10-Q

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, 2012
[ ]	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.)
89 Arkay Drive, 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. [x] Yes [ ] 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). [x] Yes [ ] 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 [x]No

At August 6, 2012, the registrant had outstanding 4,479,735 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
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 2012 and 2011 (unaudited)	3
Condensed Consolidated Statements of Operations
Nine Months Ended June 30, 2012 and 2011 (unaudited)	4
Condensed Consolidated Statements of Comprehensive Loss
Three and Nine Months Ended June 30, 2012 and 2011 (unaudited)	5
Condensed Consolidated Balance Sheets (unaudited)	6
Condensed Consolidated Statements of Cash Flows (unaudited)	7
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition	12
and Results of Operations
Item 3. Qualitative and Quantitative Disclosures about Market Risk	17
Item 4. Controls and Procedures	17
Part II. Other Information	18
Item 1. Legal Proceedings	18
Item 1A. Risk Factors	18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3. Defaults Upon Senior Securities	18
Item 4. Mine Safety Disclosures	18
Item 5. Other Information	18
Item 6. Exhibits	18
Signatures	19

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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
	6/30/2012			6/30/2011
Net sales	$	11,721,956		$	10,950,550
Cost of sales	7,057,661			7,074,983
Gross profit	4,664,295			3,875,567
Operating expenses:
Selling, general and administrative expense	3,854,289			4,223,274
Engineering & development expense	1,286,105			1,514,525
Patent litigation settlement expense	—			5,125,008
	5,140,394			10,862,807
Operating loss	(476,099		)	(6,987,240		)
Interest income	(4,277		)	(43,237		)
Other expense	6,198			21,809
Loss before income taxes	(478,020		)	(6,965,812		)
Income tax expense	19,000			2,548,000
Net loss	$	(497,020	)	$	(9,513,812	)
Loss per share:
Basic	$	(.11	)	$	(2.12	)
Diluted	$	(.11	)	$	(2.12	)
Weighted average shares outstanding:
Basic	4,477,651			4,491,998
Diluted	4,477,651			4,491,998

 See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Nine Months Ended
	6/30/2012			6/30/2011
Net sales	$	36,546,149		$	34,755,400
Cost of sales	21,997,996			21,368,168
Gross profit	14,548,153			13,387,232
Operating expenses:
Selling, general and administrative expense	11,649,315			12,368,043
Engineering & development expense	3,958,997			4,428,109
Patent litigation settlement expense	—			5,374,834
	15,608,312			22,170,986
Operating loss	(1,060,159		)	(8,783,754		)
Interest income	(35,036		)	(175,685		)
Other expense (income)	(22,632		)	10,019
Loss before income taxes	(1,002,491		)	(8,618,088		)
Income tax expense	57,000			2,063,000
Net loss	$	(1,059,491	)	$	(10,681,088	)
Loss per share:
Basic	$	(.24	)	$	(2.38	)
Diluted	$	(.24	)	$	(2.38	)
Weighted average shares outstanding:
Basic	4,481,737			4,484,676
Diluted	4,481,737			4,484,676

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
	6/30/2012			6/30/2011			6/30/2012			6/30/2011
Net loss	$	(497,020	)	$	(9,513,812	)	$	(1,059,491	)	$	(10,681,088	)
Other comprehensive income (loss):
Unrealized gain (loss) on securities, net of tax	1,156			41,602			(31,582		)	(36,920		)
Unrealized gain (loss) on derivatives, net of tax	(169,464		)	(481		)	(204,368		)	18,339
Foreign currency translation adjustment	(68,201		)	(31,045		)	14,913			131,667
Other comprehensive income (loss)	(236,509		)	10,076			(221,037		)	113,086
Comprehensive loss	$	(733,529	)	$	(9,503,736	)	$	(1,280,528	)	$	(10,568,002	)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS	6/30/2012			9/30/2011
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	5,711,347		$	5,628,156
Marketable securities	399,087			2,035,593
Accounts receivable, net	6,633,042			7,771,356
Inventories:
Parts, components, and materials	4,657,355			3,969,656
Work-in-process	1,685,674			2,032,176
Finished products	5,590,638			5,392,699
	11,933,667			11,394,531
Recoverable income taxes	92,811			92,811
Prepaid expenses and other current assets	639,267			624,939
TOTAL CURRENT ASSETS	25,409,221			27,547,386
Property, plant and equipment	13,030,038			12,873,127
Less accumulated depreciation and amortization	(8,945,696		)	(8,532,990		)
	4,084,342			4,340,137
Other assets	1,208,985			1,303,753
TOTAL ASSETS	$	30,702,548		$	33,191,276
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	3,062,595		$	4,240,096
Accrued compensation and employee benefits	1,999,841			2,297,575
Accrued expenses	1,220,639			1,022,034
Unearned revenue	524,622			495,612
Income taxes payable	32,589			32,589
TOTAL CURRENT LIABILITIES	6,840,286			8,087,906
Unearned revenue - non current	162,736			234,927
Other long-term liabilities	2,395,418			2,424,516
TOTAL LIABILITIES	9,398,440			10,747,349
SHAREHOLDERS’ EQUITY
Common stock, par value $.01	53,509			53,450
Capital in excess of par value	25,263,373			25,041,273
Retained earnings	582,229			1,641,720
Less treasury stock, at cost	(4,300,952		)	(4,219,502		)
Accumulated other comprehensive loss	(294,051		)	(73,014		)
TOTAL SHAREHOLDERS’ EQUITY	21,304,108			22,443,927
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	30,702,548		$	33,191,276

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
	6/30/2012			6/30/2011
Cash flows from operating activities:
Net loss	$	(1,059,491	)	$	(10,681,088	)
Adjustments to reconcile net loss to net cash used in    operating activities:
Depreciation and amortization	441,872			504,073
Amortization of deferred compensation	3,579			3,566
Stock compensation expense	218,580			220,806
Deferred income taxes	—			2,155,710
Change in assets and liabilities:
Accounts receivable, net	1,141,633			2,313,813
Inventories	(542,833		)	47,277
Recoverable income taxes	—			55,477
Prepaid expenses and other current assets	(96,803		)	(116,305		)
Other assets	94,768			(135,776		)
Accounts payable	(1,187,942		)	(118,387		)
Accrued compensation and employee benefits	(298,456		)	74,205
Accrued expenses	76,488			47,460
Accrued patent litigation expense	—			5,056,518
Unearned revenue	(43,181		)	(272,294		)
Other liabilities	(28,734		)	110,972
Net cash used in operating activities	(1,280,520		)	(733,973		)
Cash flows from investing activities:
Net decrease (increase) in marketable securities	1,604,924			(92,075		)
Capital expenditures	(186,089		)	(311,364		)
Net cash provided by (used in) investing activities	1,418,835			(403,439		)
Cash flows from financing activities:
Repurchases of common stock	(81,450		)	(215,269		)
Proceeds from exercise of stock options	—			159,949
Net cash used in financing activities	(81,450		)	(55,320		)
Effect of exchange rate changes on cash	26,326			71,720
Net increase (decrease) in cash	83,191			(1,121,012		)
Cash at beginning of year	5,628,156			8,789,967
Cash at end of period	$	5,711,347		$	7,668,955

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, 2012

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, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2012.  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, 2011.  Certain prior year amounts have been reclassified to conform to the current period presentation.

Note 2:  Marketable Securities

Marketable securities consist of mutual fund investments principally in federal, state and local government debt securities of $373,713 and holdings in an equity security of $25,374.  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 (FASB Statement of Financial Accounting Standards (SFAS) No. 115), with unrealized gains and losses reported in accumulated other comprehensive income (loss) as a component of shareholders’ equity. The cost of such securities at June 30, 2012 was $394,960, with $4,127 of cumulative unrealized gains reported at June 30, 2012.

Note 3:  Accounts Receivable

Accounts receivable is stated net of an allowance for uncollectible accounts of $1,105,000 and $1,089,000 as of June 30, 2012 and September 30, 2011, 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 month and nine month periods ended June 30, 2012 and 2011:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Basic EPS Computation
Net loss	$	(497,020	)	$	(9,513,812	)	$	(1,059,491	)	$	(10,681,088	)
Weighted average shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Basic loss per share	$	(.11	)	$	(2.12	)	$	(.24	)	$	(2.38	)

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	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Diluted EPS Computation
Net loss	$	(497,020	)	$	(9,513,812	)	$	(1,059,491	)	$	(10,681,088	)
Weighted average shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Stock options	—			—			—			—
Stock compensation arrangements	—			—			—			—
Diluted shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Diluted loss per share	$	(.11	)	$	(2.12	)	$	(.24	)	$	(2.38	)

For the three months endedJune 30, 2012 and 2011, 10,131 and 43,610 shares, respectively, have been omitted from the calculation of diluted EPS as their effect would have been antidilutive. For the nine months endedJune 30, 2012 and 2011, 11,451 and 49,272 shares, respectively, have been omitted from the calculation of diluted EPS as their effect would have been antidilutive.

Note 5:   Accumulated Other Comprehensive Loss

The Company's accumulated other comprehensive loss balances at June 30, 2012 and September 30, 2011 consisted of the following:

	June 30, 2012			September 30, 2011
Foreign currency translation adjustment	$	(176,016	)	$	(190,929	)
Unrealized gain (loss) on derivatives	(122,162		)	82,206
Unrealized gain on securities	4,127			35,709
Accumulated other comprehensive loss	$	(294,051	)	$	(73,014	)

Note 6:   Derivative Instruments

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.  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, 2012, the Company had forward exchange contracts outstanding with notional amounts aggregating $3.9 million, whose aggregate fair value was a liability of approximately $122,162.  Such fair value was determined using published market exchange rates.  The change in the amount of the asset or liability for these instruments is shown as a component of accumulated other comprehensive loss, net of tax.

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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 (SFAS No. 123(R), “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, 2012 and 2011, the Company recorded non-cash compensation expense of $67,666 and $69,519, respectively, ($.02 and $.02 per basic and diluted share, respectively) relating to stock compensation. For the nine month periods ended June 30, 2012 and 2011, the Company recorded non-cash compensation expense of $218,580 and $220,806, respectively, ($.05 and $.05 per basic and diluted share, respectively) relating to stock compensation.

Note 8:   Litigation

The Company was a defendant in a patent infringement suit commenced by Lectrolarm Custom Systems, Inc. ("Lectrolarm") in May 2003 in the United States District Court for the Western District of Tennessee.  The alleged infringement by the Company related to its dome camera and system controller product lines, among other products that collectively represent significant sales to the Company.  On July 13, 2011, the Company entered into a settlement and release agreement with Lectrolarm to settle the patent infringement suit. Under the settlement, the Company made a one-time payment of $5 million to Lectrolarm in exchange for the release of all current and future claims against the Company and the dismissal of Lectrolarm's suit pending in the U.S. District Court. Such settlement amount was recognized as patent litigation settlement expense in the accompanying financial statements along with $125,000 and $375,000 of associated legal expense for the three and nine month periods ended June 30, 2011, respectively. Although the Company and its outside patent counsel believed that the suit was without merit and had vigorously defended itself for over eight years, it decided to settle the matter to end years of management distraction and financial uncertainty since the suit was brought in 2003.

In the normal course of business, the Company is a party to certain other claims and litigation.  Management believes that the settlement of such claims and litigation, considered in the aggregate, will not have a material adverse effect on the Company’s financial position and results of operations.

Note 9:  Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 became effective for the Company for the quarter ended March 31, 2012 and its adoption did not have a material effect on the Company's operating results or financial position.

In June 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders' equity. Although effective for the Company's next fiscal year ending September 30, 2013, ASU 2011-05 was adopted by the Company in the quarter ended June 30, 2012 with the insertion of the Statements of Comprehensive Loss in the accompanying financial statements.

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Note 10:  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. In the third quarter ended June 30, 2011, the Company recognized a $2.6 million income tax 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 the period due to updated judgments of future results in light of 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.

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 2004 in the U.S. and 2006 in the U.K., Germany and Israel.

Note 11:  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.  The fair value of the Company’s foreign currency forward exchange contracts is estimated by obtaining quoted market exchange rates for similar contracts (Level 2 inputs).  The contracted exchange rates on committed forward exchange contracts was approximately $122,162 less favorable than the market rates for similar term contracts at June 30, 2012.

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.

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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, 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 digital video and network video recorders, video encoders, decoders, servers and related video management software, data storage units, analog, HD and IP fixed and robotic cameras, virtual and analogue matrix video switchers and controls, and system peripherals.

The Company sells video systems and system components in a highly competitive worldwide marketplace principally to authorized security dealers and system integrators. Such dealers and integrators typically resell 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.

Since fiscal year 2009, the Company's sales levels have been impacted by the worldwide economic downturn, particularly in Europe, as capital expenditures for new construction, expansion and renovation projects have weakened. Such sales declines have had an adverse impact on the Company's financial results for these periods. The Company's operating cost structure has been fixed to a large extent and therefore profitability has been largely dependent upon sales levels. For the most part, the Company has maintained its selling, general and administrative cost structure in past years in anticipation of improving market conditions. However, since the second half of fiscal 2011, the Company has implemented ongoing cost reduction programs that will continue for the foreseeable future until market conditions improve.

The Company competes in a market of rapid technology shifts which influence the performance capability of security systems.  As a result, the Company spends a significant amount on new product development. In fiscal 2011 and 2010, the Company incurred $5.9 million and $5.5 million of engineering and development expense or 13% and 11% of net sales, respectively. The Company’s expenditures for product development are substantially less than its larger competitors.  In recent years, the rapid pace of technology changes has placed increased burden on the Company’s development resources which has necessitated an increase in annual expense for product development.  Further, the Company’s sales effort requires a high level of customer service and technical support for its products.  Customer support levels were maintained during fiscal 2011 despite a reduction in sales and such expenditure levels are generally expected to continue in fiscal 2012.  The Company has considered various strategic initiatives that may augment or supplement its present product offerings and technology platforms, among other benefits.

The Company has a foreign sales and distribution subsidiary in Europe that conducts business in British pounds and Euros that represented approximately 28% of the Company’s consolidated sales for fiscal 2011. It also has an Israel based engineering and development subsidiary that incurs a majority of its operating expenses in Shekels that represented approximately 21% of the Company’s recurring operating expenses for fiscal 2011. Since fiscal 2009, there have been material changes in exchange rates between world currencies that have impacted the Company’s financial statements. In 2009, U.S. dollar gained on average 21% against the British pound, 10% against the Euro and 8% against the Shekel compared with 2008. This served to reduce the Company’s consolidated reported sales and costs in these currencies on a translation basis, increase the cost of European subsidiaries U.S. dollar based sourced product costs and incur company-wide negative result impacts on the settlements of transactional balances

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between companies. Since fiscal 2009, European currency exchange rate changes have moderated somewhat, which has lessened the Company’s currency impacts. However, since fiscal 2011, there have been material changes in shekel based exchange rates that have impacted the Company's Israel based subsidiary's operating costs. The Company has historically entered into selected forward currency exchange contracts to help stabilize the impact of changing exchange rates and will continue to do so in fiscal 2012. However, nothing can totally eliminate the long term effects of foreign currency exchange movements.

Results of Operations

Three Months Ended June 30, 2012 Compared with June 30, 2011

Net sales for the quarter ended June 30, 2012 increased 7% to $11.7 million compared with $11.0 million in the year ago period.  Domestic sales increased 30% to $7.4 million compared with $5.8 million in the year ago period while international sales decreased 18% to $4.3 million compared with $5.2 million in the year ago period.  Order intake for the quarter ended June 30, 2012 decreased 2% to $10.8 million compared with $11.1 million in the year ago period. In the current quarter, the Company experienced a significant improvement in its North American sales and order rates compared with the year ago period while international business continued to be materially impacted by weak European economies.  The backlog of unfilled orders increased $369,000 to $5.1 million at June 30, 2012 compared with $4.7 million at September 30, 2011.

Gross profit margins for the third quarter of fiscal 2012 increased to 39.8% compared with 35.4% in the year ago period. The increase in current quarter margins was due principally to a 3.1% decrease in indirect expenses in the current quarter, including the effects of a $180,000 warranty charge taken in the year ago period.

Total operating expenses for the third quarter of fiscal 2012 decreased $5.7 million to $5.1 million compared with $10.8 million in the year ago period. The year ago period included $5.1 million of patent litigation settlement expense (see Note 8). Selling, general and administrative expenses for the third quarter of fiscal 2012 decreased to $3.9 million compared with $4.2 million in the year ago period. Engineering and development expense in the current quarter was $1.3 million compared with $1.5 million in the year ago period. Excluding the $5.1 million of patent litigation settlement expense in the year ago period, the Company's total operating expenses in the current quarter have been reduced by a total of 10% compared with the prior year period relating principally to ongoing cost reduction programs.

The Company incurred an operating loss of $476,000 in the third quarter of fiscal 2012 compared with an operating loss of $7.0 million in the year ago period.

Interest income decreased $39,000 to $4,000 for the third quarter of fiscal 2012 compared with $43,000 in the year ago quarter due principally to reduced cash balances and marketable security investments in the current quarter. Other expense was $6,000 for the third quarter of 2012 compared with $22,000 in the year ago quarter. The current quarter amount represents a reduction in the market value of certain equity securities held while the year ago period amount represents losses incurred on the sales of certain marketable securities.

The Company recorded income tax expense of $19,000 for the third quarter of fiscal 2012 compared with $2.5 million in the year ago quarter. In the third quarter of fiscal 2011, the Company recognized a $2.6 million income tax charge to provide 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 the current quarter (see Note 10: Income Taxes).

As a result of the foregoing, the Company reported a net loss of $497,000 for the third quarter of fiscal 2012 compared with a net loss of $9.5 million in the year ago period.

13

Results of Operations

Nine Months Ended June 30, 2012 Compared with June 30, 2011

Net sales for the nine months ended June 30, 2012 increased 5% to $36.5 million compared with $34.8 million in the year ago period.  Domestic sales increased 14% to $23.0 million compared with $20.1 million in the year ago period while international sales decreased 7% to $13.5 million compared with $14.7 million in the year ago period. In the current year period, the Company experienced a significant improvement in its North American sales and order rates compared with the year ago period while international business continued to be materially impacted by weak European economies.  Order intake for the nine months ended June 30, 2012 increased 1% to $36.9 million compared with $36.5 million in the year ago period.

Gross profit margins for the first nine months of fiscal 2012 increased to 39.8% compared with 38.5% in the year ago period. The increase in current period margins was due principally to a decrease in indirect expenses in the current year period, including the effects of a $180,000 warranty charge taken in the year ago period.

Total operating expenses for the first nine months of fiscal 2012 decreased $6.6 million to $15.6 million compared with $22.2 million in the year ago period. The year ago period included $5.4 million of patent litigation settlement expense (see Note 8). Selling, general and administrative expenses for the first nine months of fiscal 2012 decreased to $11.6 million compared with $12.4 million in the year ago period. Engineering and development expense in the current year period was $4.0 million compared with $4.4 million in the year ago period.  Excluding the $5.4 million of patent litigation settlement expense in the year ago period, the Company's total operating expenses in the current year period have been reduced by a total of 7% compared with the prior year period relating principally to ongoing cost reduction programs.

The Company incurred an operating loss of $1.1 million for the first nine months of fiscal 2012 compared with an operating loss of $8.8 million in the year ago period.

Interest income decreased $141,000 to $35,000 for the first nine months of fiscal 2012 compared with $176,000 in the year ago period due principally to reduced cash balances and marketable security investments in the current year period. The Company recorded other income of $23,000 for the first nine months of 2012 compared with $10,000 of other expense in the year ago period. These amounts represent gains realized on the liquidation of certain marketable securities and changes in the market value of certain equity securities held.

The Company recorded income tax expense of $57,000 for the first nine months of fiscal 2012 compared with $2.1 million in the year ago period. In the third quarter of fiscal 2011, the Company recognized a $2.6 million income tax charge to provide 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 the current year period (see Note 10: Income Taxes).

As a result of the foregoing, the Company reported a net loss of $1.1 million for the first nine months of fiscal 2012 compared with a net loss of $10.7 million in the year ago period.

14

Liquidity and Capital Resources

Net cash used in operating activities was $1.3 million for the first nine months of fiscal 2012. Such cash usages included a $1.4 million net reduction in accounts payable and accrued expenses, a $543,000 increase in inventories and a net loss of $395,000 after non-cash charges, offset in part by $1.1 million of cash provided by a reduction in accounts receivable. The reported loss of $1.1 million was partially offset by $664,000 of non-cash charges. Net cash provided by investing activities was $1.4 million for the first nine months of fiscal 2012 consisting of $1.6 million of net marketable security liquidations principally used for operating activities and $186,000 of general capital expenditures. The marketable security liquidations consisted of mutual fund investments principally in federal, state and local government debt securities.  Net cash used in financing activities was $81,000 for the first nine months of fiscal 2012 consisting of common stock repurchases.  As a result of the foregoing, cash (exclusive of marketable securities) increased by $83,000 for the first nine months of fiscal 2012 after the minimal effect of exchange rate changes on the cash position of the Company.

The Company believes that it will have sufficient cash to meet its anticipated operating costs and capital expenditure requirements for at least the next twelve months.

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.

The Company was a defendant in a patent infringement suit commenced by Lectrolarm Custom Systems, Inc. ("Lectrolarm") in May 2003 in the United States District Court for the Western District of Tennessee.  The alleged infringement by the Company related to its dome camera and system controller product lines, among other products that collectively represent significant sales to the Company.  On July 13, 2011, the Company entered into a settlement and release agreement with Lectrolarm to settle the patent infringement suit. Under the settlement, the Company made a one-time payment of $5 million to Lectrolarm in exchange for the release of all current and future claims against the Company and the dismissal of Lectrolarm's suit pending in the U.S. District Court. Such settlement amount was recognized as patent litigation settlement expense in the accompanying financial statements along with $125,000 and $375,000 of associated legal expense for the three and nine month periods ended June 30, 2011, respectively. Although the Company and its outside patent counsel believed that the suit was without merit and had vigorously defended itself for over eight years, it decided to settle the matter to end years of management distraction and financial uncertainty since the suit was brought in 2003.

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, 2011 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 (EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”), 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 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 more than incidental 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, which was adopted by the Company effective October 1, 2010 on a prospective basis, 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.

15

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

The Company's ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible. In the third quarter of fiscal 2011, the Company recognized a $2.6 million charge to provide 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.

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 and other statements made by the Company or its representatives that are not strictly historical facts including, without limitation, statements included herein under the  Management’s Discussion and Analysis captions “Overview”, "Results of Operations", "Liquidity and Capital Resources" 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.

16

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 6 “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.

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 have 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, 2012 that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

17

PART II – OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

None

ITEM 1A – RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011.

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

In December 2008, the Company’s Board of Directors authorized the purchase of up to $1 million worth of shares of the Company’s outstanding common stock. In December 2009, the Board of Directors authorized the purchase of an additional $1.5 million worth of shares of the Company’s outstanding common stock. The Company did not repurchase any of its common stock during the three month period ended June 30, 2012. The approximate dollar value of shares that may yet be purchased under the program was $972,679 as of June 30, 2012.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable

ITEM 5 - OTHER INFORMATION

None

ITEM 6 – EXHIBITS

Exhibit Number	Description
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
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.”

18

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 7, 2012

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

19

EX-31.1

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)) 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.  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 7, 2012

/s/ Kenneth M. Darby

Kenneth M. Darby

Chairman and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF EXECUTIVE 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)) 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.  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 7, 2012

/s/ John M. Badke

John M. Badke

Senior Vice President, Finance and

Chief Financial Officer

EX-32.1

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, 2012 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), 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/ Kenneth M. Darby

Kenneth M. Darby

Chief Executive Officer

August 7, 2012

EX-32.2

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, 2012 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), 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

Chief Financial Officer

August 7, 2012

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Stock Based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation	$ 67,666	$ 69,519	$ 218,580	$ 220,806
Share Based Compensation per share	$ 0.02	$ 0.02	$ 0.05	$ 0.05

XML

Loss per Share

9 Months Ended

Jun. 30, 2012

Loss per Share [Abstract]

Earnings Per Share [Text Block]

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 month and nine month periods ended June 30, 2012 and 2011:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Basic EPS Computation
Net loss	$	(497,020	)	$	(9,513,812	)	$	(1,059,491	)	$	(10,681,088	)
Weighted average shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Basic loss per share	$	(.11	)	$	(2.12	)	$	(.24	)	$	(2.38	)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Diluted EPS Computation
Net loss	$	(497,020	)	$	(9,513,812	)	$	(1,059,491	)	$	(10,681,088	)
Weighted average shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Stock options	—			—			—			—
Stock compensation arrangements	—			—			—			—
Diluted shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Diluted loss per share	$	(.11	)	$	(2.12	)	$	(.24	)	$	(2.38	)

For the three months endedJune 30, 2012 and 2011, 10,131 and 43,610 shares, respectively, have been omitted from the calculation of diluted EPS as their effect would have been antidilutive. For the nine months endedJune 30, 2012 and 2011, 11,451 and 49,272 shares, respectively, have been omitted from the calculation of diluted EPS as their effect would have been antidilutive.

XML

Fair Value (Details) (USD $)	Jun. 30, 2012	Sep. 30, 2011
Fair Value [Abstract]
Foreign Currency Derivatives at Fair Value, Net	$ (122,162)	$ 82,206

XML

Accounts Receivable

9 Months Ended

Jun. 30, 2012

Accounts Receivable [Abstract]

Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]

Accounts Receivable

Accounts receivable is stated net of an allowance for uncollectible accounts of $1,105,000 and $1,089,000 as of June 30, 2012 and September 30, 2011, respectively.

XML

Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2012	Sep. 30, 2011
CURRENT ASSETS
Cash and cash equivalents	$ 5,711,347	$ 5,628,156
Marketable securities	399,087	2,035,593
Accounts receivable, net	6,633,042	7,771,356
Inventories:
Parts, components, and materials	4,657,355	3,969,656
Work-in-process	1,685,674	2,032,176
Finished products	5,590,638	5,392,699
Inventory net	11,933,667	11,394,531
Recoverable income taxes	92,811	92,811
Prepaid expenses and other current assets	639,267	624,939
TOTAL CURRENT ASSETS	25,409,221	27,547,386
Property, plant and equipment	13,030,038	12,873,127
Less accumulated depreciation and amortization	(8,945,696)	(8,532,990)
Property, Plant and Equipment Net	4,084,342	4,340,137
Other assets	1,208,985	1,303,753
TOTAL ASSETS	30,702,548	33,191,276
CURRENT LIABILITIES
Accounts payable	3,062,595	4,240,096
Accrued compensation and employee benefits	1,999,841	2,297,575
Accrued expenses	1,220,639	1,022,034
Unearned revenue	524,622	495,612
Income taxes payable	32,589	32,589
TOTAL CURRENT LIABILITIES	6,840,286	8,087,906
Unearned revenue	162,736	234,927
Other long-term liabilities	2,395,418	2,424,516
TOTAL LIABILITIES	9,398,440	10,747,349
SHAREHOLDERS’ EQUITY
Common stock, par value $.01	53,509	53,450
Capital in excess of par value	25,263,373	25,041,273
Retained earnings	582,229	1,641,720
Less treasury stock, at cost	(4,300,952)	(4,219,502)
Accumulated other comprehensive loss	(294,051)	(73,014)
TOTAL SHAREHOLDERS’ EQUITY	21,304,108	22,443,927
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 30,702,548	$ 33,191,276

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Basis of Presentation

9 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2012.  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, 2011.  Certain prior year amounts have been reclassified to conform to the current period presentation.

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Loss per Share schedule of earnings per share diluted (Details) (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	10,131	43,610	11,451	49,272
Net Income (Loss) Attributable to Parent	$ (497,020)	$ (9,513,812)	$ (1,059,491)	$ (10,681,088)
Weighted Average Number of Shares Outstanding, Basic	4,477,651	4,491,998	4,481,737	4,484,676
Incremental Common Shares Attributable to Call Options and Warrants	0	0	0	0
Incremental Common Shares Attributable to Share-based Payment Arrangements	0	0	0	0
Weighted Average Number of Shares Outstanding, Diluted	4,477,651	4,491,998	4,481,737	4,484,676
Earnings Per Share, Diluted	$ (0.11)	$ (2.12)	$ (0.24)	$ (2.38)

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Derivative Instruments (Details) (USD $)	Jun. 30, 2012	Sep. 30, 2011
Derivative Instruments [Abstract]
Notional Amount of Foreign Currency Derivatives	$ 3,900,000
Foreign Currency Derivatives at Fair Value, Net	$ (122,162)	$ 82,206

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Marketable Securities

9 Months Ended

Jun. 30, 2012

Marketable Securitie [Abstract]

Cash, Cash Equivalents, and Marketable Securities [Text Block]

Marketable Securities

Marketable securities consist of mutual fund investments principally in federal, state and local government debt securities of $373,713 and holdings in an equity security of $25,374.  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 (FASB Statement of Financial Accounting Standards (SFAS) No. 115), with unrealized gains and losses reported in accumulated other comprehensive income (loss) as a component of shareholders’ equity. The cost of such securities at June 30, 2012 was $394,960, with $4,127 of cumulative unrealized gains reported at June 30, 2012.

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Condensed Consolidated Statements of Income (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net sales	$ 11,721,956	$ 10,950,550	$ 36,546,149	$ 34,755,400
Cost of sales	7,057,661	7,074,983	21,997,996	21,368,168
Gross profit	4,664,295	3,875,567	14,548,153	13,387,232
Operating expenses:
Selling, general and administrative expense	3,854,289	4,223,274	11,649,315	12,368,043
Engineering & development expense	1,286,105	1,514,525	3,958,997	4,428,109
Patent litigation expense	0	5,125,008	0	5,374,834
Operating Expenses	5,140,394	10,862,807	15,608,312	22,170,986
Operating loss	(476,099)	(6,987,240)	(1,060,159)	(8,783,754)
Interest income	(4,277)	(43,237)	(35,036)	(175,685)
Other expense (income)	6,198	21,809	(22,632)	10,019
Loss before income taxes	(478,020)	(6,965,812)	(1,002,491)	(8,618,088)
Income tax expense	19,000	2,548,000	57,000	2,063,000
Net loss	$ (497,020)	$ (9,513,812)	$ (1,059,491)	$ (10,681,088)
Loss per share:
Earnings Per Share, Basic	$ (0.11)	$ (2.12)	$ (0.24)	$ (2.38)
Earnings Per Share, Diluted	$ (0.11)	$ (2.12)	$ (0.24)	$ (2.38)
Weighted average shares outstanding:
Basic	4,477,651	4,491,998	4,481,737	4,484,676
Diluted	4,477,651	4,491,998	4,481,737	4,484,676

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Loss per Share (Tables)

9 Months Ended

Jun. 30, 2012

Loss per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following tables provide the components of the basic and diluted EPS computations for the three month and nine month periods ended June 30, 2012 and 2011:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Basic EPS Computation
Net loss	$	(497,020	)	$	(9,513,812	)	$	(1,059,491	)	$	(10,681,088	)
Weighted average shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Basic loss per share	$	(.11	)	$	(2.12	)	$	(.24	)	$	(2.38	)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Diluted EPS Computation
Net loss	$	(497,020	)	$	(9,513,812	)	$	(1,059,491	)	$	(10,681,088	)
Weighted average shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Stock options	—			—			—			—
Stock compensation arrangements	—			—			—			—
Diluted shares outstanding	4,477,651			4,491,998			4,481,737			4,484,676
Diluted loss per share	$	(.11	)	$	(2.12	)	$	(.24	)	$	(2.38	)

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Document and Entity Information Document	9 Months Ended
	Jun. 30, 2012	Aug. 06, 2012
Entity Information [Line Items]
Entity Registrant Name	VICON INDUSTRIES INC /NY/
Entity Central Index Key	0000310056
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		4,479,735

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Jun. 30, 2012

Comprehensive Loss [Abstract]

Schedule of Comprehensive Income (Loss) [Table Text Block]

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

The Company's accumulated other comprehensive loss balances at June 30, 2012 and September 30, 2011 consisted of the following:

	June 30, 2012			September 30, 2011
Foreign currency translation adjustment	$	(176,016	)	$	(190,929	)
Unrealized gain (loss) on derivatives	(122,162		)	82,206
Unrealized gain on securities	4,127			35,709
Accumulated other comprehensive loss	$	(294,051	)	$	(73,014	)

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Consolidated Consolidated Statements of Comprehensive Income (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net loss	$ (497,020)	$ (9,513,812)	$ (1,059,491)	$ (10,681,088)
Unrealized loss on securities, net of tax	1,156	41,602	(31,582)	(36,920)
Unrealized gain (loss) on derivatives, net of tax	(169,464)	(481)	(204,368)	18,339
Foreign currency translation adjustment	(68,201)	(31,045)	14,913	131,667
Other comprehensive loss	(236,509)	10,076	(221,037)	113,086
Comprehensive loss	$ (733,529)	$ (9,503,736)	$ (1,280,528)	$ (10,568,002)

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Stock Based Compensation

9 Months Ended

Jun. 30, 2012

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

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 (SFAS No. 123(R), “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, 2012 and 2011, the Company recorded non-cash compensation expense of $67,666 and $69,519, respectively, ($.02 and $.02 per basic and diluted share, respectively) relating to stock compensation.

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Derivative Instruments

9 Months Ended

Jun. 30, 2012

Derivative Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Instruments

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.  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, 2012, the Company had forward exchange contracts outstanding with notional amounts aggregating $3.9 million, whose aggregate fair value was a liability of approximately $122,162.  Such fair value was determined using published market exchange rates.  The change in the amount of the asset or liability for these instruments is shown as a component of accumulated other comprehensive loss, net of tax.

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Accumulated Other Comprehensive Loss (Details) (USD $)	Jun. 30, 2012	Sep. 30, 2011
Comprehensive Loss [Abstract]
Foreign currency translation adjustment	$ (176,016)	$ (190,929)
Foreign Currency Derivatives at Fair Value, Net	(122,162)	82,206
Available-for-sale Securities, Gross Unrealized Gains	4,127	35,709
Accumulated Other Comprehensive Income (Loss), Net of Tax	$ (294,051)	$ (73,014)

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Marketable Securities (Details) (USD $)	Jun. 30, 2012	Sep. 30, 2011
Marketable Securities [Abstract]
Available-for-sale Securities, Equity Securities	$ 25,374
Available-for-sale Securities, Amortized Cost Basis	394,960
Available-for-sale Securities, Gross Unrealized Gains	4,127	35,709
Available-for-sale Securities, Debt Securities	$ 373,713

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Income Taxes

9 Months Ended

Jun. 30, 2012

Income Tax [Abstract]

Income Tax Disclosure [Text Block]

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. In the third quarter ended June 30, 2011, the Company recognized a $2.6 million income tax 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 the period due to updated judgments of future results in light of 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.

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 2004 in the U.S. and 2006 in the U.K., Germany and Israel.

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Litigation

9 Months Ended

Jun. 30, 2012

Litigation [Abstract]

Contingencies Disclosure [Text Block]

Litigation

The Company was a defendant in a patent infringement suit commenced by Lectrolarm Custom Systems, Inc. ("Lectrolarm") in May 2003 in the United States District Court for the Western District of Tennessee.  The alleged infringement by the Company related to its dome camera and system controller product lines, among other products that collectively represent significant sales to the Company.  On July 13, 2011, the Company entered into a settlement and release agreement with Lectrolarm to settle the patent infringement suit. Under the settlement, the Company made a one-time payment of $5 million to Lectrolarm in exchange for the release of all current and future claims against the Company and the dismissal of Lectrolarm's suit pending in the U.S. District Court. Such settlement amount was recognized as patent litigation settlement expense in the accompanying financial statements along with $125,000 and $375,000 of associated legal expense for the three and nine month periods ended June 30, 2011, respectively. Although the Company and its outside patent counsel believed that the suit was without merit and had vigorously defended itself for over eight years, it decided to settle the matter to end years of management distraction and financial uncertainty since the suit was brought in 2003.

In the normal course of business, the Company is a party to certain other claims and litigation.  Management believes that the settlement of such claims and litigation, considered in the aggregate, will not have a material adverse effect on the Company’s financial position and results of operations.

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Recent Accounting Pronouncements

9 Months Ended

Jun. 30, 2012

Recent Accounting Pronouncements [Abstract]

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 became effective for the Company for the quarter ended March 31, 2012 and its adoption did not have a material effect on the Company's operating results or financial position.

In June 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders' equity. Although effective for the Company's next fiscal year ending September 30, 2013, ASU 2011-05 was adopted by the Company in the quarter ended June 30, 2012 with the insertion of the Statements of Comprehensive Loss in the accompanying financial statements.

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Fair Value

9 Months Ended

Jun. 30, 2012

Fair Value [Abstract]

Fair Value Disclosures [Text Block]

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.  The fair value of the Company’s foreign currency forward exchange contracts is estimated by obtaining quoted market exchange rates for similar contracts (Level 2 inputs).  The contracted exchange rates on committed forward exchange contracts was approximately $122,162 less favorable than the market rates for similar term contracts at June 30, 2012.

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.

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Loss per Share (Details) (USD $)	3 Months Ended		9 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Net Income (Loss) Attributable to Parent	$ (497,020)	$ (9,513,812)	$ (1,059,491)	$ (10,681,088)
Weighted Average Number of Shares Outstanding, Basic	4,477,651	4,491,998	4,481,737	4,484,676
Earnings Per Share, Basic	$ (0.11)	$ (2.12)	$ (0.24)	$ (2.38)

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Litigation (Details) (USD $)	3 Months Ended	9 Months Ended
	Jun. 30, 2011	Jun. 30, 2011
Loss Contingencies [Line Items]
Litigation Settlement, Gross	$ 5,000,000
Litigation Expense	$ 125,000	$ 375,000

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Condensed Consolidated Statements of Cash Flows (USD $)	9 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Net loss	$ (1,059,491)	$ (10,681,088)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	441,872	504,073
Amortization of deferred compensation	3,579	3,566
Stock compensation expense	218,580	220,806
Deferred income taxes	0	2,155,710
Change in assets and liabilities:
Accounts receivable, net	1,141,633	2,313,813
Inventories	(542,833)	47,277
Recoverable income taxes	0	55,477
Prepaid expenses and other current assets	(96,803)	(116,305)
Other assets	94,768	(135,776)
Accounts payable	(1,187,942)	(118,387)
Accrued compensation and employee benefits	(298,456)	74,205
Accrued expenses	76,488	47,460
Increase (Decrease) in Other Accrued Liabilities	0	5,056,518
Unearned revenue	(43,181)	(272,294)
Other liabilities	(28,734)	110,972
Net cash provided by (used in)	(1,280,520)	(733,973)
Cash flows from investing activities:
Increase (Decrease) in Trading Securities	1,604,924	(92,075)
Payments to Acquire Property, Plant, and Equipment	(186,089)	(311,364)
Net Cash Provided by (Used in) Investing Activities	1,418,835	(403,439)
Net Cash Provided by (Used in) Financing Activities [Abstract]
Payments for Repurchase of Common Stock	(81,450)	(215,269)
Proceeds from Stock Options Exercised	0	159,949
Net Cash Provided by (Used in) Financing Activities	(81,450)	(55,320)
Effect of Exchange Rate on Cash and Cash Equivalents	26,326	71,720
Cash and Cash Equivalents, Period Increase (Decrease)	83,191	(1,121,012)
Cash at beginning of year	5,628,156	8,789,967
Cash at end of period	$ 5,711,347	$ 7,668,955

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Accumulated Other Comprehensive Loss

9 Months Ended

Jun. 30, 2012

Comprehensive Loss [Abstract]

Comprehensive Income (Loss) Note [Text Block]

Accumulated Other Comprehensive Loss

The Company's accumulated other comprehensive loss balances at June 30, 2012 and September 30, 2011 consisted of the following:

	June 30, 2012			September 30, 2011
Foreign currency translation adjustment	$	(176,016	)	$	(190,929	)
Unrealized gain (loss) on derivatives	(122,162		)	82,206
Unrealized gain on securities	4,127			35,709
Accumulated other comprehensive loss	$	(294,051	)	$	(73,014	)

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Jun. 30, 2011
Valuation Allowance [Line Items]
Valuation Allowance, Deferred Tax Asset, Change in Amount	$ 2.6

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Accounts Receivable (Details) (USD $)	Jun. 30, 2012	Sep. 30, 2011
Accounts Receivable [Abstract]
Allowance for Doubtful Accounts Receivable, Current	$ 1,105,000	$ 1,089,000