SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended:
September 30, 2002                               Commission File No.  1-7939
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VICON INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

            NEW YORK                                        11-2160665
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(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                          identification No.)

89 Arkay Drive, Hauppauge, New York                                   11788
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(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code:            (631) 952-2288
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, Par Value $.01
(Title of class)

American Stock Exchange
(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

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

The aggregate market value of Common Stock held by non-affiliates of the registrant as of December 13, 2002 was approximately $17,200,000.

The number of shares outstanding of the registrant's Common Stock as of December 13, 2002 was 4,642,062.


PART I

ITEM 1 - BUSINESS
General
Vicon Industries, Inc. ("the Company"), incorporated in 1967, designs, manufactures, assembles and markets a wide range of video systems and system components used for security, surveillance, safety and control purposes by a broad group of end users. A video system is typically a private network that can transmit and receive video, audio and data signals in accordance with the operational needs of the user. The Company's primary business focus is the design of digital video systems and components that it produces and sells worldwide, primarily to installing dealers, system integrators, government entities and distributors.

The Company operates within the electronic protection segment of the security industry that includes, among others: fire and burglar alarm systems, access control, video systems and article surveillance. The U.S. security industry consists of thousands of individuals and businesses (exclusive of public sector law enforcement) that provide products and services for the protection and monitoring of life, property and information. The security industry includes fire and burglar alarm systems, access control, video systems, article surveillance, guard services and equipment, locks, safes, armored vehicles, security fencing, private investigations and others. The Company's products are typically used for crime deterrence, visual documentation, observation of inaccessible or hazardous areas, enhancing safety, managing personal liability, obtaining cost savings (such as lower insurance premiums), managing control systems and improving the efficiency and effectiveness of personnel. The Company's products are used in, among others, office buildings, manufacturing plants, apartment complexes, retail stores, government facilities, transportation operations, prisons, casinos, sports arenas, health care facilities and financial institutions.

Products
The Company's product line consists of approximately 700 products, of which about half represent model variations. The Company's product line consists of various elements of a video system, including digital video transmission and recording systems, video cameras, display units (monitors), video recorders, matrix switching equipment for video distribution, digital video and signal processing units (which perform character generation, video encoding, multi screen display, video insertion, intrusion detection, source identification and alarm processing), motorized zoom lenses, remote robotic cameras, system controls, environmental camera enclosures and consoles for system assembly. The Company provides a full line of products due to the many varied climatic and operational environments in which the products are expected to perform. In addition to selling from a standard catalog line, the Company at times produces to specification or will modify an existing product to meet a customer's requirements.

The Company's products range in price from $10 for a simple camera mounting bracket to several hundred thousand dollars (depending upon configuration) for a large digital control and video matrix switching system.

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Marketing
The Company's marketing emphasizes engineered video system solutions which includes system design, project management, technical training and support. The Company promotes and markets its products through industry trade shows worldwide, product brochures and catalogues, direct mailings to existing and prospective customers, product videos, website promotions, in-house training seminars for customers and end users, road shows which preview new systems and system components, and advertising through trade and end user magazines and the Company's internet web site. The Company's products are sold principally to over 1,000 independent dealers, system integrators and distributors. Sales are made principally by field sales engineers and inside customer service representatives. The Company's sales effort is supported by in-house customer service coordinators and technical support groups which provide product information, application engineering, design detail, field project management, and hardware and software technical support.

The Company's products are employed in video system installations by: (1) commercial and industrial users, such as office buildings, manufacturing plants, warehouses, apartment complexes, shopping malls and retail stores; (2) federal, state, and local governments for national security purposes, municipal facilities, prisons, and military installations; (3) financial institutions, such as banks, clearing houses, brokerage firms and depositories, for security purposes; (4) transportation departments for highway traffic control, bridge and tunnel monitoring, and airport, subway, bus and seaport security and surveillance; (5) gaming casinos, where video surveillance is often mandated by regulatory authorities; and (6) health care facilities, such as hospitals, particularly psychiatric wards and intensive care units. In fiscal 2002, 2001 and 2000, indirect sales to the United States Postal Service approximated $3.5 million, $15.2 million and $22.8 million, respectively.

The Company's principal sales offices are located in Hauppauge, New York; Fareham, England; Zaventem, Belgium; and New Territories, Hong Kong.

International Sales
The Company sells its products in Europe and the Middle East through its U.K. based subsidiary, in China through its Hong Kong subsidiary and elsewhere outside the U.S. principally by direct export from its U.S. based parent company. Sales are made to installing dealers or independent distributors which, outside of Europe and China, typically assume the responsibility for warranty repair as well as sales and marketing costs to promote the Company's product line. The Company has a few territorial exclusivity agreements with customers but primarily uses a wide range of installation companies and distributors in international markets. In Australia, Japan and Norway, the Company permits independent sales representatives to use the Company's name for marketing purposes.

Direct export sales and sales from the Company's foreign subsidiaries amounted to $18.3 million, $20.5 million and $19.6 million or 34%, 31% and 26% of consolidated net sales in fiscal years 2002, 2001, and 2000, respectively. Export sales are generally made through a wholly owned subsidiary, Vicon Industries Foreign Sales Corporation, a tax advantaged foreign sales corporation. The Company's principal foreign markets are Europe, the Middle East and the Pacific Rim, which together accounted for approximately 88 percent of international sales in fiscal 2002.

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Competition
The Company operates in a highly competitive marketplace both domestically and internationally. The Company competes by providing high-end video systems and system components that incorporate broad capability together with high levels of customer service and technical support. Generally, the Company does not compete based on price alone.

The Company's principal engineered video systems competitors include the following companies or their affiliates: Checkpoint Systems, Inc., Matsushita (Panasonic), Pelco Sales Company, Philips Communications and Security Systems, Inc., the Tyco Fire and Security division of Tyco International, GE Interlogix, Inc. and Honeywell's Ultrak, Inc. division. Many additional companies, both domestic and international, produce products that compete against one or more of the Company's system components. In addition, some consumer video electronic companies or their affiliates, including Matsushita (Panasonic), Mitsubishi Electric Corporation, Sanyo Electric Co., Ltd. and Sony Corporation, compete with the Company for the sale of video products and systems. Almost all of the Company's competitors are larger companies whose financial resources and scope of operations are substantially greater than the Company's.

Engineering and Development
The Company's engineering and development is focused on new and improved video systems and system components. In recent years, the trend of product development and demand within the video security and surveillance market has been toward the application of digital video technology, specifically toward the compression, transmission, storage and display of digital video. As the demands of the Company's target market segment requires the Company to keep pace with changes in technology, the Company has focused its engineering effort in these developing areas. During the past three years, the Company substantially increased its product development expenditures to meet the accelerating market shift to network capable (digital) video systems. Development projects are chosen and prioritized based on direct customer feedback, the Company's analysis as to the needs of the marketplace, anticipated technological advances and market research.

The Company employs a total of 46 engineers in the following areas: software development, mechanical design, manufacturing/testing and electrical and circuit design. Engineering and development expense amounted to approximately 8%, 6% and 5% of net sales in fiscal 2002, 2001 and 2000, respectively.

Source and Availability of Raw Materials
The Company relies upon independent manufacturers and suppliers to manufacture and assemble its proprietary products and expects to continue to rely on such entities in the future. The Company's relationships with independent manufacturers, assemblers and suppliers are generally not covered by formal contractual agreements.

Raw materials and components purchased by the Company and its suppliers are generally readily available in the market, subject to market lead times at the time of order. The Company is not dependent upon any single source for a significant amount of its raw materials and components.

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Intellectual Property
The Company owns, and has pending, a limited number of design and utility patents expiring at various times. The Company has certain trademarks registered and several other trademark applications pending both in the United States and in Europe. Most of the Company's key products employ proprietary software which is protected by copyright. However, the laws of certain foreign countries do not protect intellectual property rights to the same extent or in the same manner as the laws of the U.S. The Company has no licenses, franchises or concessions with respect to any of its products or business dealings. The Company does not deem the limited number of its patents or its lack of licenses, franchises and concessions to be of substantial significance or to have a material effect on its business. The Company does, however, consider its proprietary software to be unique and is a principal element in the differentiation of the Company's products from its competition.

Inventories
The Company generally maintains sufficient finished goods inventory levels to respond to unanticipated customer demand, since most sales are to installing dealers and contractors who normally do not carry any significant inventory. The Company principally builds inventory to known or anticipated customer demand. In addition to normal safety stock levels, certain additional inventory levels may be maintained for products with long purchase and manufacturing lead times. The Company believes that it is important to carry adequate inventory levels of parts, components and products to avoid production and delivery delays that detract from its sales effort.

Backlog
The backlog of orders believed to be firm as of September 30, 2002 and 2001 was approximately $4.2 million and $6.3 million, respectively. Orders are generally cancelable without penalty at the option of the customer. The Company prefers that its backlog of orders not exceed its ability to fulfill such orders on a timely basis, since experience shows that long delivery schedules only encourage the Company's customers to look elsewhere for product availability.

Employees
At September 30, 2002, the Company employed 235 full-time employees, of whom 6 are officers, 55 administrative, 101 in sales and technical service capacities, 46 in engineering, and 27 production employees. At September 30, 2001, the Company employed 251 persons. There are no collective bargaining agreements with any of the Company's employees and the Company considers its relations with its employees to be good.

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ITEM 2 - PROPERTIES
The Company principally operates from an 80,000 square-foot facility located at 89 Arkay Drive, Hauppauge, New York, which it owns. The Company also owns a 14,000 square-foot sales, service and warehouse facility in southern England which services the U.K., Europe and the Middle East. In addition, the Company operates under leases from offices in Zaventem, Belgium; Yavne, Israel; Hong Kong and various offices in mainland China.

ITEM 3 - LEGAL PROCEEDINGS
None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None

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PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER

MATTERS

The Company's stock is traded on the American Stock Exchange (AMEX) under the symbol (VII). The following table sets forth for the periods indicated, the range of high and low prices for the Company's Common Stock on AMEX:

Quarter
 Ended            High        Low
-------           ----        ---
Fiscal 2002
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December          5.0100      2.7500
March             6.0500      3.7000
June              4.1500      3.2600
September         3.8000      2.5200

Fiscal 2001
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December          3.3125      1.6875
March             2.7500      1.8125
June              2.7000      1.7000
September         6.5000      2.0200

The last sale price of the Company's Common Stock on December 13, 2002 as reported on AMEX was $3.70 per share. As of December 13, 2002, there were approximately 300 shareholders of record.

The Company has never declared or paid cash dividends on its Common Stock and anticipates that any earnings in the foreseeable future will be retained to finance the growth and development of its business.

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ITEM 6 - SELECTED FINANCIAL DATA

FISCAL YEAR                 2002        2001        2000      1999       1998
                            ----        ----        ----      ----       ----

                                  (in thousands, except per share data)

Net sales                 $54,168     $65,365     $74,624   $73,414    $63,310
Gross profit               18,218      21,686      23,054    25,779     21,960
Operating income (loss)    (2,180)       (418)      1,993     7,893      6,869
Income (loss) before
  income taxes             (2,349)      2,307       1,589     7,442      5,810
Net income (loss)          (1,579)      1,497         961     4,760      5,810
Earnings (loss) per share:
  Basic                      (.34)        .32         .21      1.05       1.61
  Diluted                    (.34)        .32         .21      1.01       1.50
Total assets               47,426      51,926      53,918    49,899     44,386
Long-term debt              3,040       3,498       7,090     5,799      7,002
Working capital            27,827      30,005      33,365    29,049     27,642
Property, plant and
  equipment (net)           7,666       8,139       8,502     8,053      7,137

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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Fiscal Year 2002 Compared with 2001
Net sales for 2002 decreased $11.2 million or 17% to $54.2 million compared with $65.4 million in 2001. Domestic sales decreased $9.0 million or 20% to $35.9 million compared with $44.9 million in 2001. Indirect sales to the United States Postal Service (USPS) decreased $11.7 million to $3.5 million in 2002 compared with $15.2 million in 2001. Other domestic sales for 2002 increased by $2.7 million or 9% to $32.4 million compared with $29.7 million in 2001. Current year sales included $1.6 million of shipments in connection with a $2.3 million system order received in February 2002 for New York's JFK International Airport. International sales decreased $2.2 million or 11% to $18.3 million compared with $20.5 million in 2001 principally as a result of lower sales in Europe and the Middle East. The backlog of unfilled orders was $4.2 million at September 30, 2002 compared with $6.3 million at September 30, 2001.

Gross profit margins for 2002 increased slightly to 33.6% compared with 33.2% in 2001. The margin increase was principally the result of ongoing product cost reduction efforts offset by the effect of fixed production costs relative to the current year's lower sales.

Operating expenses for 2002 were $20.4 million or 37.7% of net sales compared with $22.1 million or 33.8% of net sales in 2001. Selling, general and administrative expenses decreased by $2.0 million, including $1.2 million of selling costs and $.8 million of administrative expenses. The Company continued to invest in new product development in 2002, incurring $4.4 million of engineering and development expenses compared with $4.1 million in 2001.

The Company incurred an operating loss of $2.2 million in 2002 compared with a loss of $418,000 in 2001 principally as a result of lower sales.

Interest expense decreased $158,000 to $340,000 for 2002 compared with $498,000 in 2001 principally as a result of the paydown of bank borrowings. Interest income decreased by $30,000 in 2002 as a result of decreases in market interest rates.

In the prior year, the Company realized a $3.0 million gain ($2.0 million net of tax effect) on the sale of its remaining equity interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which, among other things, manufactures certain of the Company's proprietary products.

The Company recorded an income tax benefit of $770,000 for 2002 compared with income tax expense of $810,000 in 2001.

As a result of the foregoing, the Company incurred a net loss of $1.6 million for 2002 compared with net income of $1.5 million in 2001.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS
Fiscal Year 2001 Compared with 2000
Net sales for 2001 decreased $9.2 million or 12% to $65.4 million compared with $74.6 million in 2000. Domestic sales decreased $10.1 million or 18% to $44.9 million principally as a result of a $7.6 million decline in indirect sales to the United States Postal Service (USPS) under a national supply contract. Indirect sales to the USPS decreased 33% to $15.2 million in 2001 compared with $22.8 million in 2000. In March 2001, the USPS announced an immediate freeze on all its capital spending due to a severe projected budget deficit. As a result, the Company has since experienced a material reduction in its USPS order rate. In addition, the USPS supply contract had expired on June 30, 2001 with no new contract being awarded. The Company has since been named as a pre-approved supplier in the latest USPS published specification for video systems. International sales increased $.9 million or 5% to $20.5 million primarily as a result of increased sales in Europe. The backlog of unfilled orders was $6.3 million at September 30, 2001 compared with $8.4 million at September 30, 2000.

Gross profit margins for 2001 increased to 33.2% compared with 30.9% in 2000. The margin increase was principally attributable to the effects of a $1.3 million charge for warranty costs incurred in the prior year.

Operating expenses for 2001 were $22.1 million or 33.8% of net sales compared with $21.1 million or 28.2% of net sales in 2000. The increase in operating expenses included the write-down of certain foreign assets, certain severance and payroll related costs and costs incurred in the development of new product lines.

The Company incurred an operating loss of $418,000 for 2001 compared with operating income of $2.0 million for 2000 principally as a result of lower sales and increased operating expenses during 2001.

Interest expense decreased $318,000 to $498,000 for 2001 compared with $816,000 in 2000 principally as a result of the paydown of bank borrowings.

The Company realized a $3.0 million gain ($2.0 million net of tax effect) on the sale of its remaining equity interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which, among other things, manufactures certain of the Company's proprietary products.

Income tax expense for 2001 was $810,000 compared with $628,000 in 2000.

As a result of the foregoing, net income increased to $1.5 million for 2001 compared with $961,000 for 2000.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

LIQUIDITY AND FINANCIAL CONDITION
Net cash provided by operating activities was $1.9 million for 2002 due primarily to a $1.2 million decrease in accounts receivable and a $3.7 million decrease in inventories as a result of lower sales. Such increases in cash were offset, in part, by the $1.6 million net loss for the year and the reduction of certain operating liabilities. Net cash used in investing activities was $477,000 for 2002 principally relating to general capital expenditures. Net cash used in financing activities was $1.3 million in 2002, which primarily represented scheduled repayments of bank mortgage and term loans. As a result of the foregoing, cash decreased by $23,000 for 2002 after the effect of exchange rate changes on the cash position of the Company.

On February 12, 2002, the Company executed an amendment agreement with its bank that modified its unsecured revolving credit and term loan agreement to provide for a $5 million secured revolving credit facility through July 2004. Borrowings under such facility bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points (4.75% and 3.71%, respectively, at September 30, 2002). The amendment agreement grants the bank a security interest in all the assets of the Company and, among other things, effectively modified the financial covenants contained in all the existing loan and mortgage agreements with the bank. These covenants require the Company to, among other things, maintain certain levels of earnings, working capital and ratios of debt service coverage and debt to tangible net worth.

On September 30, 2002, the Company executed a second amendment to its credit agreement which, among other things, waives the Company's obligation to comply with all financial covenants contained in the agreements so long as there are no outstanding borrowings under the revolving credit facility and the Company maintains a compensating balance equal to the sum of the then outstanding term loan principal balance and outstanding banker acceptances. At this time, the Company does not anticipate that it will be obligated to comply with these amended covenants in the near term. The amendment agreement further waived the Company's obligation to comply with all financial covenants contained in mortgage loans with the same bank. At September 30, 2002 and 2001, there were no outstanding borrowings under this facility.

The Company also maintains a bank overdraft facility of 1 million Pounds Sterling (approximately $1,570,000) in the U.K. to support local working capital requirements of Vicon Industries Limited. This facility expires in March 2003. At September 30, 2002, there were no outstanding borrowings under this facility.

Current and long-term debt maturing in each of the fiscal years subsequent to September 30, 2002 approximates $1,304,000 in 2003, $320,000 in 2004, $329,000 in 2005, $335,000 in 2006, $316,000 in 2007 and $1,740,000 thereafter.

The Company occupies certain facilities, or is contingently liable, under operating leases that expire at various dates through 2008. The leases, which cover periods from three to eight years, generally provide for renewal options at specified rental amounts. The aggregate operating lease commitment at September 30, 2002 was $746,000 with minimum rentals for the fiscal years shown as follows: 2003 - $313,000; 2004 - $272,000; 2005 - $97,000; 2006 - $24,000; 2007 - $24,000; 2008 and thereafter - $16,000.

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The Company entered into certain consulting and incentive compensation agreements that provide for the payout of up to $810,000 of fees and compensation upon the completion and sale of a specified number of units of a newly developed product line.

The Company believes that it has sufficient cash to meet its anticipated operating, capital expenditures and debt service requirements for at least the next twelve months. The Company has experienced reduced sales levels and incurred operating losses in recent periods which, if continued, could limit the Company's ability to draw upon its bank credit facilities if needed.

Critical Accounting Policies
The Company's significant accounting policies are fully described in Note 1 to the consolidated financial statements included in Part IV. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility of the resulting receivable is reasonably assured. As it relates to product sales, revenue (including shipping and handling fees) is generally recognized when products are sold and title is passed to the customer. Under arrangements that involve the sale of product combined with the provision of services, revenue is generally recognized for each element of the arrangement upon delivery or performance provided that (i) the undelivered element is not essential to the functionality of the delivered element and (ii) there is objective evidence of the fair value of the undelivered elements. Advance service billings under a national supply contract with one customer are deferred and recognized as revenues on a pro rata basis over the term of the service agreement. Shipping and handling costs are included in cost of sales.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including monitoring and evaluating the quality of its component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from its estimates, revisions to the estimated warranty liability may be required.

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The Company writes down its inventory for estimated obsolescence and slow moving inventory equal to the difference between the cost of inventory and the estimated net realizable market value based upon assumptions about future demand and market conditions. Technology changes and market conditions may render some of the Company's products obsolete and additional inventory write-downs may be required. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

The Company assesses the recoverability of the carrying value of its long-lived assets, including identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates the recoverability of such assets based upon the expectations of undiscounted cash flows from such assets. If the sum of the expected future undiscounted cash flows were less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount.

The Company's ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible. The Company has incurred operating losses in the past two fiscal years. Should such losses continue in the future, the Company may determine that it is not likely it will be able to realize the benefits of recorded deferred tax assets, and a valuation allowance will need to be established that would result in the charge-off of previously reported tax benefits.

As further described in Note 1, the Company has not yet adopted the provisions of SFAS No. 142 as of September 30, 2002 and determined its possible effects on the Company's financial condition or results of operations. The Company continued to amortize its recorded goodwill over its original 10-year period as of September 30, 2002 and also evaluated impairment through that same period using undiscounted cash flows.

New Accounting Standards Not Yet Adopted
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized but, instead, tested for impairment at least annually in accordance with the provisions of the Statement. SFAS No. 142 will also require that intangible assets with finite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets", as discussed below.
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The Company adopted SFAS No. 142 on October 1, 2002 and is required to assign its goodwill ($1.4 million at September 30, 2002, which relates to its acquisition of TeleSite U.S.A., Inc. in 1999) to "reporting units" as defined under SFAS No. 142. Goodwill assigned to each of the reporting units will be tested for impairment as of October 1, 2002 by comparing the carrying amount of the reporting units' net assets (including goodwill) to its fair value. The Company has six months from October 1, 2002 to complete this "first step" of this transitional goodwill impairment test. If the carrying amount of the net assets of a reporting unit (including goodwill) exceeds the fair value of that reporting unit, a "second step" of the transitional goodwill impairment test must be completed as soon as possible, but not later than September 30, 2003. Due to the complexities involved with the transitional provisions of SFAS No. 142, the Company has not yet completed its evaluation of the possible effects of its adoption of SFAS No. 142 on the Company's financial condition or results of operations. However, it is reasonably possible that the adoption of SFAS No. 142 will result in an impairment charge to goodwill of up to $1.4 million, which would be reported as a cumulative effect change in accounting principle.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which supersedes SFAS No. 121. SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill will be evaluated for impairment under SFAS No. 142, as discussed above. The Company adopted SFAS No. 144 on October 1, 2002, which did not have an impact on its consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit and Disposal Activities". SFAS No. 146 requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company believes that the adoption of SFAS No. 146 will not have a material impact on its consolidated financial statements.

In November 2002, the Emerging Issues Task Force (EITF) finalized its tentative consensus on EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables", which provides guidance on the timing and method of revenue recognition for sales arrangements that include the delivery of more than one product or service. EITF 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently analyzing the impact of its adoption on the Company's financial statements.

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Foreign Currency Activity
The Company's foreign exchange exposure is principally limited to the relationship of the U.S. dollar to the British pound sterling, the Euro, the Israeli shekel and the Japanese yen.

Sales by the Company's U.K. based subsidiary to customers in Europe and the Middle East are made in British Pounds Sterling (Pounds) or Eurodollars (Euros). In fiscal 2002, approximately $5.7 million of products were sold by the Company to its U.K. based subsidiary for resale. In past years, the Pound and the Euro have weakened against the U.S. dollar, thus increasing the cost of U.S. sourced product sold by this subsidiary. The Company attempts to minimize its currency exposure on intercompany sales through the purchase of forward exchange contracts.

The Company's Israeli based subsidiary incurs Shekel based operating expenses which, in recent years, have been funded by the Company in U.S. dollars. In the recent year, the Company purchased forward exchange contracts to minimize its currency exposure on these expenses.

Japanese sourced products denominated in Japanese yen accounted for approximately 2% and 6% of component and finished product purchases in fiscal 2002 and 2001, respectively. The Company attempts to minimize its currency exposure on these purchases through the purchase of forward exchange contracts. The Company also attempts to reduce the impact of an unfavorable exchange rate condition through cost reductions from its suppliers and shifting product sourcing to suppliers transacting in more stable and favorable currencies.

As of September 30, 2002, the Company had interest rate swaps and forward exchange contracts outstanding with notional amounts aggregating $3.0 million and $2.6 million, respectively, whose aggregate fair value was a liability of approximately $304,000.

In general, the Company seeks lower costs from suppliers and enters into forward exchange contracts to mitigate short-term exchange rate exposures. However, there can be no assurance that such steps will be effective in limiting long-term foreign currency exposure.

Market Risk Factors
The Company is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. The Company has a policy that prohibits the use of currency derivatives or other financial instruments for trading or speculative purposes.

The Company enters into forward exchange contracts to hedge certain foreign currency exposures and minimize the effect of such fluctuations on reported earnings and cash flow (see "Foreign Currency Activity", Note 1 "Derivative Instruments" and "Fair Value of Financial Instruments" to the accompanying financial statements). At September 30, 2002, the Company's foreign currency exchange risks included a $1.9 million intercompany accounts receivable balance due from the Company's U.K. based subsidiary and a nominal Japanese Yen denominated trade accounts payable liability due to inventory suppliers. Such assets and liabilities are short term and will be settled in fiscal 2003. The following sensitivity analysis assumes an instantaneous 10% change in foreign currency exchange rates from year-end levels, with all other variables held constant.

- 15 -

At September 30, 2002, a 10% strengthening or weakening of the U.S. dollar versus the British Pound would result in a $186,000 decrease or increase, respectively, in the intercompany accounts receivable balance. Such foreign currency exchange risk at September 30, 2002 has been substantially hedged by forward exchange contracts.

At September 30, 2002, the Company had $3.0 million of outstanding floating rate bank debt which was covered by interest rate swap agreements that effectively convert the foregoing floating rate debt to stated fixed rates (see "Note 6. Long-Term Debt" to the accompanying financial statements). Thus, the Company has substantially no net interest rate exposures on these instruments. However, the Company had approximately $979,000 of floating rate bank debt that is subject to interest rate risk as it was not covered by interest rate swap agreements. The Company does not believe that a 10% fluctuation in interest rates would have a material effect on its consolidated financial position and results of operations.

Related Party Transactions
Refer to Item 13 and "Note 11. Related Party Transactions" to the accompanying financial statements.

Inflation
The impact of inflation on the Company has been minimal in recent years as the rate of inflation remains low. However, inflation continues to increase costs to the Company. As operating expenses and production costs increase, the Company seeks price increases to its customers to the extent permitted by market conditions.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995

Statements in this Report on Form 10-K and other statements made by the Company or its representatives that are not strictly historical facts including, without limitation, statements included herein under the captions "Results of Operations" and "Liquidity and Financial Condition" are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 that should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The Company also assumes no obligation to publicly update or revise its forward-looking statements or to advise of changes in the assumptions and factors on which they are based.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 15, for an index to consolidated financial statements and financial statement schedules.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None
- 16 -

PART III

ITEM 10 - DIRECTORS AND OFFICERS OF THE REGISTRANT

The Officers and Directors of the Company are as follows:

     Name              Age      Position
Kenneth M. Darby        56      Chairman of the Board, President and
                                     Chief Executive Officer
John M. Badke           43      Vice President, Finance and Chief
                                  Financial Officer
John L. Eckman          53      Vice President, Sales
Peter A. Horn           47      Vice President, Operations
Bret M. McGowan         37      Vice President, Marketing
Yacov A. Pshtissky      51      Vice President, Technology and Development
Milton F. Gidge         73      Director
Peter F. Neumann        68      Director
W. Gregory Robertson    59      Director
Arthur D. Roche         64      Director
Kazuyoshi Sudo          60      Director

The business experience, principal occupations and employment, as well as period of service, of each of the officers and directors of the Company during at least the last five years are set forth below.

Kenneth M. Darby - Chairman of the Board, President and Chief Executive Officer. Mr. Darby has served as Chairman of the Board since April 1999, as Chief Executive Officer since April 1992 and as President since October 1991. He has served as a director since 1987. Mr. Darby also served as Chief Operating Officer and as Executive Vice President, Vice President, Finance and Treasurer of the Company. He joined the Company in 1978 as Controller after more than nine years at Peat Marwick Mitchell & Co., a public accounting firm. Mr. Darby's current term on the Board ends in May 2005.

John M. Badke - Vice President, Finance and Chief Financial Officer. Mr. Badke has been Chief Financial Officer since December 1999 and Vice President, Finance since October 1998. Previously, he served as Controller since joining the Company in 1992. Prior to joining the Company, Mr. Badke was Controller for NEK Cable, Inc. and an audit manager with the international accounting firms of Arthur Andersen & Co. and Peat Marwick Main & Co.

John L. Eckman - Vice President, U.S. Sales. Mr. Eckman rejoined the Company in April 2001 as Vice President, U.S. Sales after serving as District General Manager with Honeywell from June 2000 to April 2001. From July 1996 to June 2000, he served as Vice President, U.S. Sales of the Company after joining the Company in August 1995 as Eastern Regional Manager. Prior to that time, he was Director of Field Operations for Cardkey Systems, Inc., an access control security products manufacturer with whom he was employed for 12 years.

Peter A. Horn - Vice President, Operations. Mr. Horn has been Vice President, Operations since June 1999. From 1995 to 1999, he was Vice President, Compliance and Quality Assurance. Prior to that time, he served as Vice President in various capacities since his promotion in May 1990.

- 17 -

Bret M. McGowan - Vice President, Marketing. Mr. McGowan was promoted to Vice President, Marketing in October 2001. Previously, he served as Director of Marketing since 1998 and as Marketing Manager since 1994. He joined the Company in 1993 as a Marketing Specialist.

Yacov A. Pshtissky - Vice President, Technology and Development. Mr. Pshtissky has been Vice President, Technology and Development since May 1990. Mr. Pshtissky was Director of electrical product development from March 1988 through April 1990.

Milton F. Gidge - Director. Mr. Gidge has been a director of the Company since 1987. He is a retired director and executive officer of Lincoln Savings Bank for which he served from 1976 to 1994 as Chairman, Credit Policy. He also served as a director of Interboro Mutual Indemnity Insurance Co., a general casualty insurance company, from 1980 to 2001 and as a director of Intervest Bancshares Corporation, a regional bank holding company, from 1988 to 2001. His current term on the Board ends in May 2004.

Peter F. Neumann - Director. Mr. Neumann has been a director of the Company since 1987. He is the retired President of Flynn-Neumann Agency, Inc., an insurance brokerage firm. Mr. Neumann's current term on the Board ends in May 2003.

W. Gregory Robertson - Director. Mr. Robertson has been a director of the Company since 1991. He is President of TM Capital Corporation, a financial services company which he founded in 1989. From 1985 to 1989, he was employed by Thomson McKinnon Securities, Inc. as head of investment banking and public finance. Mr. Robertson's current term on the Board ends in May 2004.

Arthur D. Roche - Director. Mr. Roche has been a director of the Company since 1992. He served as Executive Vice President and co-participant in the Office of the President of the Company from August 1993 until his retirement in November 1999. For the six months prior to that time, Mr. Roche provided consulting services to the Company. In October 1991, Mr. Roche retired as a partner of Arthur Andersen & Co., an international accounting firm which he joined in 1960. His current term on the Board ends in May 2005.

Kazuyoshi Sudo - Director. Mr. Sudo has been a director of the Company since 1987. Mr. Sudo is President and Chief Executive Officer of Toyo Management, Inc., a consulting firm which he founded in 2001. Previously, Mr. Sudo was Chief Executive Officer of CBC (America) Corp., a distributor of electronic, chemical and optical products, from 1996 to 2001 and a director of its parent company, CBC Co., Ltd. Mr. Sudo's current term on the Board ends in May 2003.

There are no family relationships between any director, executive officer, officer or person nominated or chosen by the Company to become a director or officer.

Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company during the year ended September 30, 2002 and certain written representations, no person, who, at any time during the year ended September 30, 2002 was a director, officer or beneficial owner of more than 10 percent of any class of equity securities of the Company registered pursuant to Section 12 of the Exchange Act failed to file on a timely basis, as disclosed in the above forms, reports required by Section 16(a) of the Exchange Act during the year ended September 30, 2002.

- 18 -

ITEM 11 - EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or paid for all services rendered to the Company during 2002, 2001 and 2000 by the Chief Executive Officer and the Company's most highly compensated executive officers whose total annual salary and bonus exceeded $100,000 during any such year.

                                    SUMMARY COMPENSATION TABLE
                                    --------------------------

                                                                            Long-Term Compensation
                                                                     ---------------------------------
                                                                              Awards          Payouts
                                                                     ------------------------ --------
                                    Annual Compensation              Restricted   Securities
Name and                                              All Other        Stock      Underlying   LTIP
Principal Position  Year   Salary ($)   Bonus ($)    Compensation      Award      Options (#)  Payouts
------------------  ----   ----------  ----------    ------------    ----------   ------------ -------
Kenneth M. Darby    2002    $310,000   $ 75,000 (1)  $  3,000 (3)        -           -            -
 Chairman and       2001     285,000     75,000 (1)     3,000 (3)        -           -            -
  Chief Executive   2000     285,000     42,271 (1)     3,000 (3)      50,813 (4)    -            -
   Officer

Henry B. Murray     2002    $   -      $   -         $    -              -           -            -
 Executive          2001     184,615       -           87,179 (5)        -           -            -
  Vice President    2000     100,000     40,000 (2)       -              -           -            -


(1)   Represents cash bonus which was approved by the Board of Directors upon
      the recommendation of its Compensation Committee.

(2)   Represents minimum guaranteed bonus for fiscal 2000.

(3)   Represents life insurance policy payment.

(4)   Represents deferred compensation benefit of 8,130 shares of Common Stock
      which is being held by the Company in Treasury and which vest upon the
      expiration of Mr. Darby's employment agreement in October 2004, or earlier
      upon certain occurrences including his death, involuntary termination or a
      change in control of the Company. The value of such stock is based on the
      fair market value on the date of grant. At September 30, 2002, the quoted
      market value of such shares approximated $25,000. No dividends can be paid
      on such shares.

(5)   Represents lump-sum severance payout pursuant to Mr. Murray's separation
      from the Company effective August 31, 2001.

- 19 -

Stock Options
There were no options granted to the aforementioned executive officers during fiscal 2002.

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

                                                   At September 30, 2002
                                               ----------------------------
                                                 Number of
                                                 Securities     Value of
                                                 Underlying    Unexercised
                                                Unexercised   In-the-money
                                                  Options      Options (2)
                     Shares                     -----------   ------------
                    Acquired       Value        Exercisable/  Exercisable/
     Name          On Exercise  Realized (1)   Unexercisable Unexercisable
-----------------  -----------  ------------   ------------- --------------

Kenneth M. Darby       -0-          -0-         6,462/15,077    -0-/-0-

Henry B. Murray        -0-          -0-         -0-/-0-         -0-/-0-

(1) Calculated based on the difference between the closing quoted market prices per share at the dates of exercise and the exercise prices.

(2) Calculated based on the difference between the closing quoted market price ($3.10) and the exercise price.

- 20 -

Employment Agreements
Mr. Darby has entered into an employment agreement with the Company that provides for an annual salary of $310,000 through fiscal year 2004. This agreement provides for payment in an amount up to three times his average annual compensation for the previous five years if there is a change in control of the Company without Board of Director approval (as defined in the agreement).

Directors' Compensation and Term
Non-employee directors are compensated at an annual rate of $16,000 for regular Board meetings and $1,000 per committee meeting attended in person or by teleconference. Employee directors are not compensated for Board or committee meetings. Directors may not stand for reelection after age 70, except that any director may serve one additional three-year term after age 70 with the unanimous consent of the Board of Directors.

- 21 -

Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors consists of Messrs. Gidge, Neumann, Robertson and Roche none of whom has ever been an officer of the Company except for Mr. Roche, who served as Executive Vice President from August 1993 until his retirement in November 1999.

Board Compensation Committee Report

The Compensation Committee's compensation policies applicable to the Company's officers for 2002 were to pay a competitive market price for the services of such officers, taking into account the overall performance and financial capabilities of the Company and the officer's individual level of performance.

Mr. Darby makes recommendations to the Compensation Committee as to the base salary and incentive compensation of all officers other than himself. The Committee reviews these recommendations with Mr. Darby and, after such review, determines compensation. In the case of Mr. Darby, the Compensation Committee makes its determination after direct negotiation with him. For each officer, the committee's determinations are based on its conclusions concerning each officer's performance and comparable compensation levels in the security industry and the Long Island area for similarly situated officers at comparable companies. The overall level of performance of the Company is taken into account but is not specifically related to the base salary of these officers. Also, the Company has established an incentive compensation plan for all of the officers, which provides a specified bonus to each officer upon the Company's achievement of certain annual sales and profitability targets and strategic initiatives.

The Compensation Committee grants options to officers to link compensation to the performance of the Company. Options are exercisable in the future at the fair market value at the time of grant, so that an officer granted an option is rewarded by the increase in the price of the Company's stock. The committee grants options to officers based on significant contributions of such officer to the performance of the Company. In addition, in determining Mr. Darby's salary for service as Chief Executive Officer, the committee considered the responsibility assumed by him in formulating and implementing a management and long-term strategic plan.

- 22 -

This graph compares the return of $100 invested in the Company's stock on October 1, 1997, with the return on the same investment in the AMEX U.S. Market Index and the AMEX Technology Index.

(The following table was represented by a chart in the printed material)

                       Vicon                AMEX U.S.       Amex Technology
Date               Industries, Inc.       Market Index            Index
----               ----------------       ------------       ---------------

10/01/97                100                    100                 100
10/01/98                 85                     94                 121
10/01/99                 84                    121                 206
10/01/00                 39                    149                 241
10/01/01                 41                    108                 195
10/01/02                 37                    101                 121

- 23 -

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth information as to each person, known to the Company to be a "beneficial owner" (as defined in regulations of the Securities and Exchange Commission) of more than five percent of the Company's Common Stock outstanding as of December 13, 2002 and the shares beneficially owned by the Company's Executive Officers and Directors and by all Executive Officers and Directors as a group.

   Name and Address                   Number of Shares
   of Beneficial Owner                Beneficially Owned (1)       % of Class
   -------------------                ----------------------       ----------
   CBC Co., Ltd.
    and affiliates
   2-15-13 Tsukishima
   Chuo-ku
   Tokyo, Japan 104                        543,715                     11.5%

   Dimensional Fund Advisors
   1299 Ocean Avenue
   Santa Monica, CA 90401                  320,900 (7)                  6.8%

   Chu S. Chun
   C/O I.I.I. Companies, Inc.
   915 Hartford Turnpike
   Shrewsbury, MA 01545                    299,457 (2)                  6.3%
******************************************************************************
   C/O Vicon Industries, Inc.

   Kenneth M. Darby                        257,059 (3)                  5.4%
   Arthur D. Roche                         146,601 (4)                  3.1%
   Peter F. Neumann                         17,072 (5)                    *
   W. Gregory Robertson                     13,847 (5)                    *
   Milton F. Gidge                          13,698 (5)                    *
   Kazuyoshi Sudo                            9,000                        *

 Total all Executive Officers and
   Directors as a group (6 persons)        457,277 (6)                  9.7%

* Less than 1%.

(1) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment control over the shares of stock owned.
(2) Mr. Chun has voting and dispositive control over 299,457 shares but disclaims beneficial ownership as to all but 48,400 shares. 195,657 shares are owned by the International Industries, Inc. Profit Sharing Plan and 103,800 shares are owned by Mr. Chun and immediate family members.
(3) Includes currently exercisable options to purchase 6,967 shares.
(4) Includes 50,000 shares held by Mr. Roche's wife, 15,000 shares held by their children and currently exercisable options to purchase 1,947 shares.
(5) Includes currently exercisable options to purchase 1,947 shares.
(6) Includes currently exercisable options to purchase 14,755 shares.
(7) Dimensional Fund Advisors had voting and investment control over 320,900 shares as investment advisor and manager for various mutual funds and other clients. These shares are beneficially owned by such mutual funds or other clients.

- 24 -

EQUITY COMPENSATION PLAN INFORMATION
------------------------------------
At September 30, 2002
                                                             Number of securities
                    Number of securities   Weighted average  remaining available for
                    to be issued upon      exercise price    future issuance under
                    exercise of            of outstanding    equity compensation plans
                    outstanding options,   options, warrants (excluding securities
                    warrants and rights    and rights        reflected in column (a))

Plan category               (a)                  (b)                   (c)
------------------  -------------------    ----------------  ------------------------
Equity compensation
plans approved by
security holders          218,172               $3.24                438,141

Equity compensation
plans not approved
by security holders          -                    -                     -

Total                     218,172               $3.24                438,141

EQUITY COMPENSATION GRANT NOT APPROVED BY SECURITY HOLDERS
Through September 30, 2002, the Company's Chief Executive Officer was provided a deferred compensation benefit aggregating 70,647 shares of common stock currently held by the Company in treasury. Such shares vest upon the expiration of the executive's employment agreement in October 2004, or earlier under certain occurrences including his death, involuntary termination or a change in control of the Company.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and CBC Company, Ltd.(CBC), a Japanese corporation which beneficially owns 11.5% of the outstanding shares of the Company, have been conducting business with each other for approximately twenty-three years. During this period, CBC has served as a lender, a product supplier and sourcing agent, and a private label reseller of the Company's products. CBC has also acted as the Company's sourcing agent for the purchase of certain video products. In fiscal 2002, the Company purchased approximately $1.3 million of products and components from or through CBC. CBC competes with the Company in various markets, principally in the sale of video products and systems. Sales of all products to CBC were $409,000 in 2002. Kazuyoshi Sudo is a director of the Company and a former director of CBC and Chief Executive Officer of CBC (America) Corp., a U.S. subsidiary of CBC.

During fiscal year 2002, the Company entered into a royalty arrangement with CBC whereby CBC will license certain technology from the Company. The total amount of the arrangement is $200,000 and, as of September 30, 2002, the Company had not received any payments under this arrangement.

Mr. Chu S. Chun, who has beneficial voting control over 6.3% of the Common Stock of the Company, also beneficially owns a minority interest in Chun Shin Electronics, Inc., (CSE), a South Korean public company that manufactures certain of the Company's proprietary products. CSE also sells various security products, including the Company's products, principally within the South Korean market. In 2002, CSE sold approximately $2.1 million of products to the Company through International Industries, Inc. (I.I.I.), a U.S. based company controlled by Mr. Chun. I.I.I. arranges the importation of all the Company's product purchases from CSE. In addition, I.I.I. purchased approximately $399,000 of products directly from the Company during 2002 for resale to CSE.

- 25 -

ITEM 14 - CONTROLS AND PROCEDURES
(a) Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND

REPORTS ON FORM 8-K

(a) (1) Financial Statements

Included in Part IV, Item 15:

Independent Auditors' Report

Financial Statements:

Consolidated Statements of Operations, fiscal years ended September 30, 2002, 2001, and 2000

Consolidated Balance Sheets at September 30, 2002 and 2001

Consolidated Statements of Shareholders' Equity, fiscal years ended September 30, 2002, 2001, and 2000

Consolidated Statements of Cash Flows, fiscal years ended September 30, 2002, 2001, and 2000

Notes to Consolidated Financial Statements, fiscal years ended September 30, 2002, 2001, and 2000

(a) (2) Financial Statement Schedule

Included in Part IV, Item 15:

Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 2002, 2001, and 2000

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted.

- 26 -

15(a)(3)          Exhibits                            Exhibit Number or
Exhibit                                               Incorporation by
Numbers     Description                               Reference to
-------     -----------                               -----------------

   3        (.1) Articles of Incorporation and        Incorporated by reference
                 By-Laws, as amended                  to the 1985 Annual Report
                                                      on Form 10-K; Form S-2
                                                      filed in Registration
                                                      Statement No.33-10435
                                                      and Exhibit A, B and C of
                                                      the 1987 Proxy Statement

            (.2) Amendment of the Certificate
                 of Incorporation dated May 7, 2002   3.2

   4             Instruments defining the rights of
                 security holders

            (.1) Rights Agreement dated December      Incorporated by reference
                 4, 2001 between the Registrant       to the 2001 Annual Report
                 and Computershare Investor Services  on Form 10-K

  10         Material Contracts

            (.1) Employment Contract dated            Incorporated by reference
                 October 1, 1999 between the          to the 1999 Annual Report
                 Registrant and Kenneth M. Darby      on Form 10-K

            (.2) Employment Contract dated April      Incorporated by reference
                 1, 2001 between Registrant           to the 2001 Annual Report
                 and John M. Badke                    on Form 10-K

            (.3) Employment Agreement dated October   Incorporated by reference
                 1, 2001 between Registrant and       to the 2001 Annual Report
                 Peter Horn                           on Form 10-K

            (.4) Employment Agreement dated October
                 1, 2001 between the Registrant and
                 Yacov Pshtissky                      10.4

            (.5) Employment Agreement dated April     Incorporated by reference
                 1, 2001 between Registrant and       to the 2001 Annual Report
                 John L.Eckman                        on Form 10-K

(.6) Employment Agreement dated October Incorporated by reference 1, 2001 between the Registrant and to the 2001 Annual Report Yigal Abiri on Form 10-K

(.7) Deferred Compensation Agreement Incorporated by reference dated November 1, 1986 between the to the 1992 Annual Report

                 Registrant and Donald N. Horn        on Form 10-K

            (.8) 1994 Incentive Stock Option Plan     Incorporated by reference
                                                      to the 1994 Annual Report
                                                      on Form 10-K

            (.9) 1994 Non-Qualified Stock Option      Incorporated by
                 Plan for Outside Directors           reference to the 1994
                                                      Annual Report on Form 10-K

                                     - 27 -

                                                      Exhibit Number or
Exhibit                                               Incorporation by
Numbers     Description                               Reference to
-------     -----------                               -----------------

           (.10) 1996 Incentive Stock Option Plan     Incorporated by
                                                      reference to the
                                                      1997 Annual Report
                                                      on Form 10-K

           (.11) 1996 Non-Qualified Stock Option      Incorporated by
                 Plan for Outside Directors           reference to the
                                                      1997 Annual Report
                                                      on Form 10-K

           (.12) Commercial fixed rate loan           Incorporated by
                 agreement between the Registrant     reference to the
                 and National Westminster Bank PLC    June 30, 1997 filing
                 dated April 8, 1997                  on Form 10-Q

           (.13) Loan Agreement between the           Incorporated by
                 Registrant and The Dime Savings      reference to the
                 Bank of New York, FSB dated          December 31, 1997
                 January 29, 1998                     filing on Form 10-Q

           (.14) Mortgage Note between the            Incorporated by
                 Registrant and The Dime Savings      reference to the
                 Bank of New York, FSB dated          December 31, 1997
                 January 29, 1998                     filing on Form 10-Q

           (.15) Term Loan Note between the           Incorporated by
                 Registrant and The Dime Savings      reference to the
                 Bank of New York, FSB dated          December 31, 1997
                 January 29, 1998                     filing on Form 10-Q

           (.16) Mortgage and Security Agreement      Incorporated by
                 in the amount of $2,512,000 between  reference to the
                 the Registrant and The Dime Savings  December 31, 1997
                 Bank of New York, FSB dated          filing on Form 10-Q
                 January 29, 1998

           (.17) Mortgage and Security Agreement      Incorporated by
                 in the amount of $388,000 between    reference to the

the Registrant and The Dime Savings December 31, 1997 Bank of New York, FSB dated filing on Form 10-Q January 29, 1998

(.18) Interest rate master swap agreement Incorporated by between the Registrant and KeyBank reference to the

      National Association dated           December 31, 1997
      December 11, 1997                    filing on Form 10-Q

(.19) Schedule to the master agreement     Incorporated by

between the Registrant and KeyBank reference to the National Association dated December 31, 1997 December 11, 1997 filing on Form 10-Q

- 28 -

                                                      Exhibit Number or
Exhibit                                               Incorporation by
Numbers     Description                               Reference to
-------     -----------                               -----------------

(.20) Swap transaction confirmation with Incorporated by a notional amount of $2,512,000 reference to the between the Registrant and KeyBank December 31, 1997 National Association dated filing on Form 10-Q December 30, 1997

(.21) Swap transaction confirmation with Incorporated by a notional amount of $388,000 reference to the between the Registrant and KeyBank December 31, 1997

      National Association dated           filing on Form 10-Q
      December 30, 1997

(.22) Advice of borrowing terms            Incorporated by
      between the Registrant and           reference to the
      National Westminster Bank PLC        March 31, 2002 filing
      dated March 25, 2002                 on Form 10-Q

(.23) Credit Agreement between the         Incorporated by
      Registrant and The Dime Savings      reference to the
      Bank of New York, FSB dated          June 30, 1998 filing
      July 20, 1998                        on Form 10-Q

(.24) Swap transaction confirmation with Incorporated by a notional amount of $4,425,000 reference to the between the Registrant and KeyBank 1998 Annual Report

      National Association dated           on Form 10-K
      September 9, 1998

(.25) Stock purchase agreement between     Incorporated by reference
      the Registrant and Isaac Gershoni    to the 1999 Annual Report
      dated August 12, 1999                on Form 10-K

(.26) Escrow agreement among the           Incorporated by reference
      Registrant, Isaac Gershoni and       to the 1999 Annual Report
      European American Bank dated         on Form 10-K
      August 12, 1999

(.27) Loan Agreement between the           Incorporated by reference
      Registrant and The Dime Savings      to the 1999 Annual Report
      Bank of New York, FSB dated          on Form 10-K
      October 12, 1999

(.28) Mortgage Note between the            Incorporated by reference
      Registrant and The Dime Savings      to the 1999 Annual Report
      Bank of New York, FSB dated          on Form 10-K
      October 12, 1999

(.29) Mortgage and Security Agreement      Incorporated by reference

in the amount of $1,200,000 between to the 1999 Annual Report the Registrant and The Dime Savings on Form 10-K Bank of New York, FSB dated October 12, 1999

- 29 -

                                                      Exhibit Number or
Exhibit                                               Incorporation by
Numbers     Description                               Reference to
-------     -----------                               -----------------

         (.30) Amendment No. 1 to the Credit          Incorporated by reference
               Agreement between the Registrant       to the December 31, 2001
               and Washington Mutual Bank, FA         filing on Form 10-Q
               dated February 12, 2002

         (.31) Security Agreement between the         Incorporated by reference
               Registrant and Washington Mutual       to the December 31, 2001
               Bank, FA dated February 12, 2002       filing on Form 10-Q

         (.32) Amendment No. 2 to the Credit
               Agreement between the Registrant
               and Washington Mutual Bank, FA
               dated September 30, 2002               10.32


         (.33) 1999 Incentive Stock Option Plan       Incorporated by reference
                                                      to the 1999 Annual Report
                                                      on Form 10-K

         (.34) 1999 Non-Qualified Stock Option Plan   Incorporated by reference
                                                      to the 1999 Annual Report
                                                      on Form 10-K

         (.35) 2002 Incentive Stock Option Plan       10.35

         (.36) 2002 Non-Qualified Stock Option Plan   10.36


21       Subsidiaries of the Registrant               Incorporated by
                                                      reference to the Notes
                                                      to the Consolidated
                                                      Financial Statements

23       Independent Auditors' Consent                23

99       Additional Exhibits

         (.1) Certification pursuant to
              18 U.S.C. Section 1350, as adopted
              pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002              99.1

         (.2) Certification pursuant to
              18 U.S.C. Section 1350, as adopted
              pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002              99.2

No other exhibits are required to be filed.

15(b) - REPORTS ON FORM 8-K
No reports on Form 8-K were required to be filed during the last quarter of the period covered by this report.

- 30 -

Other Matters - Form S-8 and S-2 Undertaking
For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 33-7892 (filed June 30, 1986), 33-34349 (filed April 1, 1990), 33-90038 (filed February 24, 1995), 333-30097 (filed June 26, 1997) and 333-71410 (filed October 11, 2001) and on Form S-2 No. 333-46841 (effective May 1, 1998):

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

- 31 -

Independent Auditors' Report

The Board of Directors and Shareholders
Vicon Industries, Inc.:

We have audited the consolidated financial statements of Vicon Industries, Inc. and subsidiaries (the "Company") as listed in Part IV, item 15(a)(1). In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in Part IV, item
15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vicon Industries, Inc. and subsidiaries at September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

                                   /s/ KPMG LLP


Melville, New York
December 10, 2002

- 32 -

VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended September 30, 2002, 2001 and 2000

                                          2002           2001           2000
                                          ----           ----           ----


Net sales                             $54,168,110    $65,364,558    $74,624,065
Cost of sales                          35,950,038     43,678,775     51,570,001
                                      ------------   ------------   ------------
    Gross profit                       18,218,072     21,685,783     23,054,064

Operating expenses:
 Selling expense                       11,833,103     13,025,115     13,117,039
 General and administrative expense     4,194,358      4,973,816      4,190,856
 Engineering and development expense    4,370,230      4,105,282      3,753,653
                                      ------------   ------------   ------------
                                       20,397,691     22,104,213     21,061,548
                                      ------------   ------------   ------------

    Operating income (loss)            (2,179,619)      (418,430)     1,992,516

Other expense (income):
 Interest expense                         339,587        497,597        816,017
 Gain on sale of securities                 -         (3,022,579)      (315,955)
 Interest and other income               (170,178)      (200,596)       (96,751)
                                      ------------   ------------   ------------
   Income (loss) before income taxes   (2,349,028)     2,307,148      1,589,205
Income tax expense (benefit)             (770,000)       810,000        628,000
                                      ------------   ------------   ------------

    Net income (loss)                 $(1,579,028)   $ 1,497,148    $   961,205
                                      ============   ============   ============

Earnings (loss) per share:

  Basic                                    $(.34)         $ .32          $ .21
                                           ======         =====          =====

  Diluted                                  $(.34)         $ .32          $ .21
                                           ======         =====          =====

See accompanying notes to consolidated financial statements.

- 33 -

VICON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

                                   September 30, 2002 and 2001

ASSETS                                                 2002             2001
------                                                 ----             ----
Current Assets:
  Cash and cash equivalents                        $ 9,771,804      $ 9,795,148
  Accounts receivable (less allowance of
   $1,077,000 in 2002 and $1,115,000 in 2001)       10,400,990       11,438,334
  Inventories:
    Parts, components, and materials                 2,802,779        2,518,782
    Work-in-process                                  1,275,057        2,777,211
    Finished products                                9,470,823       11,800,197
                                                   -----------      -----------
                                                    13,548,659       17,096,190
  Recoverable income taxes                           1,712,728           -
  Deferred income taxes                                673,574        1,420,372
  Prepaid expenses                                     496,399          566,861
                                                   -----------      -----------
                 Total current assets               36,604,154       40,316,905
Property, plant and equipment:
   Land                                              1,180,448        1,161,948
   Buildings and improvements                        5,509,211        5,394,076
   Machinery, equipment, and vehicles               10,307,470        9,815,829
                                                   -----------      -----------
                                                    16,997,129       16,371,853
   Less accumulated depreciation and amortization    9,331,102        8,232,536
                                                   -----------      -----------
                                                     7,666,027        8,139,317
Goodwill, net of accumulated amortization            1,372,606        1,571,058
Deferred income taxes                                1,283,784        1,366,625
Other assets                                           499,918          531,660
                                                   -----------      -----------
                                                   $47,426,489      $51,925,565
                                                   ===========      ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current maturities of long-term debt             $ 1,304,227      $ 2,144,727
  Accounts payable                                   2,384,012        2,375,825
  Accrued compensation and employee benefits         1,837,519        1,789,401
  Accrued expenses                                   1,596,288        2,227,825
  Unearned service revenue                           1,514,121        1,294,576
  Income taxes payable                                 140,741          479,361
                                                   -----------      -----------
                 Total current liabilities           8,776,908       10,311,715

Long-term debt                                       3,040,061        3,498,099
Unearned service revenue                             1,267,337        2,334,348
Other long-term liabilities                            803,476          883,356

Commitments and contingencies - Note 10
Shareholders' equity:
  Common stock, par value $.01 per share
   authorized - 25,000,000 and 10,000,000 shares
    issued - 4,823,979 and 4,756,532 shares             48,239           47,565
  Capital in excess of par value                    21,760,002       21,542,541
  Retained earnings                                 12,730,414       14,309,442
                                                   -----------      -----------
                                                    34,538,655       35,899,548
  Treasury stock at cost, 172,417 shares
    in 2002 and 118,249 shares in 2001                (842,024)        (633,422)
  Accumulated other comprehensive income              (157,924)        (368,079)
                                                   -----------      -----------
                Total shareholders' equity          33,538,707       34,898,047
                                                   -----------      -----------
                                                   $47,426,489      $51,925,565
                                                   ===========      ===========

See accompanying notes to consolidated financial statements.

- 34 -

                               VICON INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        Fiscal Years Ended September 30, 2002, 2001, and 2000


                                                                                      Accumulated   Total
                                                  Capital in                          other         share-
                                        Common    excess of    Retained     Treasury  comprehensive holders'
                              Shares    Stock     par value    earnings      Stock    income        equity
                              ------    ------    ----------   --------     --------  ------------- -----------

Balance September 30, 1999   4,654,760  $46,547  $21,343,676 $11,851,089  $(508,745)  $    15,784   $32,748,351

Comprehensive income:
  Net income                     -          -           -        961,205        -             -         961,205
  Foreign currency
    translation adjustment       -          -           -            -          -        (321,304)     (321,304)
  Unrealized gain on
    securities                   -          -           -            -          -       1,554,962     1,554,962
Total comprehensive income       -          -           -            -          -             -       2,194,863
Exercise of stock options       55,875      559      100,962         -      (46,352)          -          55,169
                             ---------   ------   ----------  ----------    --------   ----------   -----------
Balance September 30, 2000   4,710,635   47,106   21,444,638  12,812,294   (555,097)    1,249,442    34,998,383

Comprehensive income:
  Net income                     -          -            -     1,497,148        -             -       1,497,148
  Foreign currency
    translation adjustment       -          -            -           -          -         113,344       113,344
  Reclassification adjustment
    for gains on securities
    included in net income       -          -            -           -          -      (1,554,962)   (1,554,962)
  Unrealized loss on
    derivatives                  -          -            -           -          -        (175,903)     (175,903)
Total comprehensive income       -          -            -           -          -             -        (120,373)
Repurchases of common stock      -          -            -           -      (30,966)          -         (30,966)
Exercise of stock options       45,897      459       83,077         -      (47,359)          -          36,177
 Tax benefit from exercise
  of stock options               -          -         14,826         -          -             -          14,826
                             ---------   ------   ----------  ----------    --------   ----------   -----------
Balance September 30, 2001   4,756,532   47,565   21,542,541  14,309,442   (633,422)     (368,079)   34,898,047

Comprehensive income:
  Net loss                       -          -            -    (1,579,028)       -             -      (1,579,028)
  Foreign currency
    translation adjustment       -          -            -           -          -         234,973       234,973
  Unrealized loss on
    derivatives                  -          -            -           -          -         (24,818)      (24,818)
Total comprehensive income       -          -            -           -          -             -      (1,368,873)
Repurchases of common stock      -          -            -           -      (57,192)          -         (57,192)
Exercise of stock options       67,447      674      193,627         -     (151,410)          -          42,891
Tax benefit from exercise
  of stock options               -          -         23,834         -          -             -          23,834
                             ---------   ------   ----------  ----------  -----------  -----------  -----------
Balance September 30, 2002   4,823,979  $48,239  $21,760,002 $12,730,414  $ (842,024)  $ (157,924)  $33,538,707
                             =========  =======  =========== ===========  ==========   ===========  ===========


See accompanying notes to consolidated financial statements.

- 35 -

                             VICON INDUSTRIES, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Fiscal Years Ended September 30, 2002, 2001 and 2000

                                                     2002           2001           2000
                                                     ----           ----           ----
Cash flows from operating activities:
 Net income (loss)                               $(1,579,028)   $ 1,497,148       $961,205
Adjustments to reconcile net income (loss)
  to net cash provided by (used in)
  operating activities:
   Depreciation and amortization                   1,039,072      1,062,167      1,019,441
   Goodwill amortization                             198,452        193,543        200,659
   Deferred income taxes                             842,423         16,710     (1,145,081)
   Gain on sale of securities                           -        (3,022,579)      (315,955)
Change in assets and liabilities:
  Accounts receivable                              1,249,601      5,703,378     (3,667,310)
  Inventories                                      3,677,449      1,594,450      2,495,615
  Recoverable income taxes                        (1,712,728)         -              -
  Prepaid expenses                                    76,946        331,955       (283,892)
  Other assets                                        31,742        (65,070)       (57,594)
  Accounts payable                                   (10,842)      (566,837)    (1,060,362)
  Accrued compensation and employee benefits          41,304       (107,988)      (324,918)
  Accrued expenses                                  (650,517)       509,229         (6,536)
  Unearned service revenue                          (847,466)       782,756      1,982,288
  Income taxes payable                              (322,795)       157,723        147,195
  Other liabilities                                 (117,482)       (60,939)       (50,509)
                                                  ----------      ---------      ---------
  Net cash provided by (used in)
         operating activities                      1,916,131      8,025,646       (105,754)
                                                  ----------      ---------      ---------
Cash flows from investing activities:
    Capital expenditures                            (477,041)      (689,427)    (1,640,802)
    Proceeds from sale of securities                    -         3,289,813        347,473
    Acquisition, net of cash acquired                   -          (124,923)        -
                                                  ----------      ---------      ---------
        Net cash provided by (used in)
          investing activities                      (477,041)     2,475,463     (1,293,329)
                                                  ----------      ---------      ---------
Cash flows from financing activities:
    Repayments of U.S. term loan                    (900,000)      (900,000)      (900,000)
    Proceeds from exercise of stock options           42,891         51,004         75,518
    Decrease in borrowings under short-term
      revolving credit agreement                        -          (127,655)      (216,072)
    Repayments of long-term debt                    (421,453)      (360,605)      (342,274)
    Borrowings under mortgage loans                     -              -         1,200,000
    Increase (decrease) in borrowings under
      U.S. bank credit agreement                        -        (1,500,000)     1,500,000
    Repurchases of common stock                      (57,192)       (30,966)        -
                                                 -----------    -----------    -----------
        Net cash provided by (used in)
          financing activities                    (1,335,754)    (2,868,222)     1,317,172
                                                 -----------    -----------    -----------


Effect of exchange rate changes on cash             (126,680)        47,143        198,262
                                                 -----------    -----------    -----------
     Net increase (decrease) in cash                 (23,344)     7,680,030        116,351
     Cash at beginning of year                     9,795,148      2,115,118      1,998,767
                                                 -----------    -----------    -----------
     Cash at end of year                         $ 9,771,804    $ 9,795,148    $ 2,115,118
                                                 ===========    ===========    ===========


 Cash paid during the fiscal
  year for:
   Income taxes                                  $  676,857     $   435,566    $ 1,673,100
   Interest                                      $  356,022     $   512,354    $   717,355


See accompanying notes to consolidated financial statements.

- 36 -

VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 2002, 2001, and 2000

NOTE 1. Summary of Significant Accounting Policies
Nature of Business
The Company designs, manufactures, assembles and markets video systems and system components for use in security, surveillance, safety and control purposes by end users. The Company markets its products worldwide primarily to installing dealers, systems integrators, government entities and distributors.

Basis of Presentation
The accompanying consolidated financial statements include the accounts of Vicon Industries, Inc. (the Company) and its wholly owned subsidiaries: Vicon Industries, Limited; TeleSite U.S.A., Inc. and subsidiary (Q.S.R. Ltd.); and Vicon Industries Foreign Sales Corp.; and its majority owned (60%) subsidiary, Vicon Industries (H.K.) Ltd., after elimination of intercompany accounts and transactions.

Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility of the resulting receivable is reasonably assured. As it relates to product sales, revenue (including shipping and handling fees) is generally recognized when products are sold and title is passed to the customer. Under arrangements that involve the sale of product combined with the provision of services, revenue is generally recognized for each element of the arrangement upon delivery or performance provided that (i) the undelivered element is not essential to the functionality of the delivered element and (ii) there is objective evidence of the fair value of the undelivered elements. Advance service billings under a national supply contract with one customer are deferred and recognized as revenues on a pro rata basis over the term of the service agreement. Shipping and handling costs are included in cost of sales.

Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit and amounts invested in highly liquid money market funds.

Inventories
Inventories are valued at the lower of cost (on a moving average basis which approximates a first-in, first-out method) or market. When it is determined that a product or product line will be sold below carrying cost, affected on hand inventories are written down to their estimated net realizable values.

Long-Lived Assets
Property, plant, and equipment are recorded at cost and include expenditures for replacements or major improvements. Depreciation, which includes amortization of assets under capital leases, is computed by the straight-line method over the estimated useful lives of the related assets. Machinery, equipment and vehicles are being depreciated over periods ranging from 2 to 10 years. The Company's buildings are being depreciated over periods ranging from 25 to 40 years and leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining lease term.

The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

- 37 -

Goodwill
Goodwill represents the excess of the purchase price over the fair value assigned to net assets acquired in connection with the Company's acquisition of TeleSite U.S.A., Inc. in fiscal 1999. Such amount is being amortized on a straight-line basis over 10 years. Accumulated amortization amounted to $634,322 and $435,870 at September 30, 2002 and 2001, respectively.

Engineering and Development
Product engineering and development costs are charged to expense as incurred, and amounted to approximately $4,400,000, $4,100,000 and $3,800,000 in fiscal 2002, 2001, and 2000, respectively.

Earnings Per Share
The Financial Accounting Standards Board SFAS No. 128, "Earnings per Share" requires companies to present basic and diluted earnings per share (EPS). Basic EPS is computed based on the weighted average number of common shares outstanding. Diluted EPS reflects the maximum dilution that would have resulted from the exercise of stock options, warrants and incremental shares issuable under a deferred compensation agreement (see Note 9). In periods when losses are incurred, the effects of these securities would be antidilutive and, therefore, excluded from the computation of diluted EPS.

Foreign Currency Translation
The Company translates the financial statements of its foreign subsidiaries by applying the current rate method under which assets and liabilities are translated at the exchange rate on the balance sheet date, while revenues, costs, and expenses are translated at the average exchange rate for the reporting period. The resulting cumulative translation adjustment of $43,000 and $(192,000) at September 30, 2002 and 2001, respectively, is recorded as a component of shareholders' equity in accumulated other comprehensive income.

Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes", which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled (see Note 4). Deferred U.S. income taxes are not provided on undistributed earnings of foreign subsidiaries as the Company intends to reinvest such earnings indefinitely.

Product Warranties
The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including monitoring and evaluating the quality of its component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from its estimates, revisions to the estimated warranty liability may be required.

- 38 -

Derivative Instruments
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", establishes accounting and reporting standards for derivative instruments as either assets or liabilities in the statement of financial position based on their fair values. Changes in the fair values are required to be reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. Derivative instruments are designated and accounted for as either a hedge of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction (cash flow hedge). For derivatives designated as effective cash flow hedges, changes in fair values are recognized in other comprehensive income. Changes in fair values related to fair value hedges as well as the ineffective portion of cash flow hedges are recognized in earnings.

The Company does not use derivative instruments for speculative or trading purposes. Derivative instruments are primarily used to manage exposures related to (i) transactions denominated in Japanese Yen, (ii) transactions with the Company's Europe and Israel based subsidiaries, and (iii) interest rate risk on certain variable rate indebtedness. To accomplish this, the Company uses certain contracts, primarily foreign currency forward contracts ("forwards") and interest rate swaps, which minimize cash flow risks from changes in foreign currency exchange rates and interest rates, respectively. These derivatives have been designated as cash flow hedges for accounting purposes.

As of September 30, 2002, the Company had interest rate swaps and forwards outstanding with notional amounts aggregating $3.0 million and $2.6 million, respectively, whose aggregate fair value was a liability of approximately $304,000. The change in the fair value of these derivatives for the year ended September 30, 2002, is reflected in other comprehensive income in the accompanying statement of shareholders' equity, net of tax. The forwards have maturities of less than one year and require the Company to exchange currencies at specified dates and rates. The interest rate swaps mature in the same amounts and over the same periods as the related debt. The Company considers the credit risk related to the interest rate swaps and the forwards to be low because such instruments are entered into only with financial institutions having high credit ratings and are generally settled on a net basis.

Fair Value of Financial Instruments
The carrying amounts for trade accounts and other receivables, accounts payable and accrued expenses approximate fair value due to the short-term maturity of these instruments. The carrying amounts of the Company's long-term debt instruments approximate fair value. The Company's interest rate swap agreements are carried at their fair market values (which was a liability of approximately $287,000 at September 30, 2002). This value represents the estimated amount the Company would need to pay if such agreements were terminated before maturity, principally resulting from market interest rate decreases. The fair value of the Company's foreign currency forward exchange contracts is estimated by obtaining quoted market prices. The contracted exchange rates on committed forward exchange contracts exceeded the market rates for similar term contracts by approximately $17,000 at September 30, 2002 (see Note 10).

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

- 39 -

Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related interpretations in accounting for its employee stock options. Under APB No. 25, compensation expense would be recorded if, on the date of grant, the market price of the underlying stock exceeded its exercise price. As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has retained the accounting prescribed by APB No. 25 and presents the disclosure information prescribed by SFAS No. 123 in Note 7 to its consolidated financial statements.

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, provisions for doubtful accounts receivable, net realizable value of inventory, warranty obligations and assessments of the recoverability of the Company's deferred tax assets and long-lived assets (including goodwill). Actual results could differ from those estimates.

Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.

New Accounting Standards Not Yet Adopted
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized but, instead, tested for impairment at least annually in accordance with the provisions of the Statement. SFAS No. 142 will also require that intangible assets with finite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets and for Long-Lived Assets", as discussed below.

The Company adopted SFAS No. 142 on October 1, 2002 and is required to assign its goodwill ($1.4 million at September 30, 2002, which relates to its acquisition of TeleSite U.S.A., Inc. in 1999) to "reporting units" as defined under SFAS No. 142. Goodwill assigned to each of the reporting units will be tested for impairment as of October 1, 2002 by comparing the carrying amount of the reporting units' net assets (including goodwill) to its fair value. The Company has six months from October 1, 2002 to complete this "first step" of this transitional goodwill impairment test. If the carrying amount of the net assets of a reporting unit (including goodwill) exceeds the fair value of that reporting unit, a "second step" of the transitional goodwill impairment test must be completed as soon as possible, but not later than September 30, 2003. Due to the complexities involved with the transitional provisions of SFAS No. 142, the Company has not yet completed its evaluation of the possible effects of its adoption of SFAS No. 142 on the Company's financial condition or results of operations. However, it is reasonably possible that the adoption of SFAS No. 142 will result in an impairment charge to goodwill of up to $1.4 million, which would be reported as a cumulative effect change in accounting principle.

- 40 -

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," which supersedes SFAS No. 121. SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associated with SFAS No. 121. Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill will be evaluated for impairment under SFAS No. 142, as discussed above. The Company adopted SFAS No. 144 on October 1, 2002, which did not have an impact on its consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit and Disposal Activities". SFAS No. 146 requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company believes that the adoption of SFAS No. 146 will not have a material impact on the Company's consolidated financial statements.

In November 2002, the Emerging Issues Task Force (EITF) finalized its tentative consensus on EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables", which provides guidance on the timing and method of revenue recognition for sales arrangements that include the delivery of more than one product or service. EITF 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently analyzing the impact of its adoption on the Company's financial statements.

NOTE 2. Sale of Marketable Securities
During fiscal years 2001 and 2000, the Company sold its minority ownership interest in Chun Shin Electronics, Inc. (CSE), a South Korean company which, among other things, manufactures certain of the Company's proprietary products. Realized gains from the sale of these securities were approximately $3,023,000 and $316,000 in fiscal years 2001 and 2000, respectively.

NOTE 3. Short-Term Borrowings
The Company's Europe based subsidiary maintains a bank overdraft facility that provides for maximum borrowings of 1 million Pounds Sterling ($1,570,000) and is secured by all the assets of the subsidiary. This facility expires in March 2003. At September 30, 2002 and 2001, there were no outstanding borrowings under this facility and maximum borrowings during 2002 and 2001 amounted to approximately $915,000 and $618,000, respectively. The weighted-average interest rate on borrowings during these years was 4.05% in 2002 and 5.30% in 2001.

NOTE 4. Income Taxes
The components of income tax expense (benefit) for the fiscal years indicated are as follows:
                             2002             2001             2000
                             ----             ----             ----
Federal:
 Current              $  (1,713,000)     $   353,000     $  1,411,000
 Deferred                   729,000           43,000       (1,043,000)
                      -------------      -----------     ------------
                           (984,000)         396,000          368,000

State                      (179,000)         (19,000)          40,000
Foreign                     393,000          433,000          220,000
                      -------------      -----------     ------------
 Total income tax
  expense(benefit)    $    (770,000)     $   810,000     $    628,000
                      =============      ===========     ============

- 41 -

A reconciliation of the U.S. statutory tax rate to the Company's effective tax rate follows:

                                2002                 2001                 2000
                                ----                 ----                 ----
                          Amount   Percent      Amount  Percent      Amount  Percent
                          ------   -------      ------  -------      ------  -------

U.S. statutory tax     $  (799,000)  34.0%   $  784,000   34.0%   $  540,000   34.0%
State tax, net of
  federal benefit          (56,000)   2.4         -         -         26,000    1.6
Goodwill amortization       67,000   (2.8)       65,000    2.8        68,000    4.3
Other                       18,000   (0.8)      (39,000)  (1.7)       (6,000)  (0.4)
                       -----------  ------   ----------  ------   ----------  ------
   Effective Tax Rate  $  (770,000)  32.8%   $  810,000   35.1%   $  628,000   39.5%
                       ===========  ======   ==========  ======   ==========  ======

The tax effects of temporary differences that give rise to deferred tax assets and liabilities at September 30, 2002 and 2001 are presented below:

                                                     2002             2001
                                                     ----             ----
Deferred tax assets:
  Inventories                                     $  247,000       $1,001,000
  Deferred compensation accruals                     161,000          152,000
  Allowance for doubtful
    accounts receivable                              469,000          462,000
  Unearned service revenue                           886,000        1,030,000
  Unrealized loss on derivatives                     113,000           92,000
  Other                                              224,000          184,000
                                                  ----------       ----------
    Total deferred tax assets                      2,100,000        2,921,000

Deferred tax liabilities:
  Cash surrender value of officers'
    life insurance                                    83,000           81,000
  Other                                               60,000           53,000
                                                  ----------      -----------
   Total deferred tax liabilities                    143,000          134,000
                                                  ----------      -----------
Net deferred tax assets and liabilities           $1,957,000      $ 2,787,000
                                                  ----------      -----------

For income tax purposes, the Company had available at September 30, 2002, a tax effected net operating loss carryback of approximately $1.7 million included in recoverable income taxes, which the Company anticipates carrying back to offset taxable income reported in the allowable carryback periods.

The Company's ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible. The Company has incurred operating losses in the past two fiscal years. Should such losses continue in the future, the Company may determine that it is not likely it will be able to realize the benefits of recorded deferred tax assets, and a valuation allowance will need to be established that would result in the charge-off of previously reported tax benefits. However, at this time, management believes (although there can be no assurance) that it is more likely than not that the Company will realize the benefits of reported deferred tax assets.

Pretax domestic income (loss) amounted to approximately $(2,845,000), 1,383,000 and $1,079,000 in fiscal years 2002, 2001 and 2000, respectively. Pretax foreign income amounted to approximately $496,000, $924,000 and $510,000 in fiscal years 2002, 2001 and 2000, respectively.

- 42 -

NOTE 5. Long-Term Debt
Long-term debt is comprised of the following at September 30, 2002 and 2001:

                                               2002               2001
                                            ----------         ----------
U.S. bank term loan                         $  825,000         $1,725,000
U.S. bank mortgage loans                     3,123,597          3,393,462
U.K. bank term loan                            359,789            410,373
Other                                           35,902            113,991
                                            ----------         -----------
                                             4,344,288          5,642,826
Less current maturities                      1,304,227          2,144,727
                                            ----------         ----------
                                            $3,040,061         $3,498,099
                                            ==========         ==========

In July 1998, the Company entered into a $14 million unsecured revolving credit and term loan agreement with a bank that included a $9.5 million revolving credit facility that was scheduled to expire in July 2002. On February 12, 2002, the Company executed an amendment agreement with its bank that modified its unsecured revolving credit and term loan agreement to provide for a $5 million secured revolving credit facility through July 2004. Borrowings under such facility bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points (4.75% and 3.71%, respectively, at September 30, 2002). The amendment agreement grants the bank a security interest in all the assets of the Company and, among other things, effectively modified the financial covenants contained in all the existing loan and mortgage agreements with the bank. These covenants require the Company to, among other things, maintain certain levels of earnings, working capital and ratios of debt service coverage and debt to tangible net worth.

On September 30, 2002, the Company executed a second amendment to its credit agreement which, among other things, waives the Company's obligation to comply with all financial covenants contained in the agreements so long as there are no outstanding borrowings under the revolving credit facility and the Company maintains a compensating balance equal to the sum of the then outstanding term loan principal balance and outstanding banker acceptances. The amendment agreement further waived the Company's obligation to comply with all financial covenants contained in mortgage loans with the same bank. At September 30, 2002 and 2001, there were no outstanding borrowings under this facility.

The agreement also provided a $4.5 million five-year term loan payable in equal monthly installments through July 2003, with interest at LIBOR plus 100 basis points. In September 1998, the Company entered into an interest rate swap agreement with the same bank at the time to effectively convert the foregoing floating rate long-term loan to a fixed rate loan. Subsequently, such bank sold its local operations, including the Company's loans, to another bank while retaining the Company's interest rate swap agreement. This agreement effectively fixes the Company's interest rate on its $4.5 million term loan at 6.74%. The interest rate swap agreement matures in the same amounts and over the same periods as the related term loan.

In January 1998, the Company entered into an aggregate $2.9 million mortgage and term loan agreement with a bank to finance the purchase of its principal operating facility. Such agreement includes a $2,512,000 ten-year mortgage loan payable in monthly installments through January 2008, with a $1,188,000 payment due at the end of the term. The agreement also provides a $388,000 five-year term loan payable in monthly installments through January 2003, with a $138,500 payment due at the end of the term. Both loans bear interest at the bank's prime rate minus 1.35%. The loans are secured by a first mortgage on the property and fixtures. At the same time, the Company entered into interest rate swap agreements with the same bank at the time to effectively convert the foregoing floating rate long-term loans to fixed rate loans. Subsequently, such bank sold its local operations, including the Company's loans, to another bank while retaining the Company's interest rate swap agreements. These agreements effectively fix the Company's interest rate on its $2,512,000 mortgage loan at 7.79% and its $388,000 term loan at 7.70%. The interest rate swap agreements mature in the same amounts and over the same periods as the related mortgage and term loans.

- 43 -

In October 1999, the Company entered into a $1.2 million mortgage loan agreement with its bank to finance the expansion of its principal operating facility. The loan is payable in equal monthly principal installments through January 2008, with a $460,000 payment due at the end of the term. The loan bears interest at the bank's prime rate minus 160 basis points (3.15% and 4.40% at September 30, 2002 and 2001, respectively) or, at the Company's option, LIBOR plus 100 basis points (2.81% and 3.60% at September 30, 2002 and 2001, respectively).

In April 1997, the Company's Europe based subsidiary entered into a ten-year 500,000 pound sterling (approximately $785,000) bank term loan. The term loan is payable in equal monthly installments with interest at a fixed rate of 9%. The loan is secured by a first mortgage on the subsidiary's property and contains restrictive covenants which, among other things, require the subsidiary to maintain certain levels of net worth, earnings and debt service coverage.

Current and long-term debt maturing in each of the fiscal years subsequent to September 30, 2002 approximates $1,304,000 in 2003, $320,000 in 2004, $329,000 in 2005, $335,000 in 2006, $316,000 in 2007 and $1,740,000 thereafter.

NOTE 6. Segment and Related Information
The Company operates in one industry which encompasses the design, manufacture, assembly and marketing of video systems and system components for the electronic protection segment of the security industry. The Company manages its business segments primarily on a geographic basis. The Company's principal reportable segments are comprised of its United States (U.S.) and United Kingdom (Europe) based operations. Its U.S. based operations consist of Vicon Industries, Inc., the Company's corporate headquarters and principal operating entity. Its Europe based operations consist of Vicon Industries Limited, a wholly owned subsidiary which markets and distributes the Company's products principally within Europe. Other segments include the operations of Vicon Industries (H.K.), Ltd., a Hong Kong based majority owned subsidiary which markets and distributes the Company's products principally within Hong Kong and mainland China and TeleSite U.S.A., Inc. and subsidiary, a U.S. and Israeli based developer and producer of digital video systems.

The Company evaluates performance and allocates resources based on, among other things, the net profit for each segment, which excludes intersegment sales and profits. Segment information for the fiscal years ended September 30, 2002, 2001 and 2000 is as follows:

2002                       U.S.        Europe      Other   Consolidating   Totals
----                    ----------   ----------  --------- -------------   ------
Net sales to
 external customers    $38,726,000 $13,078,000 $ 2,364,000  $   -       $54,168,000
Intersegment
 net sales               6,432,000       -         403,000      -         6,835,000
Net income (loss)       (1,155,000)    593,000    (649,000)  (368,000)   (1,579,000)
Interest expense           263,000     218,000      24,000   (165,000)      340,000
Interest income            355,000       -           -       (185,000)      170,000
Depreciation and
 amortization              760,000     103,000     176,000    199,000     1,238,000
Total assets            40,785,000   7,196,000   3,278,000 (3,833,000)   47,426,000
Capital expenditures   $   293,000  $   21,000 $   163,000      -       $   477,000

- 44 -

2001                       U.S.        Europe      Other   Consolidating   Totals
----                    ----------   ----------  --------- -------------   ------
Net sales to
 external customers    $47,409,000 $14,572,000  $3,384,000  $   -       $65,365,000
Intersegment
 net sales               8,160,000       -         736,000      -         8,896,000
Net income (loss)        1,749,000     979,000  (1,041,000)  (190,000)    1,497,000
Interest expense           440,000     208,000      18,000   (168,000)      498,000
Interest income            348,000       -           -       (147,000)      201,000
Depreciation and
 amortization              780,000     158,000     124,000    194,000     1,256,000
Total assets            44,996,000   8,841,000   3,691,000 (5,602,000)   51,926,000
Capital expenditures   $   296,000  $  227,000  $  166,000      -       $   689,000

2000                       U.S.        Europe      Other   Consolidating   Totals
----                    ----------   ----------  --------- -------------   ------
Net sales to
 external customers    $59,488,000 $10,846,000  $4,290,000  $   -       $74,624,000
Intersegment
 net sales               6,301,000       -       1,248,000      -         7,549,000
Net income (loss)        1,241,000     461,000    (540,000)  (201,000)      961,000
Interest expense           672,000     205,000      62,000   (123,000)      816,000
Interest income            243,000       -           -       (146,000)       97,000
Depreciation and
 amortization              766,000     168,000      85,000    201,000     1,220,000
Total assets            48,277,000   5,813,000   3,598,000 (3,770,000)   53,918,000
Capital expenditures   $ 1,094,000  $  115,000  $  432,000      -       $ 1,641,000

The consolidating segment information presented above includes the elimination and consolidation of intersegment transactions.

Net sales and long-lived assets related to operations in the United States and other foreign countries for the fiscal years ended September 30, 2002, 2001, and 2000 are as follows:

                                       2002             2001            2000
                                       ----             ----            ----
Net sales
 U.S.                             $39,255,000      $48,339,000     $61,096,000
Foreign                            14,913,000       17,026,000      13,528,000
                                  -----------      -----------     -----------
   Total                          $54,168,000      $65,365,000     $74,624,000

Long-lived assets
 U.S.                             $ 5,609,000      $ 6,076,000     $ 6,561,000
 Foreign                            2,057,000        2,063,000       1,941,000
                                   ----------      -----------     -----------
   Total                          $ 7,666,000      $ 8,139,000     $ 8,502,000

U.S. sales include $3,413,000, $3,455,000 and $6,039,000 for export in fiscal years 2002, 2001, and 2000, respectively. Indirect sales to the United States Postal Service approximated $3.5 million, $15.2 million and $22.8 million in fiscal 2002, 2001 and 2000, respectively.

- 45 -

NOTE 7. Stock Options and Stock Purchase Warrants
The Company maintains stock option plans which include both incentive and non-qualified options covering a total of 656,313 shares of common stock reserved for issuance to key employees, including officers and directors. Such amount includes a total of 200,000 options reserved for issuance under the 2002 Incentive Stock Option Plan, as well as a total of 200,000 options reserved for issuance under the 2002 Non-Qualified Stock Option Plan, approved by the shareholders in May 2002. All options are issued at fair market value at the grant date and are exercisable in varying installments according to the plans. The plans allow for the payment of option exercises through the surrender of previously owned mature shares based on the fair market value of such shares at the date of surrender. During fiscal 2002, 2001 and 2000, a total of 34,968, 18,988 and 10,613 common shares, respectively, were surrendered pursuant to stock option exercises, which are held in treasury. There were 438,141 shares available for grant at September 30, 2002.

Changes in outstanding stock options for the three years ended September 30, 2002 are as follows:

                                                       Weighted
                                    Number             Average
                                    of                 Exercise
                                    Shares             Price
-------------------------------------------------------------------
Balance - September 30, 1999        370,647            $4.89
Options granted                     129,823            $3.50
Options exercised                   (55,875)           $2.18
Options forfeited                  (168,611)           $7.33
-------------------------------------------------------------------
Balance - September 30, 2000        275,984            $3.30
Options granted                      86,301            $2.39
Options exercised                   (45,897)           $1.81
Options forfeited                   (64,517)           $3.49
-------------------------------------------------------------------
Balance - September 30, 2001        251,871            $3.15
Options granted                      50,000            $3.05
Options exercised                   (67,447)           $2.88
Options forfeited                   (16,252)           $2.83
-------------------------------------------------------------------
Balance - September 30, 2002        218,172            $3.24
Price range $2.20 - $3.05
  (weighted-average contractual     123,000            $2.59
   life of 4.5 years)
Price range $3.06 - $7.44
  (weighted-average contractual      95,172            $4.07
   life of 3.2 years)
------------------------------------------------------------
Exercisable options -
  September 30, 2000                140,239            $2.66
  September 30, 2001                107,643            $3.30
  September 30, 2002                 60,020            $4.12
-------------------------------------------------------------------

On April 20, 2000, the Board of Directors granted holders of stock options the right to surrender their underwater options by May 31, 2000 in exchange for a reduced option grant at an exercise price of $3.18 per share, based on the closing market price of the Company's common stock on such date. On May 31, 2000, the Company granted 67,823 new options and cancelled 156,750 options with exercise prices ranging from $6.75 to $8.19 per share. These new grants were treated as repricings and are subject to variable plan accounting pursuant to FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation." Accordingly, compensation expense (benefit) will be recorded for any changes in the Company's stock price above the price of $3.18. In fiscal 2002, 2001 and 2000, such compensation expense was not material.

- 46 -

Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of this Statement. The fair value for options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2002, 2001 and 2000:

                                      2002            2001            2000
                                      ----            ----            ----

Risk-free interest rate                2.5%            4.0%            5.0%
Dividend yield                         0.0%            0.0%            0.0%
Volatility factor                     68.8%           66.9%           59.5%
Weighted average expected life       4 years         4 years         4 years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income (loss) and earnings (loss) per share are as follows:

                                2002                2001               2000
                                ----                ----               ----
 Net income(loss):

  As reported               $(1,579,028)         $1,497,148        $  961,205
  Pro forma                 $(1,675,824)         $1,424,263        $  773,082

Earnings (loss) per share:

  As reported
     Basic                      $(.34)              $ .32              $ .21
     Diluted                    $(.34)              $ .32              $ .21

  Pro forma
     Basic                      $(.36)              $ .31              $ .17
     Diluted                    $(.36)              $ .31              $ .17

Weighted average fair value
  of options granted            $1.62               $1.30              $1.76

In connection with the public offering during fiscal 1998, the Company granted the Underwriters warrants to purchase up to 145,000 shares of Common Stock. The warrants are exercisable at any time through May 2003 at a price of $10.50 per share.

NOTE 8. Shareholder Rights Plan
On November 14, 2001, the Company's Board of Directors adopted a Shareholder Rights Plan, which declared a dividend of one Common Stock Purchase Right (a Right) for each outstanding share of common stock of the Company to shareholders of record on December 21, 2001. Each Right entitles the holder to purchase from the Company one share of common stock at a purchase price of $15 per share. In the event of the acquisition of or tender offer for 20% or more of the Company's outstanding common stock by certain persons or group without the Board of Directors' consent, such purchase price will be adjusted to equal fifty percent of the average market price of the Company's common stock for a period of thirty consecutive trading days immediately prior to the event. Until the Rights become exercisable, they have no dilutive effect on the Company's earnings per share.

- 47 -

The Rights, which are non-voting and exercisable until November 30, 2011, can be redeemed by the Company in whole at a price of $.001 per Right at any time prior to the acquisition by certain persons or group of 50% of the Company's common stock. Separate certificates for the Rights will not be distributed, nor will the Rights be exercisable, until either (i) a person or group acquires beneficial ownership of 20% or more of the Company's common stock or (ii) the tenth day after the commencement of a tender or exchange offer for 20% or more of the Company's common stock. Following an acquisition of 20% or more of the Company's common shares, each Right holder, except for the 20% or more stockholder, can exercise their Right(s), unless the 20% or more stockholder has offered to acquire all of the outstanding shares of the Company under terms that a majority of the independent Directors of the Company have determined to be fair and in the best interest of the Company and its stockholders. On May 7, 2002, the Company's shareholders approved an amendment of the Company's Certificate of Incorporation to increase the total number of shares of common stock authorized to issue from 10,000,000 to 25,000,000 shares.

NOTE 9. Earnings Per Share
The following table provides the components of the basic and diluted earnings
(loss) per share (EPS) computations:

                                       2002            2001           2000
                                       ----            ----           ----
Basic EPS Computation

Net income (loss)                  $(1,579,028)     $1,497,148     $  961,205
Weighted average shares
  outstanding                        4,658,612       4,645,154      4,600,447

Basic earnings (loss) per share    $      (.34)     $      .32     $      .21
                                   ===========      ==========     ==========


Diluted EPS Computation
-----------------------
Net income (loss)                  $(1,579,028)     $1,497,148     $  961,205
Weighted average shares
  outstanding                        4,658,612       4,645,154      4,600,447
Stock options                            -               6,403         70,808
Stock compensation arrangement           -               -              1,510
                                   -----------      ----------     ----------
Diluted shares outstanding           4,658,612       4,651,557      4,672,765

Diluted earnings (loss) per share  $      (.34)     $      .32     $      .21
                                   ===========      ==========     ==========

In 2002, 60,330 shares have been omitted from the calculation of diluted EPS as their effect would have been antidilutive.

NOTE 10. Commitments and Contingencies
The Company occupies certain facilities, or is contingently liable, under operating leases that expire at various dates through 2008. The leases, which cover periods from three to eight years, generally provide for renewal options at specified rental amounts. The aggregate operating lease commitment at September 30, 2002 was $746,000 with minimum rentals for the fiscal years shown as follows: 2003 - $313,000; 2004 - $272,000; 2005 - $97,000; 2006 - $24,000; 2007 - $24,000; 2008 and thereafter - $16,000.

The Company is a party to employment agreements with seven executives that provide for, among other things, the payment of compensation if there is a change in control without Board of Director approval (as defined in the agreements). The contingent liability under such change in control provisions at September 30, 2002 was approximately $2.7 million. The total compensation payable under these agreements, absent a change in control, aggregated $1.9 million at September 30, 2002. The Company is also a party to an insured deferred compensation agreement with a retired officer. The aggregate remaining compensation payments of approximately $130,000 as of September 30, 2002 are subject to the individual's adherence to certain non-compete covenants, and are payable in monthly installments through December 2003.

- 48 -

The Company entered into certain consulting and incentive compensation agreements that provide for the payout of up to $810,000 of fees and compensation upon the completion and sale of a specified number of units of a newly developed product line.

In October 1997, 1998 and 1999, the Company's Chief Executive Officer was provided a deferred compensation benefit of 45,952, 16,565 and 8,130 shares, respectively, of common stock currently held by the Company in treasury. Such shares vest upon the expiration of the executive's employment agreement in October 2004, or earlier under certain occurrences including his death, involuntary termination or a change in control of the Company. The market value of such shares approximated $507,000 at the dates of grant, which is being amortized on the straight-line method over the term of the employment agreement.

Sales to customers from the Company's Europe based subsidiary are denominated in British Pounds Sterling and Eurodollars. The Company attempts to minimize its currency exposure on these sales through the purchase of forward exchange contracts to cover its billings to this subsidiary. These contracts generally involve the exchange of one currency for another at a future date and specified exchange rate. At September 30, 2002 and 2001, the Company had approximately $2,500,000 and $1,600,000, respectively, of outstanding forward exchange contracts to sell British pounds. Such contracts have maturities of less than one year.

The Company's purchases of Japanese sourced products through CBC Company, Ltd., a related party, are denominated in Japanese yen. At September 30, 2001, the Company had approximately $395,000 of outstanding forward exchange contracts to purchase Japanese yen.

In fiscal 1999, the Company received notice from a competitor asserting that certain of the Company's products infringe upon a patent it allegedly owns and is seeking royalties on the Company's sales of such products. The Company believes that it has good defenses in this matter. Although the Company does not believe that this matter will result in a material exposure at this time, no assurance can be given that this matter will be resolved in the Company's favor.

NOTE 11. Related Party Transactions
As of September 30, 2002, CBC Company, Ltd. and affiliates ("CBC") owned approximately 11.7% of the Company's outstanding common stock. The Company, which has been conducting business with CBC for approximately 23 years, imports certain finished products and components through CBC and also sells its products to CBC. The Company purchased approximately $1.3 million, $3.5 million and $4.4 million of products and components from CBC in fiscal years 2002, 2001, and 2000, respectively, and the Company sold $409,000, $303,000 and $303,000 of products to CBC for distribution in fiscal years 2002, 2001, and 2000, respectively. At September 30, 2002 and 2001, the Company owed $223,000 and $243,000, respectively, to CBC and CBC owed $79,000 and $58,000, respectively, to the Company resulting from purchases of products.

During fiscal year 2002, the Company entered into a royalty arrangement with CBC whereby CBC will license certain technology from the Company. The total amount of the arrangement is $200,000 and, as of September 30, 2002, the Company had not received any payments under this arrangement.

As of September 30, 2002, Mr. Chu S. Chun had beneficial voting control over approximately 6.4% of the Company's outstanding common stock. Mr. Chun controls and beneficially owns a minority interest in Chun Shin Electronics, Inc. (CSE), a South Korean manufacturer of certain of the Company's proprietary products (see Note 3). Mr. Chun also controls International Industries, Inc. (I.I.I.), a U.S. based company which arranges the importation of all the Company's products purchased directly or indirectly from CSE. During fiscal years 2002, 2001 and 2000, the Company purchased approximately $2.1 million, $4.1 million and $5.0 million, respectively, of products from CSE through I.I.I. under this agreement. In addition, the Company sold approximately $399,000, $276,000 and $663,000 of its products to I.I.I. in 2002, 2001 and 2000, respectively, for resale to CSE. At September 30, 2002, the Company owed I.I.I. $420,000 and at September 30, 2002 and 2001, I.I.I. owed the Company approximately $195,000 and $10,000, respectively.

- 49 -

Note 12. Quarterly Financial Data (unaudited)

                                                             Earnings (Loss)
                                                                Per Share
                                                  Net         -------------
  Quarter          Net            Gross          Income
   Ended          Sales           Profit         (Loss)      Basic   Diluted
  -------         -----           ------         ------      -----   -------

Fiscal 2002
-----------
December       $13,551,000      $4,472,000    $  (347,000)    $(.07)    $(.07)
March           12,846,000       4,235,000       (467,000)     (.10)     (.10)
June            14,274,000       5,062,000         28,000       .01       .01
September       13,497,000       4,449,000       (793,000)     (.17)     (.17)
               -----------     -----------    -----------     -----     -----
 Total         $54,168,000     $18,218,000    $(1,579,000)    $(.34)    $(.34)
               ===========     ===========    ===========     =====     =====

Fiscal 2001
-----------
December       $17,377,000     $ 5,901,000    $ 1,722,000     $ .37     $ .37
March           17,160,000       5,706,000        418,000       .09       .09
June            16,081,000       5,465,000       (374,000)     (.08)     (.08)
September       14,747,000       4,614,000       (269,000)     (.06)     (.06)
               -----------     -----------    -----------     -----     -----
Total          $65,365,000     $21,686,000    $ 1,497,000     $ .32     $ .32
               ===========     ===========    ===========     =====     =====

The Company has not declared or paid cash dividends on its common stock for any of the foregoing periods.

Because of changes in the number of common shares outstanding and market price fluctuations affecting outstanding stock options, the sum of quarterly earnings per share may not equal the earnings per share for the full year.

- 50 -

SCHEDULE II

VICON INDUSTRIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Years ended September 30, 2002, 2001, and 2000

                              Balance at   Charged to              Balance
                              beginning    costs and               at end
     Description              of period    expenses    Deductions  of period
     -----------              ---------    ---------   ----------  ---------

Allowance for uncollectible

accounts:

September 30, 2002          $1,115,000     $353,000    $391,000   $1,077,000
                            ==========     ========    ========   ==========

September 30, 2001          $1,063,000     $436,000    $384,000   $1,115,000
                            ==========     ========    ========   ==========

September 30, 2000          $  818,000     $291,000    $ 46,000   $1,063,000
                            ==========     ========    ========   ==========

- 51 -

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) 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.

VICON INDUSTRIES, INC.

By /s/ Kenneth M. Darby                         By /s/ John M. Badke
   -------------------------                       -------------------------
Kenneth M.Darby                                 John M. Badke
Chairman and                                    Vice President, Finance and
Chief Executive Officer                         Chief Financial Officer

December 30, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:

VICON INDUSTRIES, INC.

/s/ Kenneth M. Darby                                   December 30, 2002
---------------------                                  ---------------------
Kenneth M. Darby          Chairman and CEO             Date

/s/ Milton F. Gidge                                    December 30, 2002
---------------------                                  ---------------------
Milton F. Gidge           Director                     Date

/s/ Peter F. Neumann                                   December 30, 2002
---------------------                                  ---------------------
Peter F. Neumann          Director                     Date

/s/ W. Gregory Robertson                               December 30, 2002
------------------------                               ---------------------
W. Gregory Robertson      Director                     Date

/s/ Arthur D. Roche                                    December 30, 2002
---------------------                                  ---------------------
Arthur D. Roche           Director                     Date

/s/ Kazuyoshi Sudo                                     December 30, 2002
---------------------                                  ---------------------
Kazuyoshi Sudo            Director                     Date

- 52 -

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) 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.

VICON INDUSTRIES, INC.

By                                             By
   -------------------------                      -------------------------
Kenneth M.Darby                                John M. Badke
Chairman and                                   Vice President, Finance and
Chief Executive Officer                        Chief Financial Officer

December 30, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated:

VICON INDUSTRIES, INC.

                                                       December 30, 2002
---------------------                                  -------------------
Kenneth M. Darby          Chairman and CEO             Date

                                                       December 30, 2002
---------------------                                  ------------------
Milton F.Gidge            Director                     Date

                                                       December 30, 2002
---------------------                                  ------------------
Peter F. Neumann          Director                     Date

                                                       December 30, 2002
---------------------                                  ------------------
W. Gregory Robertson      Director                     Date

_____________________                                  December 30, 2002
                                                       -------------------
Arthur D. Roche           Director                     Date

                                                       December 30, 2002
---------------------                                  -----------------
Kazuyoshi Sudo            Director                     Date

- 52 -

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Kenneth M. Darby, certify that:

1. I have reviewed this annual report on Form 10-K of Vicon Industries, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: December 30, 2002
/s/Kenneth M. Darby
-------------------
Kenneth M. Darby
Chairman and
Chief Executive Officer

- 53 -

CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, John M. Badke, certify that:

1. I have reviewed this annual report on Form 10-K of Vicon Industries, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: December 30, 2002
/s/John M. Badke
----------------
John M. Badke
Vice President, Finance and
Chief Financial Officer

- 54 -

EXHIBIT 3.2

New York State
Department of State
Divisions of Corporation, State Records
And Uniform Commercial Code
41 State Street
Albany, NY 12231

CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF

VICON INDUSTRIES, INC.

Under Section 805 of the Business Corporation Law

FIRST: The name of the corporation is Vicon Industries, Inc.

If the name of the corporation has been changed, the name under which it was formed is:

SECOND: The date of filing of the certificate of incorporation with the Department of State is: October 4, 1967 and the date of filing of the restated certificate of incorporation was May 10, 1985.

THIRD: (Set forth each amendment in a separate paragraph providing the subject matter and full text of each amended paragraph.) The amendment effected by this certificate of amendment is as follows: Paragraph Fifth of the Certificate of Incorporation relating to the aggregate number of shares which the Corporation shall have the authority to issue is hereby amended to read in its entirety as follows: "Fifth: The aggregate number of shares which the Corporation shall have the authority to issue, which shares shall not have preemptive rights, is 25,000,000 shares, par value $.01 per share."

FOURTH: The Certificate of amendment was authorized by:

X The vote of the board of directors followed by a vote of a majority of all outstanding shares entitled to vote thereon at a meeting of shareholders.

---- The vote of the board of directors followed by the unanimous written consent of the holders of all outstanding shares.

Dated: May 7, 2002


Kenneth M. Darby
President & CEO

CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
VICON INDUSTRIES, INC.

Under Section 805 of the Business Corporation Law

Filer's Name:     Kenneth M. Darby

Address:          Vicon Industries, Inc.
                  89 Arkay Drive
                            Hauppauge, New York 11788
                  (631) 952-2288



EXHIBIT 10.4

EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENT EMPLOYMENT AGREEMENT

AGREEMENT, dated as of October 1, 2001, between YACOV PSHTISSKY (hereinafter called "Pshtissky") and VICON INDUSTRIES, INC., a New York corporation, having its principal place of business at 89 Arkay Drive, Hauppauge, New York 11788 (hereinafter called the "Company").

WHEREAS, Pshtissky has previously been employed by the Company, and

WHEREAS, the Company and Pshtissky mutually desire to assure the continuation of Pshtissky's services to the Company,

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties covenant and agree as follows:

1. Employment. The Company shall employ Pshtissky as its Vice President of Technology and Development throughout the term of this Agreement, and Pshtissky hereby accepts such employment. Pshtissky shall report to the CEO or his designee. If Pshtissky chooses not to report to someone other than the CEO and as a result resigns from the Company, then he shall be free from the restrictions of Paragraph 4 and the Company shall have no obligation to him for severance under Paragraph 5.

2. Term. The term of this Agreement shall commence as of the date of this Agreement and end on September 30, 2004, unless terminated earlier by the Company for cause.

3. Compensation.
A. The Company shall pay Pshtissky a base salary of $140,000 per annum, subject to periodic adjustment as determined by the CEO of the Company with Board of Directors approval, but in any event shall not be less than the base salary so indicated. Beginning October 1, 2002 and to the end of this agreement, the base salary shall be adjusted upward by an amount at least equal to the Consumer Price Index - All Urban Consumers factor for the previous twelve months. B. Pshtissky's base salary shall be payable monthly or bi-weekly. C. Pshtissky shall also be entitled to participate in any life insurance, medical, dental, hospital, disability or other benefit plans as may from time to time be made available to non-executive officers of the Company, subject to the general eligibility requirements of such plans.

4. Covenant not to Compete. Pshtissky agrees that during the term of this Agreement and for a period thereafter equal to the length of severance as calculated in paragraph 5A, he shall not directly or indirectly within the United States or Europe, or enter the employment of or render any services to any other entity engaged in, any business of a similar nature to or in competition with the Company's business of designing, manufacturing, and selling security equipment and protection devices in the United States and Europe. Pshtissky further acknowledges that the services to be rendered under this Agreement by him are special, unique, and of extraordinary character and that a material breach by him of this section will cause the Company to suffer irreparable damage; and Pshtissky agrees that in addition to any other remedy, this section shall be enforceable by negative or affirmative preliminary or permanent injunction in any Court of competent jurisdiction. Pshtissky acknowledges that he may only be released from this covenant if the Company materially breech's this agreement or provides a written release of this provision.


5. Severance Payments on Certain Terminations.
A. If either this Agreement expires, or the Company terminates Pshtissky's employment under this Agreement for reasons other than "Gross Misconduct", then Pshtissky, at his option, may elect to receive severance payments, without reduction for any offset or mitigation, in an amount equal to
(a) one twelfth Pshtissky's annual base salary at the time of such termination multiplied by (b) the number of full years of Pshtissky's employment by the Company up to a maximum of 24 years.
B. "Gross Misconduct" shall mean (a) a wilful, substantial and unjustifiable refusal, or inability due to drug or alcohol impairment, to perform substantially the duties and services required of his position; (b) fraud, misappropriation or embezzlement involving the Company or its assets; or
(c) conviction of a felony involving moral turpitude. Pshtissky's option to elect to receive a severance payment may be exercised only by written notice delivered to the Company within 90 days following the date on which Pshtissky receives actual notice of termination or this Agreement expires, as the case may be.

In the event of an election under this section, payment of such severance shall be in lieu of any other obligation of the Company for severance payment or other post-termination compensation under this Agreement if any.

The severance amount shall be paid in equal monthly payments over a 12-month period.

6. Termination Payment on Change of Control.
A. Notwithstanding any other provision of this Agreement, if a "Change of Control" occurs without the consent of the Board of Directors, Pshtissky, at his option, may elect to terminate his obligations under this Agreement and to receive a termination payment, without reduction for any offset or mitigation, in an amount equal to three times his average annual base salary for the five years preceding the Change of Control, in either lump sum or extended payments over three years as Pshtissky shall elect. B. A "Change of Control" shall be deemed to have occurred if any entity shall directly or indirectly acquire beneficial ownership of 50% or more of the outstanding shares of capital stock of the Company. C. Pshtissky's option to elect to terminate his obligations and to receive a termination payment and to elect to receive a lump sum or extended payments may be exercised only by written notice delivered to the Company within 90 days following the date on which Pshtissky receives actual notice of Change of Control.

7. Deferred Compensation.
A. 9,809 shares of the Company's common stock now held by the Company as treasury shares (the "Deferred Compensation Shares") shall be set aside and held by the Company for future distribution to Pshtissky under this paragraph. B. As deferred compensation, and in addition to all other compensation payable to Pshtissky, the Deferred Compensation Shares shall become the property of Pshtissky, and the Company shall deliver the certificates for the Deferred Compensation Shares to Pshtissky (or his executor of administrator), on the Transfer Date, registered in Pshtissky's name, within 10 days thereafter. The Transfer Date shall be the earliest of (i) the date of Pshtissky's death; (ii) the date as of which Pshtissky's employment by the Company involuntarily terminates; (iii) the date Pshtissky reaches age 60; or
(iv) the occurrence of a change of Control as defined in paragraph 6.


C. Notwithstanding any other provision of this paragraph, Pshtissky shall not be entitled to any Deferred Compensation Shares if the Company terminates this Agreement for Gross Misconduct as defined in paragraph 5.
D. Prior to the Transfer Date, Pshtissky's rights to the Deferred Compensation Shares shall not be transferrable and the Treasury Shares shall be the property of the Company.
E. Pshtissky represents that he will be acquiring the Deferred Compensation Shares for investment only and without a view to the distribution thereof and that the Deferred Compensation Shares, when delivered to him, may constitute restricted stock under the Securities Act of 1933, and the regulations thereunder, and that the certificates therefor shall bear such legend relating to this subparagraph as the Company shall reasonably require.

8. Death or Disability. The Company may terminate this Agreement at its sole option and determination if during the term of this Agreement (a) Pshtissky dies or (b) Pshtissky becomes so disabled for a period of six months that he is substantially unable to perform his duties under this Agreement for such period. The Company shall be the sole judge of whether Pshtissky is disabled or not.

9. Arbitration. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the City of New York in accordance with the rules of the American Arbitration then in effect, and judgement upon the award rendered be entered and enforced in any court having jurisdiction thereof.

10. Miscellaneous.
A. Except for stock options previously granted, this Agreement contains the entire agreement between the parties and supersedes all prior agreements by the parties relating to payments by the Company upon involuntary employment termination with or without cause, however, it does not restrict or limit such other benefits as the President may determine to provide or make available to Pshtissky. B. This agreement may not be waived, changed, modified or discharged orally, but only by agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. C. This Agreement shall be governed by the laws of New York State applicable to contracts between New York State residents and made and to be entirely performed in New York State. D. If any part of this Agreement is held to be unenforceable by any court of competent jurisdiction, the remaining provisions of this Agreement shall continue in full force and effect. E. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successor, and assigns. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.

VICON INDUSTRIES, INC.

By: /s/ Yacov Pshtissky           By: /s/ Kenneth M. Darby
    -------------------              ---------------------
    Yacov Pshtissky                      Kenneth M. Darby
    Vice President - New Technology      CEO
    and Development                      Vicon Industries, Inc.

Date: Date:

EXHIBIT 10.32

AMENDMENT NO. 2 TO
THE CREDIT AGREEMENT

Amendment No. 2 to the Credit Agreement ("Amendment") between Vicon Industries, Inc., 89 Arkay Drive, Hauppauge, New York 11788 ("Borrower") and KeyBank National Association ("KeyBank"). This Amendment is between Borrower and Washington Mutual Bank, FA, 1377 Motor Parkway, Islandia, New York 11749 (the "Bank"), the successor to KeyBank and to The Dime Savings Bank of New York, FSB.

RECITALS:

Borrower and KeyBank entered in a Credit Agreement dated July 20, 1998 (the "Credit Agreement") which was previously amended by Amendment No. 1 on February 12, 2002 ("Amendment No. 1"). The parties now desire to further amend the Credit Agreement on the terms set forth in this Amendment No. 2. This Amendment No. 2 also amends the Mortgage Loans (defined below) as provided herein.

Accordingly, the parties agree as follows:

ARTICLE 1
AMENDMENTS TO CREDIT AGREEMENT.

Section 1.1. (a) General. As used herein, the term "Credit Agreement" means the Credit agreement as amended by Amendment No. 1. Capitalized words and phrases used herein which are not defined in this Amendment shall have the meanings given to them in the Credit Agreement. This Amendment constitutes an amendment to the Credit Agreement and shall not be construed in any way as a replacement or substitution therefor. All of the terms and provisions of this Amendment are hereby incorporated by reference into the Credit Agreement as if such terms were set forth in full therein.

(b) Any reference to Key Bank National Association or the Dime Savings Bank or New York, FSB in the Credit Agreement and any amendment thereto is hereby replaced by and deemed to refer to Washington Mutual Bank, FA.

(c) The term "Mortgage Loans" refers to (i) the term loans in the original principal amount of $2,512,000 and $388,000 extended to Borrower by KeyBank on or about January 29, 1998, secured respectively by first and second priority mortgage liens on the Property and (ii) the term loan in the original principal amount of $1,200,000 extended to Borrower by KeyBank on or about October 12, 1999 secured by a third priority mortgage lien on the Property. The "Property" refers to Borrower's real property located at 89 Arkay Drive, Hauppauge, New York.


Section 1.2. Amendment to Financial Covenants. (a) So long as the aggregate outstanding principal balance of all Revolving Credit Loans is zero and Borrower at all times maintains cash balances on deposit with the Bank at least equal to the sum of (A) the then existing outstanding principal balance of the Term Loan and (B) the Aggregate Banker's Acceptance Outstandings, the Bank waives the following obligations of Borrower under the Credit Agreement:

(i) to comply with any of the affirmative covenants set forth in Article 10 of the Credit Agreement; and

(ii) to deliver the computations referred to in clause (ii) of
Section 8.08(c) of the Credit Agreement and any similar requirements in the Loan Documents reflecting the Mortgage Loans.

(b) The Bank waives Borrower's compliance with the financial covenants set forth in the Loan Documents reflecting the Mortgage Loans. To implement the foregoing, subsection 6(b)(2) and Section 6(c) of the Loan Agreements dated January 29, 1998 between Borrower and KeyBank (as modified by Modification Agreement dated as of June 1, 1998), and subsection 6(b)(2) and
Section 6(c) of the Loan Agreement dated October 12, 1999 between Borrower and KeyBank are hereby permanently deleted, and the Mortgage Loans are hereby amended to that extent.

(c) Section 9.11 of the Credit Agreement is deleted, and the parties agree that it has already been replaced by Section 10.03 of the Credit Agreement which became a part thereof by operation of Amendment No. 1.

Section 1.3. Letter of Credit Sublimit. Section 2.08(b) of the Credit Agreement is deleted and now reads as follows in its entirety:

(b) Subject to the terms and conditions hereof, the Bank agrees to create Bankers Acceptances for Borrower and to issue Letters of Credit on its behalf, provided that, after giving effect to the same, the sum of the Aggregate Bankers Acceptance Outstandings and the Aggregate Letters of Credit Outstandings will not exceed $1,000,000.

ARTICLE 2
REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to the Bank as follows:

Section 2.1. Confirm Warranties and Representations. Borrower confirms that each of the representations and warranties set forth in Article 7 of the Credit Agreement is true in all material respects as of the date hereof with respect to Borrower and, to the extent applicable, the Guarantors, with the same effect as though made on the date hereof (except when such representation or warranty by its terms relates to a specific date other than the date hereof), except that Schedules I, II, III and V to the Credit Agreement are updated as of the date hereof and annexed hereto. Each such warranty and representation is hereby incorporated herein in full by reference as if fully restated in its entirety. June 30, 2002, there has been no material adverse change in the business, operations, assets or financial or other condition of Borrower or of the Guarantors.

Section 2.2. No Default. No Default or Event of Default now exists under the Credit Agreement, as amended previously and hereby.

Section 2.3. Corporate Power. Borrower has the requisite corporate power and authority to enter into, perform and deliver this Amendment.


Section 2.4. Consents. No consent, waiver or approval of any entity is or will be required in connection with the execution, delivery, performance, validity or enforcement or priority of this Amendment.

Section 2.5. No Omission. No representation, warranty or statement by Borrower contained herein contains any untrue statement of material fact or omits to state a material fact necessary to make such representation, warranty or statement not misleading.

ARTICLE 3
MISCELLANEOUS

Section 3.1. Counterparts. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either party hereto may execute this Amendment by signing any such counterpart.

Section 3.2. Credit Agreement. Except as specifically amended hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms, unaffected by this Amendment.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment.

Washington Mutual Bank, FA                Vicon Industries, Inc.


By:                                      By:
    -------------------                     ---------------------
     Name: Sean M. Umhafer                  Name:  John Badke

Title: Vice President Title: Vice President, Finance Date signed: September 30, 2002 Date signed: September 30, 2002


EXHIBIT 10.35

2002

INCENTIVE STOCK OPTION PLAN

of

VICON INDUSTRIES, INC.

1. Purpose of the Plan This Incentive Stock Option Plan (hereinafter called the "Plan"), is intended to encourage ownership of stock of VICON INDUSTRIES, INC. (hereinafter called the "Company"), by officers and other employees of the Company, and its subsidiaries, and to provide additional incentive for them to promote the success of the business.

2. Stock Subject to the Plan Subject to the provisions of Paragraph "6", the total number of shares of stock which may be optioned under the Plan is 200,000 shares of Common Stock (par value of $.01 per share) of the Company, which shall be either authorized and unissued stock or reacquired stock.

3. Administration of the Plan The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee") who may, from time to time, amend and rescind rules and regulations for carrying out the provisions and purposes of the Plan. All awards of options by the Committee are subject to approval by the Board of Directors. the interpretation, construction and application of the Plan and any provision thereof made by the Committee shall be final and conclusive. No director shall be liable for any action taken or determination made in good faith. The Committee shall consist of at least three members of the Board of Directors, all of whom shall be non-employee directors. The members of the Committee shall be designated by two-thirds vote of the entire Board of Directors of the Company and shall serve for a term of one year and thereafter until their successors are designated.

4. Participants Participants will be selected by the Committee, in its sole discretion, from among the officers and other employees of the Company, and its subsidiaries, including subsidiaries which become such after adoption of the Plan, to accomplish the purposes of this Plan.

5. Award of Incentive Stock Options The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any participant in the Plan one or more stock options (intended to qualify as incentive stock options under the provisions of section 422 of the Internal Revenue Code of 1986, as amended (the "Code") to purchase for cash or shares the number of shares of Common Stock allotted by the Committee. The date an option is granted shall mean the dated selected by the Committee as of which the Committee allots a specific number of shares to a participant pursuant to the Plan.

6. Changes to Capital Structure In the event that the outstanding shares of common stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason or reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividend payable in capital stock, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable to the end that the optionee's proportionate interest shall be maintained as before the occurrence of such events; such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of the option and with a corresponding adjustment of the option price per share; provided, however, that each such adjustment in the number and kind of shares subject to outstanding options, including any adjustment in the option price, shall be made in such manner as not to constitute a "modification" as defined in
Section 424 of the Code. Any such adjustment made by the Board of Directors shall be conclusive.

7. Terms and Conditions of Options The grant of an option shall be evidenced by a written Incentive Stock Option Agreement, executed by the Company and the holder of an option (the "optionee"), stating the number of shares of Common Stock subject to the option evidenced thereby, and in such form as the Committee may from time to time determine.

a) Option Price - The option price per share of Common Stock deliverable upon the exercise of an option shall be 100% of the fair market value of a share of Common Stock on the date the option is granted; however, an optionee who is the record and beneficial owner of more than 10% of the Company's issued and outstanding common stock shall be awarded options at a price equivalent to 110% of the fair market value at the date of grant.

b) Method of Exercise - Stock purchased under the options shall, at the time of purchase, be paid for in full. To the extent that the right to purchase shares has accrued thereunder, options may be exercised from time to time by written notice by the optionee to the Company stating the number of shares with respect to which the option is being exercised, and the time of the delivery thereof, which time shall be at least 15 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in such notice, the Company shall deliver, without transfer or issue tax to the optionee (or other person entitled to exercise the option), at the main office of the Company, or such other places as shall be mutually acceptable, a certificate or certificates for such shares or reacquired shares of its Common Stock, as the Company may elect, against payment of the option price in full for the number of shares to be delivered by (i) certified check or the equivalent thereof acceptable to the Company; or (ii) the delivery to the Company of issued and outstanding Common Stock of Vicon Industries, Inc. which has been owned by the optionee for at least six month, the total fair market value of which on such delivery date is equal to the total exercise price of options being exercised; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange, if the stock is so listed. If the optionee (or other person entitled


to exercise the option) fails to accept delivery of and pay for all or any part of the number of shares specified in such notice upon termination of delivery thereof, his right to exercise the option with respect to such undelivered shares may be terminated by the Option Committee of the Board of Directors without any formal notice to the optionee. Anything herein to the contrary notwithstanding, if any law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or a participant to take any action in connection with the shares specified in a notice of election before such shares can be delivered to such participant, then the date stated therein for the delivery of the shares shall be postponed until the fifth business day next following the completion of such action.

c) Option Term - No option will be exercisable prior to the date of shareholder approval of the plan, or any time after expiration of six years from the date the option is granted (the "Grant Date").

d) Maximum Amount of Incentive Stock Option Grant - The aggregate fair market value (determined on the date the option is granted) of Common Stock subject to an incentive stock option granted to an optionee (pursuant to any plan) by the Committee and exercisable for the first time in any calendar year shall not exceed $100,000.

e) Exercise of Options - As to any option issued under the Plan: it may be exercised up to 30% of the total number of shares covered thereby after two years from the date of grant, it may be exercised up to an additional 30% of the total number of shares covered thereby after three years from date of grant; and the remaining 40% after four years from the date of grant, and thereafter, the option may be exercised at any time from time to time within its terms, in whole or in part, but it shall not be exercisable after the expiration of six years from the Grant Date. Notwithstanding the foregoing, all options granted under this Plan may be exercised in the entirety should a "Change in Control" occur. A "Change in Control" shall be deemed to have occurred if (i) any other entity shall directly or indirectly acquire a beneficial ownership of 20%, or any further amount in excess of 20%, of the outstanding shares of capital stock of the Company or (ii) a majority of the members of the Board of Directors of the Company or any successor or merger or assignment of assets or otherwise, shall be persons other than Directors on the date this Plan became effective (May 7, 2002).

f) Non-Assignability of Option Rights - No option shall be assignable or transferable by the optionee except by will or the by laws or descent and distribution. During the life of an optionee, the option shall be exercisable only the optionee.


g) Effect of Termination of Employment or Death - In the event an optionee ceases to be an employee of the Company for any reason other than retirement or death, any exercisable portion of any option as of the date such optionee ceased to perform services to the Company must be exercised within three months after the date on which the optionee ceases to perform services. In the event of the retirement of an optionee, any option or unexercised portion thereof granted to him shall be exercisable within not more than three months from the date on which the optionee retires. In the event of the death of an optionee while such optionee is an employee of the Company, or any subsidiary of the Company, or within three months from the date of such optionee's retirement, the option or unexercised portion thereof granted to such optionee may be exercised by such optionee's personal representative, or a person who acquired the right to exercise such option by bequest or inheritance at any time prior to the expiration of one year from the date of death of the optionee. The foregoing provisions with respect to retirement or death of any optionee shall, in no event, be deemed to extend the date of expiration of the term provided in any option held by any such optionee.

h) Restriction on Issuance of Shares - On the date stated in the notice of election for the payment and delivery of the shares specified in such notice, the participant shall certify to the Company in such form as it shall require that such participant will receive and hold such shares for investment and not with a view to resale or distribution thereof to the public, unless the issuance of such shares shall have been registered under the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder, or counsel to the Company shall have advised the Company that for any other reason such certification is unnecessary.

i) Rights as a Stockholder - The optionee shall have no rights as a Stockholder with respect to any shares covered by such optionee's option until the date of issuance of a stock certificate to such optionee for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.

j) Successive Options - Options may be exercised in any order.

k) Termination of Options Upon Consent - The Option Committee may terminate any outstanding option with the consent of the holder thereof.

8. Effective Date and Term of Plan
a) The Plan, which was adopted by the Board of Directors on November 15, 2001, is subject to the condition that the Stockholders approve the Plan prior to July 1, 2002. The Plan shall become effective upon approval by the Company's Stockholders.

b) The Plan shall terminate on May 7, 2012, provided, however, that the Plan and all awards made under the Plan prior to such date shall remain in effect until such awards have been satisfied or terminated in accordance with the Plan and the terms of such awards.


9. Definitions In this Plan the following definitions shall apply:

a) "subsidiary" means any corporation or which, at any applicable time, more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by Vicon Industries, Inc., or any subsidiary thereof.

b) "fair market value" as of any date and in respect of any share of Common Stock means the closing price on such date or on the next business day, if such date is not a business day, of a share of Common Stock reflected in the consolidated trading tables of The Wall Street Journal (presently the AMEX-Composite Transactions) or any other publication selected by the Committee, provided that, if shares of Common Stock shall not have been traded on the American Stock Exchange for more than 10 days immediately preceding such date or if deemed appropriate by the Committee for any other reason, the fair market value of shares of Common Stock shall be as determined by the Committee in such other manner as it may deem appropriate. In no event shall the fair market value of any share of Common Stock be less than its par value.

10. Amendment of Plan The Board of Directors may at any time amend the Plan, provided that without approval of Stockholders there shall be, except by operation of the provisions of paragraph "6" above, no increase in the total number of shares covered by the Plan; there shall be no change in the class of persons eligible to receive options granted under the Plan; there shall be no change in the limitations on the option price; and there shall be no extension of the latest date upon which options may be exercised. Neither the Board of Directors nor the Stockholders by amendment to this Plan can affect options granted and outstanding under any prior stock option plan of the Company or its subsidiaries.

11. Use of Proceeds The proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company.

12. Governing Law Options granted under this Plan shall be construed and shall take effect in accordance with the laws of the State of New York.

13. Liquidation Upon the complete liquidation of the Company, any unexercised options heretofore granted under this Plan shall be deemed canceled. In the event of the complete liquidation of any employer corporation (other than the Company) employing the participant or in event such corporation ceases to be an employer corporation, any unexercised part of any option granted hereunder shall be deemed canceled unless the participant shall become employed by another employer corporation (including the Company) concurrently with such event.

EXHIBIT 10.36

2002

NON-QUALIFIED STOCK OPTION PLAN

of

VICON INDUSTRIES, INC.

1. Purpose of the Plan The Non-Qualified Stock Option Plan (hereinafter called the "Plan"), is intended to encourage ownership of stock of VICON INDUSTRIES, INC. (hereinafter called the "Company"), by directors, officers and other key employees of the Company, and its subsidiaries, and to provide additional incentive for them to promote the success of the business.

2. Stock Subject to the Plan Subject to the provisions of Paragraph "6", the total number of shares of stock which may be optioned under the Plan is 200,000 shares of Common Stock (par value of $.01 per share) of the Company, which shall be either authorized and unissued stock or reacquired stock.

3. Administration of the Plan The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee") who may, from time to time, with the approval of the Board of Directors, amend and rescind rules and regulations for carrying out the provisions and purposes of the Plan. The interpretation, construction and application of the Plan and any provision thereof made by the Board shall be final and conclusive. No director shall be liable for any action taken or determination made in good faith. The Committee shall consist of at least three members of the Board of Directors, all of whom shall be non-employee directors. The members of the Committee shall be designated by two-thirds vote of the entire Board of Directors of the Company and shall serve for a term of one year and thereafter until their successors are designated.

4. Participants Participants will be recommended by the Committee, in its sole discretion, from among the directors, officers and other key employees of the Company to accomplish the purposes of this Plan.

5. Award of Non-Qualified Stock Options
The Committee may, in its discretion, recommend options to be granted under this Plan from time to time, prior to the expiration date of the Plan. A majority of the Board of Directors shall be required to approve the grant of any options under this Plan. The shares related to the unexercised portions of any terminated or expired options shall be deemed not to have been optioned shares for the purposes of Paragraph "2" and may again be subjected to option grant under the Plan.

6. Changes to Capital Structure
In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason or reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, combination of shares, or dividend payable in capital stock, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares for the purchase of which options shall be granted under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable to the end that the optionee's proportionate interest shall be maintained as before the occurrence of such events; such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of the option and with a corresponding adjustment of the option price per share; provided, however, that each such adjustment in the number and kind of shares subject to outstanding options, including any adjustment in the option price, shall be made in such manner as not to constitute a "modification" as defined in Section 424 of the Internal Revenue Code of 1986, as amended. Any such adjustment made by the Board of Directors shall be conclusive.

7. Terms and Conditions of Options
Options shall be evidenced by written Stock-Option Agreements in such form not inconsistent with the Plan as the Committee shall from time to time determine, provided that the substance of the following be included therein:

a) Option Price - The option price shall not be less than 100% of the fair market value on the date the option is granted, which shall be the date on which the Board of Directors approved the award of any Option. An optionee, however, who is the record and beneficial owner of more than 10% of the Company's common stock shall be awarded options at a price equivalent to 110% of the fair market value at the date of grant.

b) Method of Exercise - Stock purchased under the options shall, at the time of purchase, be paid for in full. To the extent that the right to purchase shares has accrued thereunder, options may be exercised from time to time by written notice by the optionee to the Company stating the number of shares with respect to which the option is being exercised, and the time of the delivery thereof, which time shall be at least 15 days after the giving of such notice unless an earlier date shall have been mutually agreed upon. At the time specified in such notice, the Company shall deliver, without transfer or issue tax to the optionee (or other person entitled to exercise the option), at the main office of the Company, or such other places as shall be mutually acceptable, a certificate or certificates for such shares or reacquired shares of its Common Stock, as the Company may elect, against payment of the option price in full for the number of shares to be delivered by (i) certified check or the equivalent thereof acceptable to the Company; or (ii) the delivery to the Company of issued and outstanding Common Stock of Vicon Industries, Inc. which has been owned by the optionee for at least six months, the total fair market value of which on such delivery date is equal to the total exercise price of options being exercised; provided, however, that the time of such delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable listing requirements of any national securities exchange, if the stock is so listed. If the optionee (or other person entitled to exercise the option) fails to accept delivery of and pay for all or any part of the number of shares specified in such notice upon tender


of delivery thereof, his/her right to exercise the option with respect to such undelivered shares may be terminated by the Committee without any formal notice to the optionee. Anything herein to the contrary notwithstanding, if any law or any regulation of the Securities and Exchange Commission or of any other body having jurisdiction shall require the Company or a participant to take any action in connection with the shares specified in a notice of election before such shares can be delivered to such participant, then the date stated therein for the delivery of the shares shall be postponed until the fifth business day next following the completion of such action.

c) Option Term - No option will be exercisable after expiration of six years from the date the option is granted or the date of shareholder approval of the Plan, whichever date is later (the "Grant Date").

d) Exercise of Options - As to any option issued under the Plan to non- employee directors, at all times after the first anniversary of the Grant Date, the option may be exercised at any time from time to time within its terms, in whole or in part but it shall not be exercisable after the expiration of six years from the Grant Date. As to any option issued under the Plan to officers and other key employees, it may be exercised up to 30% of the total number of shares covered thereby after two years from the date of grant, it may be exercised up to an additional 30% of the total number of shares covered thereby after three years from date of grant; and the remaining 40% after four years from the date of grant, and thereafter, the option may be exercised at any time from time to time within its terms, in whole or in part, but it shall not be exercisable after the expiration of six years from the Grant Date.

Notwithstanding the foregoing, all options granted under this Plan may be exercised in their entirety should a "Change in Control" occur. A "Change in Control" shall be deemed to have occurred if any other entity shall directly or indirectly acquire a beneficial ownership of 20%, or any further amount in excess of 20%, of the outstanding shares of capital stock of the Company.

e) Non-Assignability of Option Rights - No option shall be assignable or transferable by the optionee except by will or by the laws of descent and distribution. During the life of an optionee, the option shall be exercisable only the optionee.

f) Effect of Termination of Employment or Death - In the event an optionee ceases to be a director or an employee of the Company for any reason other than retirement, disability or death, any unexercisable portion of any option granted to such optionee as of the date such optionee ceases to perform services to the Company must be exercised within three months after the date on which the optionee ceases to perform services. In the event of the retirement or disability of an optionee, any option or unexercised portion thereof granted to him shall be exercisable within not more than three months from the date on which the optionee retires or ceases to provide services to the Company. In the event of the death of an optionee while such optionee is a director or employee of the Company or within three months from


the date of such optionee's retirement, the option or unexercised portion thereof granted to such optionee may be exercised by such optionee's personal representative, or a person who acquired the right to exercise such option by bequest or inheritance at any time prior to the expiration of one year from the date of death of the optionee. The foregoing provisions with respect to retirement, disability, or death of any optionee shall, in no event, be deemed to extend the date of expiration of the term provided in any option held by any such optionee.

g) Restriction on Issuance of Shares - On the date stated in the notice of election for the payment and delivery of the shares specified in such notice, the participant shall certify to the Company in such form as it shall require that such participant will receive and hold such shares for investment and not with a view to resale or distribution thereof to the public, unless the issuance of such shares shall have been registered under the Securities Act of 1933, as amended, and the Rules and Regulations promulgated thereunder, or counsel to the Company shall have advised the Company that for any other reason such certification is unnecessary.

h) Rights as a Stockholder - The optionee shall have no rights as a Stockholder with respect to any shares covered by such optionee's option until the date of issuance of a stock certificate to such optionee for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.

i) Successive Options - Options may be exercised in any order.

j) Termination of Options Upon Consent - The Option Committee may terminate any outstanding option with the consent of the holder thereof.

8. Effective Date and Term of Plan
The Plan, which was adopted by the Board of Directors on November 15, 2001, is subject to the condition that the Stockholders approve the Plan prior to July 1, 2002. The Plan shall become effective upon approval by the Company's Stockholders (May 7, 2002). The Plan shall terminate on May 7, 2012. The Board of Directors may terminate this Plan at any time. Termination of the Plan will not affect the rights and obligations. Theretofore granted, and then in effect, if the Stockholders shall have approved the Plan prior to termination.

9. Definitions In this plan the following definitions shall apply:

a) "Subsidiary" means any corporation or which, at any applicable time, more than 50% of the shares entitled to vote generally in an election of directors are owned directly or indirectly by Vicon Industries, Inc., or any subsidiary thereof.

b) "Fair Market Value" as of any date and in respect of any share of Common Stock means the closing price on such date or on the next business day, if such date is not a business day, of a share of Common Stock reflected in the consolidated trading tables of The Wall Street Journal (Presently the AMEX-Composite Transactions) or any other publication selected by the Committee, provided that, if shares of Common Stock shall not have been traded on the American Stock Exchange for more than 10 days immediately preceding such date or if deemed appropriate. In no event shall the fair market value of any share of Common Stock be less than its par value.


10. Amendment of Plan The Board of Directors may at any time amend the Plan, provided that without approval of Stockholders there shall be, except by operation of the provisions of Paragraph "6" above, no increase in the total number of shares covered by the Plan; there shall be no change in the class of persons eligible to receive options granted under the Plan; there shall be no change in the limitations on the option price; and there shall be no extension of the latest date upon which options may be exercised. Neither the Board of Directors nor the Stockholders by amendment to this Plan can affect options granted before such amendment or any unexercised portion thereof. The adoption of this Plan shall not be deemed to affect the terms and conditions of any unexercised portion of options granted and outstanding under any prior stock option plan of the Company or its subsidiaries.

11. Use of Proceeds The proceeds from the sale of stock pursuant to option granted under the Plan shall constitute general funds of the Company.

12. Governing Law Options granted under this Plan shall be construed and shall take effect in accordance with the laws of the State of New York.

13. Liquidation Upon the complete liquidation of the Company, any unexercised options heretofore granted under this Plan shall be deemed canceled. In the event of the complete liquidation of any employer corporation (other than the Company) employing the participant or in event such corporation ceases to be an employer corporation, any unexercised part of any option granted hereunder shall be deemed canceled unless the participant shall become employed by another employer corporation (including the Company) concurrently with such event.

EXHIBIT 23

Independent Auditors' Consent

The Board of Directors
Vicon Industries, Inc.:

We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-7892, 33-34349, 33-90038, 333-30097 and 333-71410) and Form S-2 (No. 333-46841) of Vicon Industries, Inc. of our report dated December 10, 2002, relating to the consolidated balance sheets of Vicon Industries, Inc. and subsidiaries as of September 30, 2002 and 2001 and the related consolidated statements of operations, shareholders' equity and cash flows and related schedule for each of the years in the three-year period ended September 30, 2002, which report appears in the September 30, 2002 annual report on Form 10-K of Vicon Industries, Inc.

                                       /s/ KPMG LLP


Melville, New York
December 30, 2002


EXHIBIT 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Vicon Industries, Inc. (the "Company") on Form 10-K for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth M. Darby, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the report.

 /s/ Kenneth M. Darby
---------------------
 Kenneth M. Darby
 Chairman and
 Chief Executive Officer

 December 30, 2002


EXHIBIT 99.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Vicon Industries, Inc. (the "Company") on Form 10-K for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John M. Badke, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the report.

 /s/ John M. Badke
------------------
 John M. Badke
 Vice President, Finance and
 Chief Financial Officer

 December 30, 2002