VICON INDUSTRIES INC /NY/ (Form: 10-Q, Received: 08/22/2016 14:38:26)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2016

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

For the transition period from to

Commission File Number: 1-7939

VICON INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



New York		11-2160665
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

135 Fell Court, Hauppauge, New York		11788
(Address of principal executive offices)		(Zip Code)

(631) 952-2288

(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

At August 19, 2016, the registrant had outstanding 9,348,388 shares of Common Stock, $.01 par value.

VICON INDUSTRIES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS



Part I. Financial Information	Page Number

Item 1. Financial Statements (unaudited)

Condensed Consolidated Statements of Operations	3

Condensed Consolidated Statements of Comprehensive Loss	4

Condensed Consolidated Balance Sheets	5

Condensed Consolidated Statements of Cash Flows	6

Notes to Condensed Consolidated Financial Statements	7

Item 2. Management's Discussion and Analysis of Financial Condition	12
and Results of Operations

Item 4. Controls and Procedures	16

Part II. Other Information

Item 1. Legal Proceedings	17

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3. Defaults Upon Senior Securities	17

Item 4. Mine Safety Disclosures	17

Item 5. Other Information	17

Item 6. Exhibits	17

Signatures	18

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Three Months Ended						Nine Months Ended
	6/30/2016			6/30/2015			6/30/2016			6/30/2015

Net sales	$	9,526,764		$	11,701,030		$	28,405,444		$	32,146,605
Cost of sales	5,718,851			7,017,300			17,687,386			19,787,165
Gross profit	3,807,913			4,683,730			10,718,058			12,359,440

Operating expenses:
Selling, general and administrative expense	3,333,045			4,158,176			10,989,395			12,372,692
Engineering and development expense	1,292,446			1,325,877			3,950,500			4,025,913
Goodwill writedown	—			—			6,016,469			—
Restructuring charges	—			—			—			572,913
	4,625,491			5,484,053			20,956,364			16,971,518

Operating loss	(817,578		)	(800,323		)	(10,238,306		)	(4,612,078		)

Other income (expense):
Gain on sale of building	—			—			784,896			—
Interest income	164			161			488			1,533
Interest expense	(25,403		)	—			(25,403		)	—
Other expense	—			—			—			(140,853		)

Loss before income taxes	(842,817		)	(800,162		)	(9,478,325		)	(4,751,398		)

Income tax expense	—			—			—			—

Net loss	$	(842,817	)	$	(800,162	)	$	(9,478,325	)	$	(4,751,398	)


Loss per share:
Basic	$	(.09	)	$	(.09	)	$	(1.01	)	$	(.52	)

Diluted	$	(.09	)	$	(.09	)	$	(1.01	)	$	(.52	)


Weighted average shares outstanding:

Basic	9,343,946			9,154,797			9,338,559			9,135,987

Diluted	9,343,946			9,154,797			9,338,559			9,135,987

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)



	Three Months Ended						Nine Months Ended
	6/30/2016			6/30/2015			6/30/2016			6/30/2015
Net loss	$	(842,817	)	$	(800,162	)	$	(9,478,325	)	$	(4,751,398	)
Other comprehensive income (loss):
Unrealized gain (loss) on securities	74			(168		)	148			2,826
Foreign currency translation adjustment	(249,648		)	95,025			(276,730		)	(112,722		)
Other comprehensive income (loss)	(249,574		)	94,857			(276,582		)	(109,896		)
Comprehensive loss	$	(1,092,391	)	$	(705,305	)	$	(9,754,907	)	$	(4,861,294	)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



ASSETS	6/30/2016			9/30/2015
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	1,995,504		$	2,390,409
Marketable securities	13,448			13,047
Accounts receivable, net	7,497,630			10,816,348
Inventories:
Parts, components, and materials	1,723,553			2,074,389
Work-in-process	1,054,661			981,878
Finished products	5,481,294			5,557,556
	8,259,508			8,613,823
Prepaid expenses and other current assets	721,561			501,497
Assets held for sale	—			800,902
TOTAL CURRENT ASSETS	18,487,651			23,136,026

Property, plant and equipment	5,835,401			5,812,517
Less accumulated depreciation and amortization	(5,248,392		)	(5,117,570		)
	587,009			694,947
Goodwill	—			6,016,469
Intangible assets, net	3,214,917			3,602,667
Other assets	725,886			722,022
TOTAL ASSETS	$	23,015,463		$	34,172,131

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	3,642,557			$	5,688,424
Accrued compensation and employee benefits	1,956,574			2,923,474
Accrued expenses	1,555,039			1,653,333
Unearned revenue	400,221			829,138
TOTAL CURRENT LIABILITIES	7,554,391			11,094,369

Revolving credit borrowings	1,750,000			—
Unearned revenue - non current	65,662			104,779
Other long-term liabilities	1,489,218			1,508,801
TOTAL LIABILITIES	10,859,271			12,707,949
Commitments and contingencies

SHAREHOLDERS’ EQUITY
Common stock, par value $.01 per share authorized - 25,000,000 shares issued - 10,044,827 and 10,010,995 shares	100,448			100,109
Capital in excess of par value	40,876,574			40,972,206
Accumulated deficit	(24,829,300		)	(15,350,975		)
Treasury stock at cost, 696,439 and 806,198 shares, respectively	(3,437,643		)	(3,979,852		)
Accumulated other comprehensive loss	(553,887		)	(277,306		)
TOTAL SHAREHOLDERS’ EQUITY	12,156,192			21,464,182
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	23,015,463		$	34,172,131

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Nine Months Ended
	6/30/2016			6/30/2015
Cash flows from operating activities:
Net loss	$	(9,478,325	)	$	(4,751,398	)
Adjustments to reconcile net loss to net cash used in operating activities:
Goodwill impairment	6,016,469			—
Gain on sale of building	(784,896		)	—
Depreciation and amortization	636,306			512,645
Amortization of deferred compensation	1,111			2,539
Stock compensation expense	440,621			468,063
Change in assets and liabilities:
Accounts receivable, net	3,023,170			(1,064,427		)
Inventories, net	160,437			443,648
Prepaid expenses and other current assets	(251,428		)	(88,588		)
Other assets	(3,864		)	203,444
Accounts payable	(1,929,100		)	(921,548		)
Accrued compensation and employee benefits	(944,254		)	(336,369		)
Accrued expenses	(78,378		)	(390,680		)
Unearned revenue	(468,034		)	184,641
Other liabilities	(10,918		)	(33,024		)
Net cash used in operating activities	(3,671,083		)	(5,771,054		)

Cash flows from investing activities:
Proceeds from sale of building, net	1,512,320			3,325,000
Net decrease (increase) in marketable securities	(253		)	110,239
Capital expenditures	(159,643		)	(112,284		)
Net cash provided by investing activities	1,352,424			3,322,955

Cash flows from financing activities:
Revolving credit borrowings	1,750,000			—
Proceeds from exercise of stock options	5,184			48,106
Net cash provided by financing activities	1,755,184			48,106
Effect of exchange rate changes on cash	168,570			(93,075		)

Net decrease in cash	(394,905		)	(2,493,068		)
Cash and cash equivalents at beginning of year	2,390,409			4,751,270
Cash and cash equivalents at end of period	$	1,995,504		$	2,258,202

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2016

Note 1: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2016 . For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2015 .

Note 2: Marketable Securities

Marketable securities consist of mutual fund investments principally in federal, state and local government debt securities of $13,448 as of June 30, 2016 . Such mutual fund investments are stated at market value based on quoted market prices (Level 1 inputs) and are classified as available-for-sale under the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320, with unrealized gains and losses reported in accumulated other comprehensive loss as a component of shareholders’ equity. The cost of such securities at June 30, 2016 was $13,608 , with $160 of cumulative unrealized losses reported at June 30, 2016 .

Note 3: Accounts Receivable

Accounts receivable is stated net of an allowance for uncollectible accounts of $979,000 and $993,000 as of June 30, 2016 and September 30, 2015 , respectively.

Note 4: Loss per Share

Basic loss per share (EPS) is computed based on the weighted average number of common shares outstanding for the period. Diluted EPS reflects the maximum dilution that would have resulted from incremental common shares issuable upon the exercise of stock options and under deferred compensation agreements.

The following tables provide the components of the basic and diluted EPS computations for the three and nine month periods ended June 30, 2016 and 2015 :



	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Basic EPS Computation
Net loss	$	(842,817	)	$	(800,162	)	$	(9,478,325	)	$	(4,751,398	)
Weighted average shares outstanding	9,343,946			9,154,797			9,338,559			9,135,987
Basic loss per share	$	(.09	)	$	(.09	)	$	(1.01	)	$	(.52	)

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	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Diluted EPS Computation
Net loss	$	(842,817	)	$	(800,162	)	$	(9,478,325	)	$	(4,751,398	)

Weighted average shares outstanding	9,343,946			9,154,797			9,338,559			9,135,987
Stock options	—			—			—			—
Stock compensation arrangements	—			—			—			—
Diluted shares outstanding	9,343,946			9,154,797			9,338,559			9,135,987

Diluted loss per share	$	(.09	)	$	(.09	)	$	(1.01	)	$	(.52	)

For the for the three and nine month periods ended June 30, 2016 and 2015 , all outstanding stock options and shares issuable under stock compensation arrangements totaling 643,533 and 604,082 shares, respectively, have been omitted from the calculation of diluted EPS as their effect would have been antidilutive. The actual effect of these stock options and shares, if any, on the diluted earnings per share calculation will vary significantly depending on fluctuations in the market price of the Company's stock.

Note 5: Accumulated Other Comprehensive Loss

The Company's accumulated other comprehensive loss balances at June 30, 2016 and September 30, 2015 consisted of the following:



	June 30, 2016			September 30, 2015
Foreign currency translation adjustment	$	(553,727	)	$	(276,998	)
Unrealized loss on marketable securities	(160		)	(308		)
Accumulated other comprehensive loss	$	(553,887	)	$	(277,306	)

Note 6: Goodwill and Intangible Assets

The Company’s goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in the August 29, 2014 IQinVision business combination. Goodwill is not amortized and is tested for impairment on an annual basis during the Company's fourth quarter, or more frequently if circumstances indicate impairment might exist. Goodwill is evaluated for impairment through the comparison of fair value of reporting units to their carrying values. When evaluating goodwill for impairment, the Company may first perform an assessment of qualitative factors to determine if the fair value of the reporting unit is more-likely-than-not greater than its carrying amount. This qualitative assessment is referred to as a "step zero" approach. If, based on the review of the qualitative factors, the Company determines it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying value, the required two-step impairment test can be bypassed. If the Company does not perform a qualitative assessment or if the fair value of the reporting unit is not more-likely-than-not greater than its carrying value, the Company must perform the first step of the two-step impairment test, and calculate the estimated fair value of the reporting unit. If the carrying value of the reporting unit exceeds the estimated fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment.

The amount of impairment is determined by comparing the implied fair value of the reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill is less than the recorded goodwill, an impairment loss for the difference would be recorded. In considering the step zero approach to testing goodwill for impairment, a qualitative analysis is performed evaluating factors including, but not limited to, macro-economic conditions, market and industry conditions, internal cost factors, competitive environment, share price fluctuations, results of past impairment tests, and the operational stability and the overall financial performance of the reporting units. The Company conducted an impairment test at March 31, 2016 using the income approach and determined that its goodwill carrying value was fully impaired. As a result, the Company recorded an impairment charge of $6.0 million in the quarter ended March 31, 2016. This noncash charge was principally based upon an updated assessment of the Company's continuing depressed market valuation and operating losses.

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The components and estimated useful lives of intangible assets as of June 30, 2016 and September 30, 2015 are stated below. Amortization is provided on a straight line method, or in the case of customer relationships, on an accelerated method, over the following estimated useful lives:



	June 30, 2016				September 30, 2015
	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization		Estimated Useful Life
Definite-lived intangibles:
Technology	$	2,500,000	$	458,333	$	2,500,000	$	270,833	10 years
Customer relationships	910,000		316,083		910,000		148,833		7 years
Tradenames	660,000		80,667		660,000		47,667		15 years
	$	4,070,000	$	855,083	$	4,070,000	$	467,333

The activity in the goodwill balance consists of the following:



Balance at October 1, 2013	$	—
Acquisition of IQinVision	6,016,469
Balance at September 30, 2014	6,016,469
Changes in Goodwill	—
Balance at September 30, 2015	6,016,469
Goodwill impairment	(6,016,469		)
Balance at June 30, 2016	$	—

Amortization expense was $129,250 and $387,750 for the three and nine month periods ended June 30, 2016 . Future amortization expense for intangible assets over the next five years ending September 30 and thereafter is summarized as follows:



Fiscal Year	Amount
Remainder of 2016	$	129,250
2017	518,000
2018	427,000
2019	373,000
2020	341,000
Thereafter	$	1,426,667

Note 7: Stock-Based Compensation

The Company maintains stock option plans that include both incentive and non-qualified options reserved for issuance to key employees, including officers and directors. 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.

The Company follows ASC 718 (“Share-Based Payment”), which requires that all share based payments to employees, including stock options, be recognized as compensation expense in the consolidated financial statements based on their grant date fair values and over the requisite service period. For the three month periods ended June 30, 2016 and 2015 , the Company recorded non-cash compensation expense of $141,843 and $156,718 , respectively ( $.02 and $.02 per basic and diluted share, respectively), relating to stock compensation. For the nine month periods ended June 30, 2016 and 2015 , the Company recorded non-cash compensation expense of $440,621 and $468,063 , respectively ( $.05 and $.05 per basic and diluted share, respectively), relating to stock compensation.

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Note 8: Recent Accounting Pronouncements

In May 2014, the FASB issued guidance on revenue from contracts with customers. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved, in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. This guidance permits the use of either the retrospective or cumulative effect transition method and is effective for the Company beginning in 2019; early adoption is not permitted prior to 2018. The Company has not yet evaluated the impact of this guidance on the Company's financial condition, results of operations and related disclosures.

In August 2014, the FASB issued guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and related footnote disclosures. Management will be required to evaluate, at each reporting period, whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. This guidance is effective prospectively for annual and interim reporting period beginning in 2017. The Company has not yet evaluated the impact of this guidance on the Company’s financial condition, results of operations and related disclosures.

In February 2016, the FASB issued guidance on lease accounting requiring lessees to recognize a right-of-use asset and a lease liability for long-term leases. The liability will be equal to the present value of lease payments. This guidance must be applied using a modified retrospective transition approach to all annual and interim periods presented and is effective for the Company beginning in fiscal 2019. The Company has not yet evaluated the impact of this guidance on the Company's financial condition, results of operations and related disclosures.

In March 2016, the FASB issued guidance on simplifying several aspects of accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This guidance requires a mix of prospective, modified retrospective, and retrospective transition to all annual and interim periods presented and is effective for the Company beginning in fiscal 2018. The Company has not yet evaluated the impact of this guidance on the Company's financial condition, results of operations and related disclosures.

Note 9: Income Taxes

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns for which a tax benefit has been recorded in the income statement. The Company has a valuation allowance against its deferred tax assets due to the uncertainty of future realization. The full valuation allowance is determined to be appropriate due to the Company's operating losses since fiscal year 2010 and the inherent uncertainties of predicting future operating results in periods over which such net tax differences become deductible. At September 30, 2015, the Company had $11.1 million of unrecognized net deferred tax assets available, which includes approximately $7.0 million of tax effected U.S. and foreign net operating loss carryforwards. On August 29, 2014, the Company merged with IQinVision, Inc. In connection with this merger, the Company's ability to utilize pre-merger net operating losses and tax credit carryforwards in the future is subject to certain limitations pursuant to Section 382 of the Internal Revenue Code. The annual limitation on utilization of the Company's U.S. net operating loss carryforwards is presently estimated at $500,000 based on a preliminary entity valuation.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company files U.S. Federal and State income tax returns and foreign tax returns in the United Kingdom, Germany and Israel. The Company is generally no longer subject to tax examinations in such jurisdictions for fiscal years prior to 2011 in the U.S. and 2009 in the U.K., Germany and Israel.

Note 10: Fair Value

The majority of the Company’s non-financial assets and liabilities are not required to be carried at fair value on a recurring basis, but the Company is required on a non-recurring basis to use fair value measurements when analyzing asset impairment as it relates to long-lived assets. The carrying amounts for trade accounts and other receivables and accounts payable approximate fair value due to the short-term maturity of these instruments. As the Revolving Loan Facility is a revolving credit agreement, the carrying amount approximates fair value.

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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.

Note 11: Restructuring Charges

Pursuant to the August 29, 2014 IQinVision merger, the Company initiated certain integration and restructuring activities pursuant to an approved plan (the "Plan"). For the nine month period ended June 30, 2015, the Company recognized $573,000 of severance charges in connection with the Plan pursuant to notification of termination benefits to fourteen affected employees. As of June 30, 2016, the Company had paid out approximately $486,000 of such severance.

Accounting for restructuring activities, as compared to regular operating cost management activities, requires an evaluation of formally committed and approved plans. Restructuring activities have comparatively greater strategic significance and materiality and may involve exit activities, whereas regular cost containment activities are more tactical in nature and are rarely characterized by formal and integrated action plans or exiting a particular product, facility or service.

Note 12: 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.

Changes in the Company's warranty liability (included in accrued expenses) for the three and nine month periods ended June 30, 2016 and 2015 were as follows:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2016			2015			2016			2015
Balance at beginning of period	$	650,000		$	836,000		$	650,000		$	849,000
Provision for warranties	106,000			117,000			324,000			366,000
Expenses incurred	(106,000		)	(120,000		)	(324,000		)	(382,000		)
Balance at end of period	$	650,000		$	833,000		$	650,000		$	833,000

Note 13: Operating Facility Sale

In January 2016, the Company sold its United Kingdom based operating facility at a gross sales price of $1.5 million. The facility was classified as an asset held for sale in the accompanying consolidated balance sheets as of September 30, 2015. A gain of approximately $785,000 was recognized on the sale in the March 31, 2016 quarter after factoring in selling and transaction costs.

Note 14: Credit Agreement

On March 4, 2016, the Company entered into a Credit Agreement (the “Agreement”) with NIL Funding Corporation to provide a $3 million revolving line of credit for working capital purposes. The Agreement provides for a borrowing formula based upon eligible accounts receivable and is secured by a first priority security interest in substantially all of the Company’s assets. Borrowings under the Agreement bear interest at a rate of 6.75% per annum. The Agreement also provides for an initial commitment fee of $37,500, which was paid at closing, as well as an unused commitment fee equal to .5% per annum. The Agreement includes provisions that are customarily found in similar financing agreements, but does not include any financial covenants. NIL Funding Corporation is an affiliate of The InterTech Group, whose Executive Vice President and Chief Operating Officer, Julian A. Tiedemann, serves as the Chairman of the Company’s Board of Directors. As of June 30, 2016, outstanding borrowings under the Agreement were $1,750,000.

On August 18, 2016, the Company entered into an Amended and Restated Credit Agreement (the “Amended Agreement”) with NIL Funding Corporation which increased the $3 million revolving line of credit to $6 million. This facility, as amended, matures on October 2, 2018 and consists of two credit lines of $4 million and $2 million which bear interest at rates of 6.95% per annum and 8.25% per annum, respectively. The $4 million line of credit is subject to a borrowing formula based upon eligible accounts receivable. The Amended Agreement also provides for an initial commitment fee of $60,000, which was paid at closing, as well

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as an unused commitment fee equal to .5% per annum. The Amended Agreement includes a financial covenant that requires the Company to maintain a specified minimum tangible net worth, and is otherwise substantially similar to the original Agreement with NIL Funding Corporation.

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

General

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements for the periods indicated, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, bad debts, product warranties, inventories, long lived assets, goodwill and other intangible assets, income taxes and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors including general market conditions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Results for the periods reported herein are not necessarily indicative of results that may be expected in future periods.

Overview

The Company designs, assembles and markets video management systems and system components for use in security, surveillance, safety and communication applications by a broad group of end users worldwide. The Company’s product line consists of various elements of a video system, including DVR's, NVR's, video encoders, decoders, servers and related video management software, data storage units, analog, digital and HD megapixel fixed and robotic cameras, virtual and analog matrix video switchers and controls, and system peripherals.

The Company sells video surveillance system components in a highly competitive worldwide marketplace principally to authorized security distributors, dealers and system integrators. Such dealers and integrators typically resell and install the Company’s products directly to end users, among other services. The Company’s sales are principally project based and are largely dependent upon winning projects, construction activities and the timing of funding. Sales will vary from period to period depending upon many factors including seasonal and geographic trends in construction activities and the timing of deliveries due to changes in project schedules and funding. The Company usually does not have a large backlog as its customer orders are typically deliverable within three months or often upon receipt of order.

The Company competes in a market of rapid technology shifts which enhance the performance capability of security systems. As a result, the Company spends a significant amount on new product development. In fiscal 2015 and 2014, the Company incurred $5.1 million and $4.6 million of engineering and development expense or 11% and 13% of net sales, respectively. The Company’s expenditures for product development are substantially less than its major competitors. The ongoing market shift to IP based products and network technologies will continue to burden the Company’s development resources and increase ongoing annual expense for product development. Further, the Company’s sales effort requires a high level of customer service and technical support for its products. The Company routinely considers various strategic options that may augment or supplement its present product offerings and technology platforms.

The Company has a foreign sales and distribution subsidiary in Europe that conducts business in British pounds and Euros that represented approximately 20% of the Company’s consolidated sales for fiscal 2015. It also has an Israel based engineering and development subsidiary that incurs a majority of its operating expenses in Shekels that represented approximately 16% of the Company’s operating expenses for fiscal 2015. The Company has historically entered into selected forward currency exchange contracts during favorable exchange rate conditions to help stabilize the impact of changing exchange rates and will consider doing so in the future, financing permitted. However, such hedging activities cannot entirely eliminate the long term effects of foreign currency exchange movements.

The Company continues to incur operating losses due to decreased revenue levels and ongoing strategic investments. Refer to the Liquidity and Capital Resources section for further discussion.

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Results of Operations

Three Months Ended June 30, 2016 Compared with June 30, 2015

Net sales for the quarter ended June 30, 2016 decreased by $2.2 million (19%) to $9.5 million compared with $11.7 million in the year ago period. Sales in the Americas decreased $2.5 million (26%) to $7.0 million compared with $9.5 million in the year ago period, while Europe, Middle East and Africa (EMEA) sales increased $313,000 (14%) to $2.5 million compared with $2.2 million in the year ago period. The Americas market segment was negatively impacted by certain camera line production issues. Order intake for the quarter ended June 30, 2016 decreased by $2.6 million (23%) to $8.9 million compared with $11.5 million in the year ago period. Americas order intake decreased by $3.5 million (37%) to $5.9 million compared with $9.4 million in the year ago period, while EMEA order intake increased 40% to $3.0 million compared with $2.1 million in the year ago period. The backlog of unfilled orders was $1.9 million at June 30, 2016 compared with $2.4 million at September 30, 2015.

Gross profit margins were 40.0% for both the quarter ended June 30, 2016 and the year ago period.

Operating expenses for the third quarter of fiscal 2016 decreased $859,000 to $4.6 million compared with $5.5 million for the year ago period. Selling, general and administrative (SG&A) expenses for the current quarter decreased $825,000 to $3.3 million compared with $4.2 million in the year ago period. Such decreases included the effects of planned staff and other cost reduction initiatives. Engineering and development expenses decreased $33,000 to $1.3 million for the current quarter compared with $1.3 million for the year ago period. The Company continued to fund the development and test of its next generation video management system solution that is scheduled to first launch in October 2016.

The Company incurred an operating loss of $818,000 for the third quarter of fiscal 2016 compared with an operating loss of $800,000 in the year ago period.

The Company incurred interest expense of $25,000 for the third quarter of fiscal 2016 relating to borrowings under its revolving credit agreement.

The Company provides for a valuation allowance against its deferred tax assets due to the uncertainty of future realization and, thus, no tax benefit has been recognized on reported pretax losses for both periods (see Note 9: Income Taxes).

As a result of the foregoing, the Company reported a net loss of $843,000 for the third quarter of fiscal 2016 compared with a net loss of $800,000 in the year ago period.

Results of Operations

Nine Months Ended June 30, 2016 Compared with June 30, 2015

Net sales for the nine months ended June 30, 2016 decreased by $3.7 million (12%) to $28.4 million compared with $32.1 million in the year ago period. Sales in the Americas decreased $3.4 million (14%) to $21.7 million compared with $25.1 million in the year ago period, while Europe, Middle East and Africa (EMEA) sales decreased $331,000 (5%) to $6.7 million compared with $7.0 million in the year ago period. Order intake for the nine months ended June 30, 2016 decreased by $5.8 million (17%) to $27.9 million compared with $33.7 million in the year ago period. Americas order intake decreased by $5.8 million (22%) to $21.1 million compared with $26.9 million in the year ago period while EMEA order intake was $6.8 million for both the current and year ago periods.

Gross profit margins for the nine months ended June 30, 2016 decreased to 37.7% compared with 38.4% in the year ago period principally due to the recognition of $150,000 (0.5%) of additional inventory provisions relating to the rework and transition of the Company's IQinVision camera line to a new contract manufacturing partner.

Operating expenses for the nine months ended June 30, 2016 increased $4.0 million to $21.0 million compared with $17.0 million for the year ago period due principally to a $6.0 million writeoff of goodwill in the current year period. The prior year period included $573,000 of severance charges in connection with a merger related integration and restructuring plan. Excluding the effects of the current year period goodwill writeoff and the prior year period severance charges, operating expenses decreased $1.5 million in the current year period. Selling, general and administrative (SG&A) expenses for the current year period decreased $1.4 million to $11.0 million compared with $12.4 million in the year ago period. This decrease included the effects of planned staff and other cost reduction initiatives. Engineering and development expenses decreased $75,000 to $4.0 million for the current year period compared with $4.0 million for the year ago period.

The Company incurred an operating loss of $10.2 million for the first nine months of fiscal 2016 compared with an operating loss of $4.6 million in the year ago period.

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The Company recorded a gain on the sale of its United Kingdom based operating facility of $785,000 in the first nine months of fiscal 2016.

As a result of the foregoing, the Company reported a net loss of $9.5 million for the first nine months of fiscal 2016 compared with a net loss of $4.8 million in the year ago period.

Liquidity and Capital Resources

Net cash used in operating activities was $3.7 million for the first nine months of fiscal 2016, which included a $3.2 million net loss net of non-cash charges. Cash generated by a $3.0 million decrease in accounts receivable was fully offset by the paydown of trade accounts payable and accrued expenses. Net cash provided by investing activities was $1.4 million for the first nine months of fiscal 2016 which included $1.5 million of proceeds received from the sale of the Company's United Kingdom operating facility. Net cash provided by financing activities was $1.8 million for the first nine months of fiscal 2016 consisting principally of revolving credit line borrowings. As a result of the foregoing, cash (exclusive of marketable securities) decreased by $395,000 for the first nine months of fiscal 2016 after the effect of exchange rate changes on the cash position of the Company.

The Company continues to incur operating losses due to decreased revenue levels and ongoing strategic investments. Since 2012, the Company has made a significant investment in the development of a completely new, and strategically critical, video management system (VMS). The first release of this product offering is scheduled for Fall 2016 and is ultimately expected to significantly enhance the Company’s market competitiveness. The funding of this major development effort has contributed to the ongoing operating losses and depletion of cash reserves. The Company has also encountered issues with certain of its camera offerings that has negatively impacted its revenues during the last six months. Although these issues have been substantially resolved, their market impact may linger throughout the balance of this fiscal year. In response, a cost restructuring plan has been implemented, which will phase in material operating expense reductions over the remaining quarter of fiscal 2016. This measure is not anticipated to eliminate near term loss levels as the Company must continue funding of its upcoming new VMS product launch.

At June 30, 2016, the Company had $2.0 million of cash reserves and $1.25 million of borrowings available under its asset based credit facility, which is subject to a borrowing formula. Cash losses over the past several years have been financed in part by the sale of the Company’s two principal operating facilities and ongoing management of working capital levels. Subsequent to quarter end, the Company amended and restated its credit facility to increase its existing $3 million credit facility to $6 million and extend its term through October 2018 (see Note 14: Credit Agreement). The Company presently expects to continue to draw on its credit facility to finance its near term working capital needs. Based upon these plans, the Company presently believes that it will have sufficient cash to meet its anticipated operating cost and capital expenditure requirements for at least the next twelve months.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have, a material effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

The Company's significant accounting policies are fully described in Note 1 to the Company's consolidated financial statements included in its September 30, 2015 Annual Report on Form 10-K. 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.

Revenue is generally recognized when products are sold and title is passed to the customer. Advance service billings are deferred and recognized as revenues on a pro rata basis over the term of the service agreement. Pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605-25-05, the Company evaluates multiple-element revenue arrangements for separate units of accounting, and follows appropriate revenue recognition policies for each separate unit. Elements are considered separate units of accounting provided that (i) the delivered item has stand-alone value to the customer, (ii) there is objective and reliable evidence of the fair value of the undelivered item, and (iii) if a general right of return exists relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially within the control of the Company. As applied to the Company, under arrangements involving the sale of product and the provision of

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services, product sales are recognized as revenue when the products are sold and title is passed to the customer, and service revenue is recognized as services are performed.

For products that include software and for separate licenses of the Company’s software products, the Company recognizes revenue in accordance with the provisions of FASB Accounting Standards Update (ASU) 2009-13, “Revenue Recognition (Topic 605) - Multiple-Deliverable Revenue Arrangements” (ASU 2009-13). ASU 2009-13 provides revenue recognition guidance for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable in the arrangement based on the fair value of the elements. The fair value for each deliverable is based on vendor-specific objective evidence ("VSOE") if available, third-party evidence ("TPE") if VSOE is not available, or best estimate of selling price ("BESP") if neither VSOE nor TPE is available. BESP must be determined in a manner that is consistent with that used to determine the price to sell the specific elements on a standalone basis.

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 writes down its inventory for estimated obsolescence and slow moving inventory equal to the difference between the carrying 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 evaluates the establishment of technological feasibility of its software in accordance with ASC 985 ("Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"). The Company has determined that technological feasibility for its new products is reached shortly before products are released for field testing. Costs incurred after technological feasibility has been established have not been material and are expensed as incurred.

The Company assesses the recoverability of the carrying value of its long-lived and intangible assets 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 goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in the recent business combination. Goodwill is not amortized and is tested for impairment at least annually. When evaluating goodwill for impairment, the Company may first perform an assessment of qualitative factors to determine if the fair value of the reporting unit is more-likely-than-not greater than its carrying amount. If, based on the review of the qualitative factors, the Company determines it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying value, the required two-step impairment test can be bypassed. If the Company does not perform a qualitative assessment or if the fair value of the reporting unit is not more-likely-than-not greater than its carrying value, the Company must perform the first step of the two-step impairment test, and calculate the estimated fair value of the reporting unit. If the carrying value of the reporting unit exceeds the estimated fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss. The amount of impairment for goodwill is measured as the excess of its carrying amount over its fair value. The Company conducted an impairment test at March 31, 2016 using the income approach and determined that its goodwill carrying value was fully impaired. As a result, the Company recorded an impairment charge of $6.0 million in the quarter ended March 31, 2016. This noncash charge was principally based upon an updated assessment of the Company's continuing depressed market valuation and operating losses.

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 provides for a valuation allowance against all deferred tax assets due to the uncertainty of future realization. The Company plans to provide a full valuation allowance against its deferred tax assets until such time that it can achieve a sustained level of profitability or other positive evidence arises that would demonstrate an ability to recover such assets.

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The Company accrues liabilities for identified tax contingencies that result from positions that are being challenged or could be challenged by tax authorities. The Company believes that its accrual for tax liabilities is adequate for all open years, based on Management’s assessment of many factors, including its interpretations of the tax law and judgments about potential actions by tax authorities. However, it is possible that the ultimate resolution of any tax audit may be materially greater or lower than the amount accrued.

The Company is subject to proceedings, lawsuits and other claims related to labor, product and other matters. The Company assesses the likelihood of an adverse judgment or outcomes for these matters, as well as the range of potential losses. A determination of the reserves required, if any, is made after careful analysis. The required reserves may change in the future due to new developments.

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

Statements in this Report on Form 10-Q that are not strictly historical facts including, without limitation, statements included under the “Management’s Discussion and Analysis” caption, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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 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 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation referred to above that occurred during the quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

None

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable

ITEM 5 - OTHER INFORMATION

On August 18, 2016, the Company entered into an Amended and Restated Credit Agreement with NIL Funding Corporation which increased the $3 million revolving line of credit to $6 million. The facility, as amended, matures on October 2, 2018. For additional information, see Note 14: Credit Agreement, above.

ITEM 6 – EXHIBITS



Exhibit Number	Description
10.1	Amended and Restated Credit Agreement between the Company and NIL Funding Corporation, dated as of August 18, 2016
10.2	Amended and Restated Revolving Line of Credit Note (Facility A) between the Company and NIL Funding Corporation, dated as of August 18, 2016
10.3	Revolving Line of Credit Note (Facility B) between the Company and NIL Funding Corporation, dated as of August 18, 2016
31	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

*	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

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Signatures

Pursuant to the requirements of the Securities and 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.

August 22, 2016

/s/ John M. Badke

John M. Badke

Interim Chief Executive Officer,

Senior Vice President, Finance and

Chief Financial Officer

EXHIBIT 10.1

THIS CREDIT AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT AND/OR §15-48-10 OF THE SOUTH CAROLINA CODE OF LAWS (1976), AS AMENDED .

AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is entered into as of August 18, 2016, by and between Vicon Industries, Inc., a New York corporation ("Borrower"), and NIL Funding Corporation, a Delaware corporation ("Lender").

RECITALS

Borrower and Lender executed that certain Credit Agreement, dated as of March 4, 2016 (the "Original Credit Agreement").

Borrower and Lender desire to amend and restate the Original Credit Agreement in its entirety.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Original Credit Agreement is hereby amended and restated in its entirety with the following:

ARTICLE I

CREDIT TERMS

SECTION 1.1. FACILITY A LINE OF CREDIT.

(a) Line of Credit A . Subject to the terms and conditions of this Agreement, Lender hereby agrees to make advances to Borrower from time to time, but in no event after October 2, 2018, not to exceed at any time the aggregate principal amount of Four Million and No/100 Dollars ($4,000,000.00) ("Facility A Line of Credit"), the proceeds of which shall be used for working capital purposes. Borrower's obligation to repay advances under the Facility A Line of Credit shall be evidenced by an amended and restated promissory note of even date herewith ("Facility A Line of Credit Note"), all terms of which are incorporated herein by this reference.

(b) Limitation on Facility A Borrowings . Outstanding borrowings under the Facility A Line of Credit, to a maximum of the principal amount set forth above, shall not at any time exceed an aggregate of Eighty Five and No/100 percent (85.0%) of Borrower's eligible accounts receivable that are less than sixty (60) days old, plus Sixty and No/100 percent (60.0%) of Borrower's eligible accounts receivable that are between sixty (60) and ninety (90) days old, plus Fifty and No/100 percent (50.0%) of any of Borrower’s eligible accounts receivable which represent an obligation of any state or municipal government or of the United States government or any political subdivision thereof that are less than ninety (90) days old, plus Fifty and No/100 percent (50.0%) of any of Borrower’s eligible accounts receivable which represent an obligation of an account debtor located in a foreign country that are less than ninety (90) days old. All of the foregoing shall be determined by Lender upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Lender may from time to time reasonably require. Borrower acknowledges that said borrowing base was established by Lender with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower's gross sales for said period. If such dilution of Borrower's accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower's gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Lender reasonably believes may affect payment of any portion of Borrower's accounts, Lender, in its sole discretion, may reduce the foregoing advance rate against eligible accounts receivable to a percentage

appropriate to reflect such additional dilution and/or establish additional reserves against Borrower's eligible accounts receivable.

As used herein, "eligible accounts receivable" shall consist solely of trade accounts created in the ordinary course of Borrower's business, upon which Borrower's right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which Lender has a perfected security interest of first priority, and shall not include:

(i) any account that has been outstanding more than 90 days from the date of the invoice;

(ii) that portion of any account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted;

(iii) [Intentionally Left Blank];

(iv) [Intentionally Left Blank];

(v) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, member, parent or subsidiary of Borrower;

(vi) that portion of any account, which represents interim or progress billings or retention rights on the part of the account debtor;

(vii) any account which represents an obligation of any account debtor when twenty percent (20%) or more of Borrower's accounts from such account debtor are not eligible pursuant to (i) above;

(viii) that portion of any account from an account debtor which represents the amount by which Borrower's total accounts from said account debtor exceeds twenty-five percent (25%) of Borrower's total accounts;

(ix) any account deemed ineligible by Lender when Lender, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory.

(c) Borrowing and Repayment . Borrower may from time to time during the term of the Facility A Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Facility A Line of Credit Note; provided however, that the total outstanding borrowings under the Facility A Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above.

(c) Original Credit Agreement . Borrower and Lender acknowledge and agree that outstanding advances made prior to the date hereof under the Original Credit Agreement shall constitute advances under the Facility A Line of Credit and shall be evidenced by the Facility A Line of Credit Note.

SECTION 1.2. FACILITY A INTEREST/FEES.

(a) Interest . The outstanding principal balance of the Facility A Line of Credit shall bear interest at the rate of Six and 95/100 percent (6.95%) per annum.

(b) Commitment Fee . Borrower shall pay to Lender a non-refundable commitment fee for the Facility A Line of Credit equal to Forty Thousand and No/100 Dollars ($40,000.00), which fee shall be due and payable in full on the date hereof.

(c) Unused Commitment Fee . Borrower shall pay to Lender a fee equal to Zero and 50/100 percent (0.5%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the daily unused amount of the Facility A Line of Credit, which fee shall be calculated on a monthly basis by Lender and shall be due and payable by Borrower in arrears on the 1st day of each month, commencing on September 1, 2016.

SECTION 1.3. FACILITY B LINE OF CREDIT. Subject to the terms and conditions of this Agreement, Lender hereby agrees to make advances to Borrower from time to time, but in no event after October 2, 2018, not to exceed at any time the aggregate principal amount of Two Million and No/100 Dollars ($2,000,000.00) ("Facility B Line of Credit"), the proceeds of which shall be used for working capital purposes. Borrower's obligation to repay advances under the Facility B Line of Credit shall be evidenced by a promissory note of even date herewith ("Facility B Line of Credit Note"), all terms of which are incorporated herein by this reference.

SECTION 1.4. FACILITY B INTEREST/FEES.

(a) Interest . The outstanding principal balance of the Facility B Line of Credit shall bear interest at the rate of Eight and 25/100 percent (8.25%) per annum.

(b) Commitment Fee . Borrower shall pay to Lender a non-refundable commitment fee for the Facility B Line of Credit equal to Twenty Thousand and No/100 Dollars ($20,000.00), which fee shall be due and payable in full on the date hereof.

(c) Unused Commitment Fee . Borrower shall pay to Lender a fee equal to Zero and 50/100 percent (0.5%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the daily unused amount of the Facility B Line of Credit, which fee shall be calculated on a monthly basis by Lender and shall be due and payable by Borrower in arrears on the 1st day of each month, commencing on September 1, 2016.

SECTION 1.5. COLLATERAL. As security for all indebtedness and other obligations of Borrower to Lender, Borrower hereby grants to Lender security interests of first priority in all Borrower's personal property.

All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, and other documents as Lender shall reasonably require, all in form and substance satisfactory to Lender. Borrower shall pay to Lender immediately upon demand the full amount of all charges, costs and expenses (to include fees paid to third parties), expended or incurred by Lender in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance.

SECTION 1.6 GUARANTIES. The payment and performance of all indebtedness and other obligations of Borrower to Lender arising under the Facility A Line of Credit, the Facility B Line of Credit, and this Agreement shall be guaranteed jointly and severally by IQin Vision, Inc. ("IQin") and any other subsidiary of Borrower that is organized or incorporated in a jurisdiction in the United States of America.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Borrower makes the following representations and warranties to Lender, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Lender subject to this Agreement.

SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of New York, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required except where the failure to so qualify or to be so licensed would not have a material adverse effect on Borrower.

SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, guaranty, instrument and other document required hereby or at any time hereafter delivered to Lender in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms.

SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound, except for any such violation, breach or default which would not have a material adverse effect on Borrower.

SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Lender in writing prior to the date hereof.

SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The annual financial statements of Borrower for the year ended September 30, 2015, and all interim financial statements delivered to Lender since said date, true copies of which have been delivered or made available by Borrower to Lender prior to the date hereof, (a) are complete and correct and present fairly the financial condition of Borrower, (b) disclose all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared in accordance with generally accepted accounting principles consistently applied. Since the dates of such financial statements there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Lender or as otherwise permitted by Lender in writing.

SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year.

SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower.

SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all material permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law.

SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles.

SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation.

SECTION 2.11. ENVIRONMENTAL MATTERS. Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund

Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.

ARTICLE III

CONDITIONS

SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Lender to extend any credit contemplated by this Agreement is subject to the fulfillment to Lender's satisfaction of all of the following conditions:

(a) Approval of Lender Counsel . All legal matters incidental to the extension of credit by Lender shall be satisfactory to Lender's counsel.

(b) Documentation . Lender shall have received, in form and substance satisfactory to Lender, each of the following, duly executed:

(i) This Agreement and each promissory note or other instrument or document required hereby.

(ii) The Amendment to Security Agreement;

(iii) A Guaranty Agreement executed by IQin;

(iv) (A) a certificate of the Secretary of Borrower certifying the current Articles of Incorporation and Bylaws of Borrower; (B) a true and complete copy of resolutions adopted by the Board of Directors of Borrower; and (C) a certificate executed by the Secretary of Borrower certifying as to the incumbency and genuineness of the signature of each officer of the Borrower;

(v) (A) a certificate of the Secretary of IQin certifying the current Articles of Incorporation and Bylaws of IQin; (B) a true and complete copy of resolutions adopted by the Board of Directors of IQin; and (C) a certificate executed by the Secretary of IQin, certifying as to the incumbency and genuineness of the signature of each officer of IQin;

(vi) The Lender shall have received certificates as of a recent date of the Borrower's good standing under the laws of each state where the Borrower is incorporated and authorized to transact business;

(vii) The Lender shall have received certificates as of a recent date of IQin’s good standing under the laws of each state where IQin is incorporated and authorized to transact business;

(viii) An opinion of counsel to Borrower and IQin, in form and content reasonably satisfactory to Lender and its counsel; and

(ix) Such other documents as Lender may reasonably require.

(c) Financial Condition . There shall have been no material adverse change, as determined by Lender, in the financial condition or business of Borrower or any of its subsidiaries, nor any material decline, as determined by Lender, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any of its subsidiaries.

SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Lender to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Lender's satisfaction of each of the following conditions:

(a) Compliance . The representations and warranties contained herein and in each of the other Loan Documents shall be true in all material respects on and as of the date of the signing of this Agreement and on the date of each extension of credit by Lender pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no

condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist.

(b) Documentation . Lender shall have received all additional documents which may be required in connection with such extension of credit.

ARTICLE IV

AFFIRMATIVE COVENANTS

Borrower covenants that so long as Lender remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Lender under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Lender otherwise consents in writing:

SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Lender, the amount by which the outstanding principal balance of any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto.

SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Lender, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower.

SECTION 4.3. FINANCIAL STATEMENTS. Provide to Lender all of the following, in form and detail satisfactory to Lender:

(a) not later than thirty (30) days after and as of the end of each fiscal quarter of Borrower, a financial statement of Borrower, prepared by Borrower, to include balance sheet, income statement and statement of cash flows and sources;

(b) not later than ten (10) days after and as of the end of each month, a borrowing base certificate, in the form attached hereto as Exhibit A , an aged listing of accounts receivable and accounts payable, and a reconciliation of accounts, and immediately upon each request from Lender, a list of the names and addresses of all Borrower's account debtors; and

(c) not later than thirty (30) days after and as of the end of each fiscal quarter of Borrower, a compliance certificate, signed by an officer of Borrower, certifying and evidencing compliance with the financial covenant contained in Section 4.9 below.

SECTION 4.4. COMPLIANCE. Preserve and maintain all material licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply in all material respects with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business.

SECTION 4.5. INSURANCE. Maintain and keep in force, for each business in which Borrower is engaged, insurance of the types and in amounts customarily carried in similar lines of business, including but not limited to fire, extended coverage, public liability, flood, and, if required, seismic property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Lender, and deliver to Lender from time to time at Lender's request schedules setting forth all insurance then in effect, together with a lender’s loss payee endorsement for all such insurance naming Lender as a lender loss payee.

SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.

SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Lender's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment.

SECTION 4.8. LITIGATION. Promptly give notice in writing to Lender of any litigation pending or threatened against Borrower with a claim in excess of Ten Thousand and No/100 Dollars ($10,000.00).

SECTION 4.9. MINIMUM TANGIBLE NET WORTH. Borrower shall maintain on a consolidated basis a Minimum Tangible Net Worth equal to at least Five Million and No/100 Dollars ($5,000,000.00). “Minimum Tangible Net Worth” means the value of total assets (on the basis of the lower of cost or market) (including leaseholds and leasehold improvements and reserves against assets but excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors, employees, shareholders, members or managers) less total liabilities, including but not limited to accrued and deferred income taxes, but excluding the non-current portion of Subordinated Liabilities. “Subordinated Liabilities” means liabilities subordinated to the Borrower’s obligations to the Lender in a manner acceptable to the Lender in its sole discretion.

SECTION 4.10. NOTICE TO LENDER. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Lender in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of an aggregate of Thirty Five Thousand and No/100 Dollars ($35,000.00).

ARTICLE V

NEGATIVE COVENANTS

Borrower further covenants that so long as Lender remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Lender under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, neither Borrower nor any of Borrower’s subsidiaries, will without Lender's prior written consent, which may be withheld in Lender’s sole and absolute discretion:

SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof.

SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any calendar year in excess of an aggregate of Four Hundred Thousand and No/100 Dollars ($400,000.00).

SECTION 5.3. LEASE EXPENDITURES. Incur operating lease expense in any calendar year in excess of an aggregate of Eight Hundred Thousand and No/100 Dollars ($800,000.00)

SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Lender, (b) any other liabilities of

Borrower existing as of, and disclosed to Lender prior to, the date hereof, and (c) unsecured indebtedness of Borrower subordinated to Borrower’s indebtedness to Lender on terms acceptable to Lender in its sole and absolute discretion.

SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of assets except in the ordinary course of its business; provided however, that any subsidiary of Borrower may merge into, or transfer its assets to, Borrower or any other subsidiary of Borrower.

SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Lender.

SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity other than to any direct or indirect subsidiary of Borrower.

SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of assets now owned or hereafter acquired, except any of the foregoing in favor of Lender or which is existing as of, and disclosed to Lender in writing prior to, the date hereof.

SECTION 5.9 SUBSIDIARY DIVESTITURE. Sell, pledge, encumber, or otherwise assign any shares of stock or other interest in any subsidiary.

ARTICLE VI

EVENTS OF DEFAULT

SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement:

(a) Borrower shall fail to pay within three (3) business days when due any principal, interest, fees or other amounts payable under any of the Loan Documents.

(b) Any financial statement or certificate furnished to Lender in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made.

(c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those specifically described as an “Event of Default” in this section 6.1) which is not cured within ten (10) business days following notice from Lender of such default, except for any default in the performance of or compliance with any obligation contained in Section 1.1(b) hereof, which must be cured immediately.

(d) Any default in the payment or performance of any obligation in excess of $100,000, or any defined event of default, under the terms of any contract, instrument or document (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability in excess of $100,000 to any person or entity, including Lender.

(e) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or Borrower

shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.

(f) The filing of a notice of judgment lien in excess of $100,000 against Borrower; or the recording of any abstract of judgment in excess of $100,000 against Borrower in any county in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower; or the entry of a judgment against Borrower in excess of $100,000; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, in each case, which is not lifted or discharged within 60 days of filing.

(g) The dissolution or liquidation of Borrower or any of its subsidiaries, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower.

SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Lender's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Lender to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Lender shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Lender may be exercised at any time by Lender and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

ARTICLE VII

MISCELLANEOUS

SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Lender in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Lender of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.

SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:

BORROWER:

Vicon Industries, Inc.

135 Fell Court

Hauppauge, New York 11788

Attention: John M. Badke

jbadke@vicon-security.com

LENDER:

NIL Funding Corporation

4838 Jenkins Avenue

North Charleston, South Carolina 29405

Attention: Michael Bender, Esq.

(843) 202-4325

benderm@intertechsc.com

or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.

SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Lender immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside and in-house counsel fees), expended or incurred by Lender in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Lender's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Lender's rights and/or the collection of any amounts which become due to Lender under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Lender or any other person) relating to Borrower or any other person or entity.

SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interests or rights hereunder without Lender's prior written consent. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender's rights and benefits under each of the Loan Documents. In connection therewith, Lender may disclose all documents and information which Lender now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, any guarantor hereunder or the business of such guarantor, if any, or any collateral required hereunder.

SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Lender with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto.

SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.

SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.

SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement.

SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement.

SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina.

SECTION 7.11. ARBITRATION.

(a) Arbitration . The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the Loan Documents, and their negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit. In the event of a court ordered arbitration, the party requesting arbitration shall be responsible for timely filing the demand for arbitration and paying the appropriate filing fee within 30 days of the abatement order or the time specified by the court. Failure to timely file the demand for arbitration as ordered by the court will result in that party’s right to demand arbitration being automatically terminated.

(b) Governing Rules . Any arbitration proceeding will (i) proceed in a location in South Carolina selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to herein, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a lender of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure . The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before, during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers . Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of South Carolina or a neutral retired judge of the state or federal judiciary of South Carolina, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of South Carolina and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the South Carolina Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any

court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery . In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations . No party hereto shall be entitled to join or consolidate disputes by or against others in any arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity.

(g) Payment Of Arbitration Costs And Fees . The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Miscellaneous . To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

(i) Small Claims Court . Notwithstanding anything herein to the contrary, each party retains the right to pursue in Small Claims Court any dispute within that court’s jurisdiction. Further, this arbitration provision shall apply only to disputes in which either party seeks to recover an amount of money (excluding attorneys’ fees and costs) that exceeds the jurisdictional limit of the Small Claims Court.

SECTION 7.12 WAIVER OF JURY TRIAL. WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO ARBITRATE ANY DISPUTE AS SET FORTH HEREIN, TO THE EXTENT ANY DISPUTE IS NOT SUBMITTED TO ARBITRATION OR IS DEEMED BY THE ARBITRATOR OR BY ANY COURT WITH JURISDICTION TO BE NOT ARBITRABLE OR NOT REQUIRED TO BE ARBITRATED, BORROWER AND LENDER WAIVE TRIAL BY JURY IN RESPECT OF ANY SUCH DISPUTE AND ANY ACTION ON SUCH DISPUTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND LENDER, AND BORROWER AND LENDER HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS. BORROWER AND LENDER ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL. BORROWER FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, with the intention that it constitute an instrument under seal, as of the day and year first written above.

Vicon Industries, Inc.

By: /s/ John M. Badke

Name: John M. Badke

Its:CFO

NIL Funding Corporation

By: /s/ Michael Bender

Name: Michael Bender

Its: Secretary

Exhibit A



Borrowing Base Certificate

Lender		NIL Funding Corporation
Borrower:		Vicon Industries, Inc.
Credit Agreement Date
Facility A Line of Credit		$4,000,000

	For the Month ending


	Dilution
	Gross Sales (preceding 3 months)				1

	Sales reductions (preceding 3 months)
		Returns	a
		Rebates	b
		Discounts	c
		Credits	d
		Allowances	e
					2	0

	Dilution as a % of sales. Should not exceed 5%				3

	Accounts Receivable
	Gross Accounts Receivable:				4
		(net of distribution channel contractual rebates)

	Ineligibles, as defined in Section 1.1 (b)
	i.	Accounts over 90 days	a
	ii.	Setoff, defense or discounts	b
	iii.	U.S. Government accounts (50% ineligible)	c
	iv.	Foreign Accounts Receivable (50% ineligible)	d
	v.	Related affiliate/Employee	e
	vi.	Interim or progress billings	f
	vii.	Cross aging 90 days over 20%	g
	viii.	Excess 25% concentration	h
	ix.	Deemed ineligible by lender	i

		Total ineligibles			5	0

	Total Eligible Accounts Receivable, as defined in Section 1.1 (b)				6	0

	Funds available
	Eligible Accounts Receivable less than 60 days old		a
				85%	7	0

	Eligible Accounts Receivable between 60 and 90 days old		b
				60%	8	0

	US Government Receivables less than 90 days (50% eligible)
			c	50%	9	0

	Receivables from foreign accounts less than 90 days (50% eligible)
			d	50%	10	0

	Total Eligible for borrowing				11	0



Maximum borrowing (not to exceed $4,000,000)		12	0

Facility A Line of credit outstanding		13
Borrowing availability ( Facility A Line of Credit)		14	0

Additional borrowing Requested (not to exceed line 14)		15	0


Tangible Net Worth as of month end date (minimum $5,000,000)		16
Covenant met?

For purposes of securitizing credit from NIL Funding Corporation, we hereby certify that the above schedules are complete and correct.



Signature	Date

EXHIBIT 10.2

THIS AMENDED AND RESTATED REVOLVING LINE OF CREDIT NOTE IS SUBJECT TO ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT AND/OR §15-48-10 OF THE SOUTH CAROLINA CODE OF LAWS (1976), AS AMENDED .

AMENDED AND RESTATED REVOLVING LINE OF CREDIT NOTE

[FACILITY A]

$4,000,000.00

Charleston, South Carolina

August 18, 2016

WHEREAS, Vicon Industries, Inc., a New York corporation, with a principal place of business at 135 Fell Court, Hauppauge, New York 11788 (the “Borrower”), executed that certain Revolving Line of Credit Note in the original principal amount of up to Three Million and No/100 Dollars ($3,000,000.00), dated as of March 4, 2016, in favor of NIL Funding Corporation, a Delaware corporation (“Lender”) at its office at 4838 Jenkins Avenue, North Charleston, South Carolina 29405 (as amended by that certain Amendment to Revolving Line of Credit Note, dated as of May 18, 2016, the “Original Note”).

WHEREAS, Borrower and Lender executed that certain Amended and Restated Credit Agreement of even date herewith (the “Credit Agreement”).

WHEREAS, Borrower and Lender desire to amend and restated the Original Note in its entirety.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Original Note is hereby amended and restated in its entirety with the following:

FOR VALUE RECEIVED, the undersigned Borrower promises to pay to the order of Lender in lawful money of the United States of America and in immediately available funds, the principal sum of Four Million and No/100 Dollars ($4,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein.

This Note is subject to the terms and conditions set forth in that certain Credit Agreement, of even date herewith, by and between Borrower and Lender, as applicable.

INTEREST:

(a) Interest . The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at 6.95% per annum.

(b) [Intentionally Left Blank] .

(c) Payment of Interest . Interest accrued on this Note shall be payable on the first day of each calendar month, commencing September 1, 2016.

(d) Default Interest . From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, or at Lender's option upon the occurrence, and during the continuance of an Event of Default, the outstanding principal balance of this Note shall bear interest at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to three percent (3%) above the rate of interest from time to time applicable to this Note.

(e) Late Charge . If any payment required hereunder or under any contract, instrument and other document related hereto, or at any time hereafter delivered to Lender in connection herewith, is not paid within five (5) days following the date it becomes due, Borrower shall pay a late charge equal to the greater of five percent (5%) of the amount of such unpaid payment or Two Hundred Fifty and No/100 Dollars ($250.00)

BORROWING AND REPAYMENT:

(a) Borrowing and Repayment . Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note (including, without limitation, the Credit Agreement); provided however, that the total outstanding borrowings under this Note shall never exceed those permitted by the Credit Agreement. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on October 2, 2018, or such earlier date as may be required pursuant to the terms of the Credit Agreement (the “Maturity Date”). In addition, the Borrower shall repay the principal balance of this Note to the extent required in Section 1.1 of the Credit Agreement.

(b) Advances . Advances hereunder, into an account of Borrower, to the total amount of the principal sum permitted hereby, in amounts of no less than One Hundred Thousand and No/100 Dollars ($100,000.00) may be made by the holder at the oral or written request of (i) John M. Badke or Thomas Hamilton, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower.

(c) Application of Payments . Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof.

EVENTS OF DEFAULT:

This Note is made pursuant to and is subject to the terms and conditions of the Credit Agreement. Any default in the payment or performance of any obligation under this Note, subject to any cure period provided for in the Credit Agreement, or any defined event of default under the Credit Agreement, shall constitute an “Event of Default” under this Note.

MISCELLANEOUS:

(a) Remedies . Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Lender or any other person) relating to Borrower or any other person or entity.

(b) Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of South Carolina.

[remainder of page left intentionally blank - additional provisions and signature page(s) to follow]

IN WITNESS WHEREOF, the undersigned has executed this Note, with the intention that it constitute an instrument under seal, as of the date first written above.

Vicon Industries, Inc.

By: /s/ John M. Badke

Name: John M. Badke

Its: CFO

EXHIBIT 10.3

THIS REVOLVING LINE OF CREDIT NOTE IS SUBJECT TO ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT AND/OR §15-48-10 OF THE SOUTH CAROLINA CODE OF LAWS (1976), AS AMENDED .

REVOLVING LINE OF CREDIT NOTE

[FACILITY B]

$2,000,000.00

Charleston, South Carolina

August 18, 2016

FOR VALUE RECEIVED, the undersigned Vicon Industries, Inc., a New York corporation, with a principal place of business at 135 Fell Court, Hauppauge, New York 11788 (the “Borrower”) promises to pay to the order of NIL Funding Corporation (“Lender”) at its office at 4838 Jenkins Avenue, North Charleston, South Carolina 29405, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Two Million and No/100 Dollars ($2,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein.

This Note is subject to the terms and conditions set forth in that certain Amended and Restated Credit Agreement, of even date herewith, by and between Borrower and Lender, as applicable (the “Credit Agreement”).

INTEREST:

(a) Interest . The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at 8.25% per annum.

(b) [Intentionally Left Blank] .

(c) Payment of Interest . Interest accrued on this Note shall be payable on the first day of each calendar month, commencing September 1, 2016.

BORROWING AND REPAYMENT:

(c) Application of Payments . Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof.

EVENTS OF DEFAULT:

MISCELLANEOUS:

(b) Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of South Carolina.

[remainder of page left intentionally blank - additional provisions and signature page(s) to follow]

IN WITNESS WHEREOF, the undersigned has executed this Note, with the intention that it constitute an instrument under seal, as of the date first written above.

Vicon Industries, Inc.

By: /s/ John M. Badke

Name: John M. Badke

Its: CFO

EXHIBIT 31

CERTIFICATION

I, John M. Badke, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 22, 2016

/s/ John M. Badke

John M. Badke

Interim Chief Executive Officer,

Senior Vice President, Finance and

Chief Financial Officer

EXHIBIT 32

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 quarterly report of Vicon Industries, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John M. Badke, Interim Chief Executive Officer and 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), as applicable, 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.

/s/ John M. Badke

John M. Badke

Interim Chief Executive Officer

Chief Financial Officer

August 22, 2016