of the following areas:


       VMIC PRODUCTS.  VMIC has initiated  extensive  internal Year 2000 testing
and  analysis  of its  products.  The  Company  believes  that a majority of its
products are Year 2000 compliant and VMIC anticipates  maintaining compliance in
future revisions of any product that is currently compliant.


       INTERNAL  INFORMATION SYSTEMS. The Company's internal information systems
utilize hardware and software from several commercial suppliers. The Company has
investigated  its internal  information  systems for Year 2000  compliance,  and
certain  modifications  have already been  identified  and corrected on critical
systems to ensure that the  Company's  operations  will be Year 2000  compliant.
This effort will continue throughout 1998 and 1999.


       THIRD PARTIES. The Company has had initial communications with certain of
its  significant  suppliers and customers to evaluate their Year 2000 compliance
plans,  state of readiness  and to determine  the extent to which the  Company's
systems may be  affected by the failure of others to remedy  their own Year 2000
issues.  VMIC is  conducting a Year 2000  certification  program with all of its
critical  suppliers,  which will be completed  by the end of 1998.  In addition,
Year 2000  compliance is a prerequisite to new supplier  relationships.  VMIC is
also in the process of distributing a Year 2000 assessment form to other parties
in order to  provide  VMIC  with  further  information  as to  their  Year  2000
conversion  progress.   However,  the  Company  has  received  only  preliminary
responses  from such  parties  and has not  independently  confirmed  all of the
information received from other parties with respect to the Year 2000 issues. As
such, there can be no assurance that such other parties will complete their Year
2000  conversion  in a timely  fashion or will not  suffer a Year 2000  business
disruption that may adversely affect the Company's business, financial condition
or results of operations.

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<PAGE>

                                   VMIC, Inc.

       CONTINGENCY  PLANS.  Because  the  Company's  Year 2000  conversions  are
expected to be completed  prior to any  potential  disruption  to the  Company's
business,  VMIC has not yet completed the  development of a  comprehensive  Year
2000  specific  contingency  plan.  If VMIC  determines  that its business is at
material risk of disruption due to the Year 2000 problem,  or  anticipates  that
its Year 2000 conversion will not be completed in a timely fashion,  the Company
will work to enhance its contingency plan.


       COST FOR YEAR 2000  COMPLIANCE.  The Company believes that the total cost
of  Year  2000  compliance  activity  will  not be  material  to  the  Company's
operations,  liquidity and capital resources. VMIC estimates that the total cost
for its Year 2000 compliance will be approximately $55,000, which represents 833
hours of internal  analysis,  modification  and testing and $15,000 for hardware
and software  upgrades.  As of March 31,  1999,  the Company had  completed  its
software  and  hardware  upgrades  and  approximately  730 of hours of Year 2000
analysis, modification and testing at a cost of approximately $50,000.



       YEAR 2000 RISKS FACED BY VMIC.  Although  the Company  believes  that its
Year 2000 compliance  program is  comprehensive,  the Company may not be able to
identify,  successfully  remedy  or assess  all  date-handling  problems  in its
business  systems or operations or those of its  customers and  suppliers.  As a
result,  the Year 2000  problem  could have a materially  adverse  affect on the
Company's business financial condition or results of operation.




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<PAGE>

                                 VMIC, Inc.



PART II - OTHER INFORMATION
Signatures




           MANAGEMENT  REPRESENTATION.  The accompanying unaudited Balance Sheet
at March 31,  1999,  and  Balance  Sheet at  September  30,  1998 as well as the
unaudited  Statements  of Income and  Statements of Cash Flows for the three and
six-months ended March 31, 1999, and 1998, 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 14 , 1999                               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.


                                           VMIC, Inc.


May 14, 1999                               By:  Carroll E. Williams

Date                                            Carroll E. Williams
                                                President and Chief
                                                Executive Officer








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