-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BonEjueIEXLkcKYFvaRk+R8WIMAWnF7PT5TrtZMhdZZUPdi782dOAoU3AN5y1Pw/ lORHELSWTUvFS3Beth6yqQ== 0000310056-03-000006.txt : 20030814 0000310056-03-000006.hdr.sgml : 20030814 20030814160224 ACCESSION NUMBER: 0000310056-03-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030814 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VICON INDUSTRIES INC /NY/ CENTRAL INDEX KEY: 0000310056 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 112160665 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07939 FILM NUMBER: 03847700 BUSINESS ADDRESS: STREET 1: 89 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5169522288 MAIL ADDRESS: STREET 1: 89 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-Q 1 f10q_81403.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 2003 Commission File No. 1-7939 ------------- ------ Vicon Industries, Inc. ---------------------- New York State 11-2160665 -------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 89 Arkay Drive, Hauppauge, New York 11788 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (631) 952-2288 ------------------ (Former name, address, and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 under the Securities Exchange Act of 1934) Yes No X ------- ------- At June 30 2003, the registrant had outstanding 4,618,762 shares of Common Stock, $.01 par value. PART I - FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS - ----------------------------- VICON INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended 6/30/03 6/30/02 ------- ------- Net sales $13,050,732 $14,274,490 Cost of sales 7,793,890 9,212,820 ----------- ----------- Gross profit 5,256,842 5,061,670 Operating expenses: Selling expense 2,764,499 2,929,144 General & administrative expense 1,067,316 939,951 Engineering & development expense 1,342,116 1,095,889 ----------- ----------- 5,173,931 4,964,984 Operating income 82,911 96,686 Interest expense 52,424 81,757 Interest income (28,524) (31,007) ----------- ----------- Income before income taxes 59,011 45,936 Income tax expense 29,000 18,000 ----------- ----------- Net income $ 30,011 $ 27,936 =========== =========== Earnings per share: Basic $ .01 $ .01 === === Diluted $ .01 $ .01 === === Shares used in computing earnings per share: Basic 4,626,546 4,669,526 Diluted 4,666,371 4,733,552 See Accompanying Notes to Condensed Consolidated Financial Statements. -1- VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (UNAUDITED) Nine Months Ended ----------------- 6/30/03 6/30/02 ------- ------- Net sales $38,150,627 $40,671,462 Cost of sales 24,352,236 26,902,063 ----------- ----------- Gross profit 13,798,391 13,769,399 Operating expenses: Selling expense 8,378,614 8,765,022 General & administrative expense 3,171,339 2,934,704 Engineering & development expense 3,758,677 3,117,226 ----------- ----------- 15,308,630 14,816,952 Operating loss (1,510,239) (1,047,553) Interest expense 184,343 257,808 Interest income (129,799) (138,971) ----------- ----------- Loss before income taxes (1,564,783) (1,166,390) Income tax expense (benefit) (Note 11) 1,838,957 (380,000) ----------- ----------- Loss before cumulative effect of a change in accounting principle (3,403,740) (786,390) Cumulative effect of a change in accounting principle (Note 8) (1,372,606) - ----------- ----------- Net loss $(4,776,346) $ (786,390) =========== =========== Basic and diluted loss per share: Loss before cumulative effect of a change in accounting principle $ (.73) $ (.17) Cumulative effect of a change in accounting principle (.30) - ----------- ----------- Net loss $ (1.03) $ (.17) =========== =========== Shares used in computing loss per share: Basic 4,636,834 4,657,752 Diluted 4,636,834 4,657,752 See Accompanying Notes to Condensed Consolidated Financial Statements. -2- VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- ASSETS 6/30/03 9/30/02 - ------ ------- ------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 6,267,406 $ 9,771,804 Marketable securities 1,558,756 - Accounts receivable, net 10,115,345 10,127,526 Accounts receivable - related parties 43,039 273,464 Inventories: Parts, components, and materials 2,034,754 2,802,779 Work-in-process 2,133,309 1,275,057 Finished products 8,797,376 9,470,823 ----------- ----------- 12,965,439 13,548,659 Recoverable income taxes 1,937,728 1,712,728 Deferred income taxes - 673,574 Prepaid expenses 610,008 496,399 ----------- ----------- TOTAL CURRENT ASSETS 33,497,721 36,604,154 Property, plant and equipment 17,553,809 16,997,129 Less accumulated depreciation and amortization (10,208,743) (9,331,102) ------------ ----------- 7,345,066 7,666,027 Goodwill, net of accumulated amortization - 1,372,606 Deferred income taxes - 1,283,784 Other assets 479,503 499,918 ----------- ----------- TOTAL ASSETS $41,322,290 $47,426,489 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Current maturities of long-term debt 485,379 1,304,227 Accounts payable - trade 1,977,133 1,740,919 Accounts payable - related parties 54,855 643,093 Accrued compensation and employee benefits 1,953,225 1,837,519 Accrued expenses 2,123,797 1,596,288 Unearned revenue 1,378,244 1,514,121 Income taxes payable 142,236 140,741 ----------- ----------- TOTAL CURRENT LIABILITIES 8,114,869 8,776,908 Long-term debt 2,803,998 3,040,061 Unearned revenue 706,591 1,267,337 Other long-term liabilities 792,708 803,476 SHAREHOLDERS' EQUITY Common stock, par value $.01 48,290 48,239 Capital in excess of par value 21,778,012 21,760,002 Retained earnings 7,954,068 12,730,414 ----------- ----------- 29,780,370 34,538,655 Less treasury stock, at cost (950,591) (842,024) Accumulated other comprehensive income (loss) 74,345 (157,924) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 28,904,124 33,538,707 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $41,322,290 $47,426,489 =========== =========== See Accompanying Notes to Condensed Consolidated Financial Statements. -3- VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) Nine Months Ended ----------------- 6/30/03 6/30/02 ------- ------- Cash flows from operating activities: Net loss $(4,776,346) $ (786,390) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 826,169 835,848 Goodwill amortization - 148,839 Stock compensation expense 1,892 23,287 Deferred income taxes 1,853,957 (534,788) Cumulative effect of a change in accounting principle 1,372,606 - Change in assets and liabilities: Accounts receivable 183,649 (818,675) Accounts receivable - related parties 230,425 (137,622) Inventories 675,586 828,414 Recoverable income taxes (225,000) - Prepaid expenses (106,108) (4,506) Other assets 20,415 84,501 Accounts payable - trade 195,033 14,420 Accounts payable - related parties (588,238) (89,091) Accrued compensation and employee benefits 107,029 (380,205) Accrued expenses 502,480 (683,700) Unearned revenue (696,623) (543,873) Income taxes payable (4,976) (326,188) Other liabilities 83,202 10,339 ------------ ----------- Net cash used in operating activities (344,848) (2,359,390) Cash flows from investing activities: Capital expenditures (436,170) (455,991) Purchases of marketable securities (1,555,028) - ------------ ----------- Net cash used in investing activities (1,991,198) (455,991) Cash flows from financing activities: Repayments of U.S. term loan (675,000) (675,000) Repayments of other long-term debt (396,371) (323,428) Proceeds from exercise of stock options 16,169 42,890 Repurchases of common stock (108,567) - _ ------------ ----------- Net cash used in financing activities (1,163,769) (955,538) ------------ ----------- Effect of exchange rate changes on cash (4,583) (86,693) ------------ ----------- Net decrease in cash (3,504,398) (3,857,612) Cash at beginning of year 9,771,804 9,795,148 ------------ ----------- Cash at end of period $ 6,267,406 $ 5,937,536 ============ =========== See Accompanying Notes to Condensed Consolidated Financial Statements. -4- VICON INDUSTRIES, INC. AND SUBSIDIARIES --------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ---------------------------------------------------------------- June 30, 2003 ------------- 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 10-01 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, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2003. 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, 2002. Certain prior year amounts have been reclassified to conform to the current year presentation. Note 2: Marketable Securities - ------------------------------ Marketable securities consist of mutual fund investments in U.S. government debt securities. Such securities are stated at market value and are classified as available-for-sale under Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 115, with unrealized gains and losses reported in other comprehensive income as a component of shareholders' equity. The cost of such securities at June 30, 2003 was $1,555,028, with $4,166 of unrealized gains and $438 of unrealized losses reported for the nine-month period ended. Note 3: Accounts Receivable - ---------------------------- Accounts receivable is stated net of an allowance for doubtful accounts of $1,379,000 and $1,077,000 as of June 30, 2003 and September 30, 2002, respectively. -5- Note 4: Earnings per Share - --------------------------- Basic earnings (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 the exercise of stock options and incremental common shares issuable under a deferred compensation agreement. The following table provides the components of the basic and diluted EPS computations for the three and nine month periods ended June 30, 2003 and 2002: Three Months Nine Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ---- ---- ---- ---- Basic EPS Computation Net income (loss)........... $ 30,011 $ 27,936 $(4,776,346) $ (786,390) Weighted average shares outstanding......... 4,626,546 4,669,526 4,636,834 4,657,752 Basic earnings (loss) per share.................. $ .01 $ .01 $ (1.03) $ (.17) ========== ========== ============ =========== Diluted EPS Computation Net income (loss)........... $ 30,011 $ 27,936 $(4,776,346) $ (786,390) Weighted average shares outstanding....... 4,626,546 4,669,526 4,636,834 4,657,752 Stock compensation arrangement.............. 16,283 10,989 - - Stock options............. 23,542 53,037 - - ---------- ---------- ---------- ---------- Diluted shares outstanding.. 4,666,371 4,733,552 4,636,834 4,657,752 Diluted earnings (loss) per share.................. $ .01 $ .01 $ (1.03) $ (.17) ========== ========== ============ =========== For the nine months ended June 30, 2003 and 2002, 49,748 and 60,330 shares, respectively, have been omitted from the calculation of diluted EPS as their effect would have been antidilutive. Note 5: Comprehensive Income (Loss) - ------------------------------------- The Company's total comprehensive income (loss) for the three and nine month periods ended June 30, 2003 and 2002 was as follows: Three Months Nine Months Ended June 30, Ended June 30, -------------- -------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income (loss) $ 30,011 $ 27,936 $(4,776,346) $(786,390) Other comprehensive income (loss), net of tax: Net unrealized gain (loss) on securities (20) - 3,728 - Unrealized gain (loss) on derivatives (5,366) (52,811) (9,431) 32,975 Foreign currency translation adjustment 257,128 258,075 237,972 122,562 ------------ ---------- ------------ --------- Comprehensive income (loss) $ 281,753 $ 233,200 $(4,544,077) $(630,853) ============ ========== ============ ========= -6- The accumulated other comprehensive income (loss) balances at June 30, 2003 and September 30, 2002 consisted of the following: June 30, September 30, 2003 2002 --------- --------- Foreign currency translation adjustment $ 280,769 $ 42,797 Unrealized loss on derivatives (210,152) (200,721) Unrealized gain on securities 3,728 - ---------- --------- Accumulated other comprehensive income (loss) $ 74,345 $(157,924) ========== ========= Note 6: Segment and Related Information - ----------------------------------------- The Company operates in one industry which encompasses the design, manufacture, assembly and marketing of video surveillance systems and system components for the electronic protection segment of the security industry. The Company manages its business segments primarily on a geographic basis. The Company's principal reportable segments are comprised of its United States (U.S.) and United Kingdom (Europe) based operations. Its U.S. based operations consists of Vicon Industries, Inc., the Company's corporate headquarters and principal operating entity. Its Europe based operations consist of Vicon Industries Limited, a wholly owned subsidiary which markets and distributes the Company's products principally within Europe and the Middle East. Other segments include the operations of Vicon Industries (H.K.) Ltd., a Hong Kong based majority owned subsidiary which markets and distributes the Company's products principally within Hong Kong and mainland China, and TeleSite U.S.A., Inc. and subsidiary, a U.S. and Israeli based designer and producer of digital video products. The Company evaluates performance and allocates resources based on, among other things, the net profit or loss for each segment, excluding intersegment sales and profits. Segment information for the three and nine month periods ended June 30, 2003 and 2002 was as follows: Three Months Ended June 30, 2003 U.S. Europe Other Consolid. Totals - -------------- ---------- ---------- --------- ---------- -------- Net sales to external customers $ 9,358,000 $3,321,000 $ 372,000 $ - $13,051,000 Intersegment net sales 1,534,000 - 928,000 (2,462,000) - Net income (loss) 204,000 48,000 (190,000) (32,000) 30,000 Total assets 32,441,000 9,169,000 3,725,000 (4,013,000) 41,322,000 Three Months Ended June 30, 2002 U.S. Europe Other Consolid. Totals - --------------- ---------- ---------- --------- ---------- -------- Net sales to external customers $10,897,000 $2,853,000 $ 524,000 $ - $14,274,000 Intersegment net sales 1,184,000 - 10,000 (1,194,000) - Net income (loss) 340,000 116,000 (387,000) (41,000) 28,000 Total assets 41,726,000 7,795,000 3,518,000 (4,701,000) 48,338,000 -7- Nine Months Ended June 30, 2003 U.S. Europe Other Consolid. Totals - ----------------- ---------- ---------- --------- ---------- ------- Net sales to external customers $25,572,000 $11,413,000 $1,166,000 $ - $38,151,000 Intersegment net sales 4,590,000 - 2,195,000 (6,785,000) - Net income (loss) (3,197,000) 408,000 (509,000) (1,478,000) (4,776,000) Total assets 32,441,000 9,169,000 3,725,000 (4,013,000) 41,322,000 Nine Months Ended June 30, 2002 U.S. Europe Other Consolid. Totals - --------------- ---------- ---------- --------- ---------- ------- Net sales to external customers $28,650,000 $9,950,000 $2,071,000 $ - $40,671,000 Intersegment net sales 5,530,000 - 76,000 (5,606,000) - Net income (loss) (384,000) 535,000 (652,000) (285,000) (786,000) Total assets 41,726,000 7,795,000 3,518,000 (4,701,000) 48,338,000 The consolidating segment information above includes the elimination and consolidation of intersegment transactions. Note 7: Derivative Instruments - -------------------------------- At June 30, 2003, the Company had interest rate swaps and forward exchange contracts outstanding with notional amounts aggregating $2.1 million and $3.8 million, respectively, whose aggregate fair value was a liability of approximately $210,000. The change in the amount of the liability for these instruments is shown as a component of accumulated other comprehensive loss. Note 8: Goodwill - ------------------ The Company adopted SFAS No. 142 on October 1, 2002, and accordingly, has discontinued amortization of goodwill as of that date. In the second quarter ended March 31, 2003, the Company completed the transitional goodwill impairment testing required under SFAS No. 142. In accordance with SFAS No. 142, such testing included a comparison of the fair value of each of the Company's reporting units to the carrying amounts of each unit's net assets, and a determination of the implied fair value of each reporting unit's goodwill. Based upon an independent valuation conducted as of October 1, 2002, and the results of the transitional impairment testing, the Company recognized an impairment charge of approximately $1.4 million (primarily resulting from a change in measurement from undiscounted to discounted cash flows), as a cumulative effect of a change in accounting principle for the nine months ended June 30, 2003. -8- The following table presents pro forma income (loss) and earnings (loss) per share data, before the cumulative effect of a change in accounting principle, restated to include the retroactive impact of the adoption of SFAS No. 142: Three Months Nine Months Ended June 30, Ended June 30, --------------- ----------------- 2003 2002 2003 2002 ---- ---- ---- ---- Reported income (loss) before cumulative effect of a change in accounting principle $ 30,011 $ 27,936 $(3,403,740) $(786,390) Add back: goodwill amortization - 49,613 - 148,839 ----------- --------- ----------- --------- Pro forma income (loss) before cumulative effect of a change in accounting principle $ 30,011 $ 77,549 $(3,403,740) $(637,551) ============ ========== =========== ========= Basic and diluted earnings (loss) per share: - -------------------------------------------- Reported earnings (loss) per share before cumulative effect of a change in accounting principle $ .01 $ .01 $ (.73) $ (.17) Goodwill amortization - .01 - .03 -------- ------- --------- --------- Pro forma earnings (loss) per share $ .01 $ .02 $ (.73) $ (.14) ========= ======== ========= ========= Note 9: Accrued Warranty Obligation - ------------------------------------- In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantee. FIN 45 also requires additional disclosure requirements about the guarantor's obligations under certain guarantees that it has issued. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of this interpretation are effective for financial statement periods ending after December 15, 2002. The Company adopted the disclosure requirements of this interpretation in the first quarter ended December 31, 2002. The adoption of this interpretation did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. The Company recognizes the estimated cost associated with its standard warranty on products at the time of sale. The estimate is based on historical warranty claim cost experience. The following is a summary of the changes in the Company's accrued warranty obligation (which is included in accrued expenses) for the reporting period: Beginning balance as of September 30, 2002 $ 190,000 Deduct: Payments (122,000) Add: Provision 212,000 --------- Ending balance as of June 30, 2003 $ 280,000 ========= -9- Note 10: Stock-Based Compensation - ----------------------------------- The Company applies Accounting Principles Board ("APB") Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. The Company follows Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation" and SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123" for disclosure purposes. SFAS No. 148, issued in December 2002, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require disclosures in annual and interim financial statements regarding the method of accounting used for stock-based compensation and the effect of the method used on reported results. The application of the disclosure portion of this standard will have no impact on the Company's consolidated financial position or results of operations. In the Company's condensed consolidated financial statements, no compensation expense has been recognized for stock option grants issued under any of the Company's stock option plans. Had compensation expense for stock option grants issued been determined under the fair value method of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share (EPS) for the three and nine month periods ended June 30, 2003 and 2002 would have been: Three Months Nine Months Ended June 30, Ended June 30, -------------------- -------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Reported income (loss) before cumulative effect of a change in accounting principle $ 30,011 $ 27,936 $(3,403,740) $(786,390) Stock-based compensation cost, net of tax (44,640) (13,670) (123,367) (42,865) ----------- ---------- ----------- --------- Pro forma income (loss) before cumulative effect of a change in accounting principle $ (14,629) $ 14,266 $(3,527,107) $(829,255) =========== =========== ============ ========= Reported basic and diluted EPS before cumulative effect of a change in accounting principle $ .01 $ .01 $(.73) $(.17) Pro forma basic and diluted EPS before cumulative effect of a change in accounting principle $ - $ - $(.76) $(.18) Reported net income (loss) $ 30,011 $ 27,936 $(4,776,346) $(786,390) Stock-based compensation cost, net of tax (44,640) (13,670) (123,367) (42,865) ----------- ---------- ----------- --------- Pro forma net income (loss) $ (14,629) $ 14,266 $(4,899,713) $(829,255) =========== =========== ============ ========= Reported basic and diluted EPS $ .01 $ .01 $(1.03) $(.17) Pro forma basic and diluted EPS $ - $ - $(1.06) $(.18) -10- Note 11: Income Taxes - ----------------------- The components of income tax expense (benefit) for the periods indicated are as follows: Three Months Nine Months Ended June 30, Ended June 30, ---------------------- ----------------------- 2003 2002 2003 2002 --------- ---------- ---------- ---------- Federal: Current $ - $(284,000) $ (225,000) $(880,000) Deferred - 276,000 1,853,957 310,000 --------- --------- ---------- --------- - (8,000) 1,628,957 (570,000) State - - - (40,000) Foreign 29,000 26,000 210,000 230,000 --------- --------- ---------- --------- Total income tax expense (benefit) $ 29,000 $ 18,000 $1,838,957 $(380,000) ========= ========= ========== ========= In the nine month period ended June 30, 2003, the Company recognized a $2.1 million charge to provide a valuation allowance against its deferred tax assets due to the uncertainty of future realization. The establishment of such valuation allowance was determined to be appropriate during that period due to updated judgments of future results in light of the Company's operating losses in current and recent years and the inherent uncertainties of predicting future operating results in periods over which such net tax differences become deductible. Income tax expense for the nine month period ended June 30, 2003 includes the recognition of an available tax effected net operating loss carryback of $225,000. For income tax purposes, the Company had available at June 30, 2003, a tax effected net operating loss carryback of approximately $1.9 million included in recoverable income taxes, for which the Company plans to file a carryback claim to obtain a refund of previously paid taxes. Note 12: New Accounting Standards - ----------------------------------- In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit and Disposal Activities". SFAS No. 146 requires that a liability be recognized for costs associated with an exit or disposal activity only when the liability is incurred. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company adopted SFAS No. 146, which did not have an impact on the Company's consolidated financial statements. In November 2002, the Emerging Issues Task Force (EITF) finalized its tentative consensus on EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables", which provides guidance on the timing and method of revenue recognition for sales arrangements that include the delivery of more than one product or service. EITF is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently analyzing the impact of its adoption on its financial statements. -11- Note 13: Contingencies - ------------------------ On May 15, 2003, the Company was served with a summons and complaint in a patent infringement suit that named the Company and thirteen other defendants. The alleged infringement relates to the Company's camera dome systems, which is a significant product line. Among other things, the suit seeks injunctive relief and unspecified damages. The Company and its outside patent counsel believe that the complaint is without merit and the Company intends to vigorously defend itself in this matter. The Company is unable to reasonably estimate a range of possible loss, if any, at this time. Although the Company believes that it has meritorious defenses to such claims, there is a possibility that an unfavorable outcome could ultimately occur that could result in a liability that is material to the Company's results of operations and financial position. The Company plans to present a joint defense with certain other named defendants in the suit. Note 14: Related Party Transaction - ------------------------------------ In the third quarter ended June 30, 2003, the Company recognized $360,000 of revenues received from both a related and third party pursuant to the completion of a contract to develop certain new product technology. -12- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS - --------------------------------------------- Results of Operations - --------------------- Three Months Ended June 30, 2003 Compared with June 30, 2002 - ------------------------------------------------------------ Net sales for the quarter ended June 30, 2003 decreased $1.2 million or 9% to $13.1 million compared with $14.3 million in the year ago period. Domestic sales decreased $1.8 million or 18% to $8.4 million compared with $10.2 million in the year ago period. The year ago period sales included $1.6 million of shipments in connection with a large system order for New York's JFK International Airport. Current period sales included $360,000 of revenues received pursuant to the completion of a contract to develop certain new product technology. International sales for the quarter increased $.6 million or 14% to $4.7 million compared with $4.1 million in the year ago period principally as a result of favorable exchange rate changes as the British pound and Eurodollar strengthened against the U.S. dollar. Gross profit margins for the third quarter of fiscal 2003 increased to 40.3% compared with 35.5% in the year ago period. The margin increase was principally due to the introduction of the Company's new digital video product line. Operating expenses for the third quarter of fiscal 2003 were $5.2 million or 39.6% of net sales compared with $5.0 million or 34.8% of net sales in the year ago period. The Company continued to invest in new product development in the current quarter, incurring $1.3 million of engineering and development expenses compared with $1.1 million in the year ago period. The current quarter engineering and development expenses included a performance based compensation charge of $278,000 associated with the introduction of the Company's new digital video product line. Operating income decreased to $83,000 for the third fiscal quarter of 2003 compared with $97,000 in the year ago period. Interest expense decreased to $52,000 for the third quarter of fiscal 2003 compared with $82,000 in the year ago period principally as a result of the paydown of bank borrowings. Income tax expense for the third quarter of fiscal 2003 was $29,000 compared with $18,000 in the year ago period. As a result of the foregoing, the Company reported net income of $30,000 for the third quarter of fiscal 2003 compared with net income of $28,000 in the year ago period. -13- Results of Operations - --------------------- Nine Months Ended June 30, 2003 Compared with June 30, 2002 - ----------------------------------------------------------- Net sales for the nine months ended June 30, 2003 decreased $2.5 million or 6% to $38.2 million compared with $40.7 million in the year ago period. Domestic sales decreased $3.8 million or 14% to $22.9 million compared with $26.8 million in the year ago period. Such decrease was due principally to the current period slowdown in the U.S. economy and the delivery of a large system order in the year ago period. International sales for the nine months ended June 30, 2003 increased $1.3 million or 10% to $15.3 million compared with $13.9 million in the year ago period principally as a result of favorable exchange rate changes as the British pound and Eurodollar strengthened against the U.S. dollar. Gross profit margins for the first nine months of fiscal 2003 increased to 36.2% compared with 33.9% in the year ago period. The margin increase was principally due to a more favorable sales mix of higher margin products as the Company introduced its new digital video product line in the second quarter ended March 31, 2003. Operating expenses for the first nine months of fiscal 2003 were $15.3 million or 40.1% of net sales compared with $14.8 million or 36.4% of net sales in the year ago period. The Company continued to invest in new product development in the current year period, incurring $3.8 million of engineering and development expenses compared with $3.1 million in the year ago period. The current period engineering and development expenses included a performance based compensation charge of $603,000 associated with the introduction of the Company's new digital video product line. The Company incurred an operating loss of $1.5 million for the first nine months of 2003 compared with an operating loss of $1.0 million in the year ago period principally as a result of higher operating expenses. Interest expense decreased to $184,000 for the first nine months of fiscal 2003 compared with $258,000 in the year ago period principally as a result of the paydown of bank borrowings. Income tax expense for the first nine months of fiscal 2003 was $1.8 million compared with an income tax benefit of $380,000 in the year ago period. In the second quarter ended March 31, 2003, the Company recognized a $2.1 million income tax charge to provide a valuation allowance against its deferred tax assets due to the uncertainty of future realization. Such charge was reduced by the recognition of an available tax effected net operating loss carryback of $225,000 and a net operating loss carryforward benefit of $253,000 recorded in the first quarter ended December 31, 2002. During the six months ended March 31, 2003, the Company completed its required goodwill impairment tests as of October 1, 2002 and determined that the carrying amount of goodwill was impaired when tested pursuant to the requirements of the new standard. As a result, a goodwill impairment charge of $1.4 million was recognized as the cumulative effect of a change in accounting principle for the nine month period. As a result of the foregoing, the Company incurred a net loss of $4.8 million for the first nine months of fiscal 2003 compared with a net loss of $786,000 in the year ago period. -14- MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ Liquidity and Financial Condition - --------------------------------- Net cash used in operating activities was $345,000 for the first nine months of fiscal 2003. The net loss of $4.8 million for the period included non-cash charges of $1.9 million for deferred income taxes, $1.4 million for goodwill impairment and $826,000 for depreciation and amortization. Net cash used in investing activities was $2.0 million for the first nine months of fiscal 2003 relating to the purchase of $1.6 million of marketable securities, which consist of mutual fund investments in U.S. government securities, and $436,000 of general capital expenditures. Net cash used in financing activities was $1.2 million, which primarily represented scheduled repayments of bank mortgage and term loans. As a result of the foregoing, cash decreased by $3.5 million for the first nine months of fiscal 2003 after the effect of exchange rate changes on the cash position of the Company. At June 30, 2003, the Company had an available tax effected net operating loss carryback of approximately $1.9 million, for which it plans to file a carryback claim in the near term to obtain a refund of previously paid taxes. The Company has a $5 million secured revolving credit facility with a bank that expires in July 2004 and a $150,000 outstanding term loan with the same bank that matures in August 2003. Borrowings under the revolving credit facility bear interest at the bank's prime rate or, at the Company's option, LIBOR plus 190 basis points (4.00% and 3.02%, respectively, at June 30, 2003). The credit agreement includes a provision that waives the Company's obligation to comply with all financial covenants contained in the agreements so long as there are no outstanding borrowings under the revolving credit facility and the Company maintains certain compensating balances. At this time, the Company does not anticipate that it will be obligated to comply with these financial covenants in the near term. At June 30, 2003 and September 30, 2002, there were no outstanding borrowings under this facility. The Company also maintains a bank overdraft facility of one million Pounds Sterling (approximately $1,650,000) in the U.K. to support local working capital requirements of Vicon Industries Limited. This facility expires in March 2004. At June 30, 2003 and September 30, 2002, there were no outstanding borrowings under this facility. Current and long-term debt maturing in the remaining three months ended September 30, 2003 and in each of the subsequent fiscal years approximates $232,000 for the remaining three months ended September 30, 2003, $334,000 in 2004, $326,000 in 2005, $339,000 in 2006, $318,000 in 2007 and $1,740,000 thereafter. The Company occupies certain facilities, or is contingently liable, under operating leases that expire at various dates through 2008. The leases, which cover periods from three to eight years, generally provide for renewal options at specified rental amounts. The aggregate operating lease commitment at June 30, 2003 was $521,000 with minimum rentals for the fiscal years shown as follows: for the remaining three months ended September 30, 2003 - $80,000; 2004 - - $275,000; 2005 - $99,000; 2006 - $25,000; 2007 - $25,000; 2008 and thereafter - - $17,000. -15- The Company entered into certain consulting and incentive compensation agreements that provide for the payout of up to $810,000 of fees and compensation upon the completion and sale of a specified number of units of a newly developed product line. The Company incurred $603,000 of expenses relating to these agreements in the first nine months of fiscal 2003 and believes that it is likely that it will incur the majority of the remaining arrangement in the next fiscal year. The Company believes that it has sufficient cash to meet its anticipated operating, capital expenditures and debt service requirements for at least the next twelve months. The Company has experienced reduced sales levels and incurred operating losses in past periods, which limits the Company's ability to draw upon its bank credit facilities, if needed. Critical Accounting Policies - ---------------------------- The Company's significant accounting policies are fully described in Note 1 to the Company's consolidated financial statements included in its September 30, 2002 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. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility of the resulting receivable is reasonably assured. As it relates to product sales, revenue (including shipping and handling fees) is generally recognized when products are sold and title is passed to the customer. Under arrangements that involve the sale of product combined with the provision of services, revenue is generally recognized for each element of the arrangement upon delivery or performance provided that (i) the undelivered element is not essential to the functionality of the delivered element and (ii) there is objective evidence of the fair value of the undelivered elements. Advance service billings under a national supply contract with one customer are deferred and recognized as revenues on a pro-rata basis over the term of the service agreement. Shipping and handling costs are included in cost of sales. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including monitoring and evaluating the quality of its component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from its estimates, revisions to the estimated warranty liability may be required. The Company writes down its inventory for estimated obsolescence and slow moving inventory equal to the difference between the cost of inventory and the estimated net realizable market value based upon assumptions about future demand and market conditions. Technology changes and market conditions may render some of the Company's products obsolete and additional inventory write-downs may be required. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. -16- The Company assesses the recoverability of the carrying value of its long-lived assets, including identifiable intangible assets with finite useful lives, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates the recoverability of such assets based upon the expectations of undiscounted cash flows from such assets and estimated net asset liquidation values. If the sum of the expected future undiscounted cash flows, plus estimated asset liquidation values, is less than the carrying amount of the asset, a loss would be recognized for the difference between the fair value and the carrying amount. The Company's ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible. In the quarter ended March 31, 2003, the Company recognized a $2.1 million charge to provide a valuation allowance against its deferred tax assets due to the uncertainty of future realization. The establishment of such valuation allowance was determined to be appropriate during that period due to updated judgments in light of the Company's operating losses in current and recent years and the inherent uncertainties of predicting future operating results in periods over which such net tax differences become deductible. 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. New Accounting Standard Not Yet Adopted - --------------------------------------- In November 2002, the Emerging Issues Task Force (EITF) finalized its tentative consensus on EITF Issue 00-21, "Revenue Arrangements with Multiple Deliverables", which provides guidance on the timing and method of revenue recognition for sales arrangements that include the delivery of more than one product or service. EITF is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently analyzing the impact of its adoption on its financial statements. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- Statements in this Report on Form 10-Q and other statements made by the Company or its representatives that are not strictly historical facts including, without limitation, statements included herein under the captions "Results of Operations", "Liquidity and Financial Condition" and "Critical Accounting Policies" are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 that should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The Company also assumes no obligation to update its forward-looking statements or to advise of changes in the assumptions and factors on which they are based. -17- ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- The Company is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. The Company has a policy that prohibits the use of currency derivatives or other financial instruments for trading or speculative purposes. The Company enters into forward exchange contracts to hedge certain foreign currency exposures and minimize the effect of such fluctuations on reported earnings and cash flow (see Note 7 "Derivative Instruments" to the accompanying condensed consolidated financial statements). The Company's ongoing foreign currency exchange risks include intercompany sales of product and services between subsidiary companies operating in differing functional currencies. At June 30, 2003, substantially all of such foreign currency transactions have been hedged by forward exchange contracts. At June 30, 2003, the Company had $2.1 million of outstanding floating rate bank debt which was covered by interest rate swap agreements that effectively convert the foregoing floating rate debt to stated fixed rates (see "Note 5. Long-Term Debt" to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended September 30, 2002). Thus, the Company has substantially no net interest rate exposures on these instruments. However, the Company had approximately $899,000 of floating rate bank debt that is subject to interest rate risk as it was not covered by interest rate swap agreements. The Company does not believe that a 10% fluctuation in interest rates would have a material effect on its consolidated financial position and results of operations. ITEM 4. CONTROLS AND PROCEDURES - -------------------------------- (a) Evaluation of Disclosure Controls and Procedures ------------------------------------------------ Based on their evaluation as of a date within 90 days of the filing date of this quarterly report on Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in Internal Controls ---------------------------- There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. -18- Independent Accountants' Review Report -------------------------------------- The Board of Directors and Shareholders Vicon Industries, Inc. We have reviewed the condensed consolidated balance sheet of Vicon Industries, Inc. and subsidiaries as of June 30, 2003, and the related condensed consolidated statements of operations and cash flows for the three and nine-month periods ended June 30, 2003 and 2002. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 8, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", effective October 1, 2002. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Vicon Industries, Inc. and subsidiaries as of September 30, 2002, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated December 10, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2002 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG LLP Melville, New York August 14, 2003 -19- PART II - OTHER INFORMATION - --------------------------- ITEM 1 - LEGAL PROCEEDINGS - -------------------------- On May 15, 2003, the Company was served with a summons and complaint in a patent infringement suit that named the Company and thirteen other defendants. The alleged infringement relates to the Company's camera dome systems, which is a significant product line. Among other things, the suit seeks injunctive relief and unspecified damages. The Company and its outside patent counsel believe that the complaint is without merit and the Company intends to vigorously defend itself in this matter. The Company is unable to reasonably estimate a range of possible loss, if any, at this time. Although the Company believes that it has meritorious defenses to such claims, there is a possibility that an unfavorable outcome could ultimately occur that could result in a liability that is material to the Company's results of operations and financial position. The Company plans to present a joint defense with certain other named defendants in the suit. ITEM 2 - CHANGES IN SECURITIES - ------ --------------------- None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - ------ ------------------------------- None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ --------------------------------------------------- None ITEM 5 - OTHER INFORMATION - ------ ----------------- None -20- ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K - ------ -------------------------------- a) Exhibits -------- 15.1 Letter re: unaudited interim financial information. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b) Reports on Form 8-K ------------------- On May 12, 2003, the Company filed a Current Report on Form 8-K filing its May 7, 2003 press release announcing the Company's March 31, 2003 financial results. -21- 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 14, 2003 /s/ Kenneth M. Darby /s/ John M. Badke - -------------------- ----------------- Kenneth M. Darby John M. Badke Chairman and Vice President, Finance Chief Executive Officer Chief Financial Officer -22- EX-31 2 f10q-ex312_81403.txt EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER - ---------------------------------------- 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. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we 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) 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 (c) 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. The registrant's other certifying officer and 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 14, 2003 /s/ John M. Badke - ----------------- John M. Badke Vice President, Finance and Chief Financial Officer EX-32 3 f10q-ex321_81403.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Vicon Industries, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth M. Darby, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the report. /s/ Kenneth M. Darby -------------------- Kenneth M. Darby Chief Executive Officer August 14, 2003 EX-32 4 f10q-ex322_81403.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Vicon Industries, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John M. Badke, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the report. /s/ John M. Badke ----------------- John M. Badke Chief Financial Officer August 14, 2003 EX-31 5 f10q-ex311_81403.txt EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - ---------------------------------------- I, Kenneth M. Darby, 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. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we 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) 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 (c) 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. The registrant's other certifying officer and 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 14, 2003 /s/ Kenneth M. Darby - -------------------- Kenneth M. Darby Chairman and Chief Executive Officer EX-15 6 f10q-ex151_81403.txt EXHIBIT 15.1 The Board of Directors Vicon Industries, Inc.: Re: Registration Statements on Form S-8 (Nos. 33-7892, 33-34349, 33-90038, 333-30097 and 333-71410) and Form S-2 (No. 333-46841): With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated August 14, 2003 related to our review of interim financial information. Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. /s/ KPMG LLP Melville, New York August 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----