SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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


For the fiscal year ended:
September 30, 2005                               Commission File No.    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)

Registrant's telephone number, including area code:            (631) 952-2288
- --------------------------------------------------------------------------------

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

                                      None

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

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

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

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act.
                               Yes            No   X
                                   -------      -------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                               Yes    X       No
                                   -------      -------

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
                               Yes            No   X
                                   -------      -------

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934)
                               Yes            No   X
                                   -------      -------

The  aggregate  market  value of voting  and  non-voting  Common  Stock  held by
non-affiliates of the registrant based upon the closing price of $3.25 per share
as of March 31, 2005 was approximately $9,480,000.

The number of shares outstanding of the registrant's Common Stock as of December
15, 2005 was 4,569,584.





                                     PART I
                                     ------
ITEM 1 - BUSINESS
- -----------------

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

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

Products
- --------
The Company's  product line  consists of  approximately  700 products,  of which
about half represent model  variations.  The Company's  product line consists of
various elements of a video system,  including network video servers and related
video management  software,  analog and IP cameras,  digital recorders,  display
units (monitors),  matrix switching  equipment for video  distribution,  robotic
camera dome systems,  system  controls,  and consoles for system  assembly.  The
Company  provides  a  comprehensive  line of  products  due to the  many  varied
climatic  and  operational  environments  in which the  products are expected to
perform.  In addition to selling from a standard  catalog  line,  the Company at
times  produces to  specification  or will modify an existing  product to meet a
customer's requirements.

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




                                      - 2 -
<page>

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

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

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

International Sales
- -------------------
The  Company  sells its  products  in Europe,  Scandinavia  and the Middle  East
through its U.K. based subsidiary and elsewhere outside the U.S.  principally by
direct export from its U.S. based parent  company.  In October 2004, the Company
acquired all of the operating assets of Videotronic  Infosystems GmbH, a 30-year
old Germany based video system supplier, to expand its presence into the sizable
German video  security  market.  The Company has a few  territorial  exclusivity
agreements  with  customers  but  primarily  uses a wide  range of  installation
companies and distributors in  international  markets.  In Australia,  Japan and
Norway,  the  Company  permits  independent  sales  representatives  to use  the
Company's name for marketing purposes.

Direct export sales and sales from the Company's foreign  subsidiaries  amounted
to $27.0  million,  $22.3  million  and  $21.1  million  or 48%,  42% and 41% of
consolidated net sales in fiscal years 2005, 2004, and 2003,  respectively.  The
Company's  principal foreign markets are Europe, the Middle East and the Pacific
Rim, which together  accounted for approximately  81% of international  sales in
fiscal 2005.




                                      - 3 -
<page>

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

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

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

At  September  30,  2005,  the Company  employed a total of 40  engineers in the
following areas: software development, mechanical design,  manufacturing/testing
and electrical and circuit design.  Engineering and development expense amounted
to approximately 9% of net sales in each of fiscal years 2005, 2004 and 2003.

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

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




                                      - 4 -
<page>

Intellectual Property
- ---------------------
The  Company  owns,  and has  pending,  a limited  number of design and  utility
patents  expiring at various  times.  The Company  owns certain  trademarks  and
several other trademark  applications  are pending both in the United States and
in Europe. Most of the Company's key products employ proprietary  software which
is protected by copyright.  The Company  considers  its software  products to be
unique  and is a  principal  element  in the  differentiation  of the  Company's
products from its competition. However, the laws of certain foreign countries do
not  protect  intellectual  property  rights  to the same  extent or in the same
manner  as the  laws  of the  U.S.  The  Company  has no  significant  licenses,
franchises  or  concessions  with  respect to any of its  products  or  business
dealings.  In  addition,  the Company  does not  believe  its limited  number of
patents or its lack of licenses, franchises and concessions to be of substantial
significance.  However, the Company is a defendant in a patent infringement suit
as  discussed  in "Item 3 - Legal  Proceedings",  the  outcome  of  which  could
possibly have a material effect on the Company's business.

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

Backlog
- -------
The backlog of orders  believed to be firm as of September 30, 2005 and 2004 was
approximately $6.7 million and $4.7 million, respectively.  Orders are generally
cancelable  without  penalty at the option of the customer.  The Company prefers
that its  backlog of orders not exceed its  ability to fulfill  such orders on a
timely basis, since experience shows that long delivery schedules only encourage
the Company's customers to look elsewhere for product availability.

Employees
- ---------
At September 30, 2005, the Company employed 218 full-time  employees,  of whom 9
are officers,  43 are in  administration,  91 are in sales and technical service
capacities,  40 are in engineering and 35 are production employees. At September
30, 2004, the Company employed 219 persons.  There are no collective  bargaining
agreements  with any of the Company's  employees  and the Company  considers its
relations with its employees to be good.

ITEM 2 - PROPERTIES
- -------------------
The Company principally  operates from an 80,000 square-foot facility located at
89 Arkay  Drive,  Hauppauge,  New York,  which it owns.  The Company also owns a
14,000  square-foot  sales,  service and warehouse  facility in southern England
which  services the U.K.,  Europe and the Middle East. In addition,  the Company
operates under leases from offices in Manchester,  England;  Zaventem,  Belgium;
Yavne, Israel; and Neumunster, Germany. The Company believes that its facilities
are adequate to meet its current and foreseeable operating needs.




                                      - 5 -
<page>

ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
The Company is one of several defendants in a patent infringement suit commenced
by Lectrolarm  Custom  Systems,  Inc. in May 2003 in the United States  District
Court for the Western  District of Tennessee.  The alleged  infringement  by the
Company  relates to its camera dome systems and other  products  that  represent
significant sales to the Company.  Among other things, the suit seeks injunctive
relief and  unspecified  damages.  The Company and its  outside  patent  counsel
believe that the complaint  against the Company is without merit. The Company is
vigorously defending itself and is a party to a joint defense with certain other
named  defendants.  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 may
attempt  to  settle  the  case.  However,  there  can be no  assurance  that any
settlement can be reached.

In connection  with this suit, the Company filed a request with the U.S.  Patent
and Trademark Office for reexamination of the plaintiff's patent. In April 2005,
such  request was granted by the U.S.  Patent and  Trademark  Office,  who found
sufficient evidence to warrant a reexamination of the plaintiff's patent.

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



                                     PART II
                                     -------

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER
- ----------------------------------------------------------------------
         MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
         -------------------------------------------------
The Company's  stock is traded on the American Stock  Exchange  (AMEX) under the
symbol (VII).  The  following  table sets forth for the periods  indicated,  the
range of high and low prices for the Company's Common Stock on AMEX:

          Quarter
           Ended            High        Low
          -------           ----        ----
          Fiscal 2005
          -----------
          December          5.75        4.33
          March             4.74        3.23
          June              3.72        2.55
          September         4.80        2.50

          Fiscal 2004
          -----------
          December          4.74        3.90
          March             5.25        4.53
          June             11.49        4.00
          September         5.15        4.47




The last sale  price of the  Company's  Common  Stock on  December  15,  2005 as
reported  on AMEX was $3.13 per  share.  As of  December  15,  2005,  there were
approximately 205 shareholders of record.

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

                                      - 6 -
<page>


On April 26, 2001, the Company announced that its Board of Directors  authorized
the  repurchase  of up to $1 million of shares of the  Company's  common  stock,
which represented  approximately  9.8% of shares outstanding on the announcement
date. The following table  summarizes  repurchases of common stock for the three
month period ended September 30, 2005:

                        Total
                        Number       Average      Approximate Dollar Value
                      of Shares    Price Paid     of Shares that May Yet Be
     Period          Purchased (1)  per Share   Purchased Under the Program
     ------          -------------  ---------   ----------------------------

07/01/05-07/31/05          -          $  -                $459,664
08/01/05-08/31/05          -          $  -                $459,664
09/01/05-09/30/05          -          $  -                $459,664
                        ------        -----
      Total                -          $  -
                        ======        ======


(1) All repurchases were executed in open market transactions.





ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------

FISCAL YEAR                  2005        2004        2003      2002       2001
                             ----        ----        ----      ----       ----

                                   (in thousands, except per share data)

Net sales                  $56,056     $53,533     $51,954   $54,168    $65,365
Gross profit                20,996      19,711      19,091    18,218     21,686
Operating loss              (2,931)     (2,226)     (1,677)   (2,180)      (418)
Income(loss)before
  income taxes              (3,069)     (2,210)     (1,739)   (2,349)     2,307
Net income(loss) (1)        (2,885)     (2,691)     (4,874)   (1,579)     1,497
Earnings(loss)per share(1):
  Basic and Diluted           (.63)       (.59)      (1.05)     (.34)       .32
Total assets                34,192      38,867      41,893    47,426     51,926
Long-term debt               2,062       2,410       2,732     3,040      3,498
Working capital             19,713      22,793      25,333    27,827     30,005
Property, plant and
  equipment (net)            6,616       7,090       7,286     7,666      8,139





(1) Fiscal 2003 includes the effects of the  Company's  adoption of Statement of
Financial  Accounting Standards No. 142, "Goodwill and Other Intangible Assets",
on October 1, 2002.




                                      - 7 -




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

RESULTS OF OPERATIONS
- ---------------------
Fiscal Year 2005 Compared with 2004
- -----------------------------------
Net sales for 2005 increased 5% to $56.1 million  compared with $53.5 million in
2004.  Net sales for 2005  included  $6.2  million of sales  from the  Company's
German subsidiary,  Videotronic, whose operating assets were acquired on October
1, 2004.  Domestic  sales  decreased  7% to $29.1  million  compared  with $31.2
million  in 2004.  International  sales,  excluding  the  Company's  Videotronic
subsidiary,  decreased 7% to $20.8 million  compared with $22.3 million in 2004.
The backlog of unfilled  orders was $6.7 million at September  30, 2005 compared
with $4.7 million at September 30, 2004.

Gross profit  margins for 2005  increased to 37.5%  compared with 36.8% in 2004.
The 2004 margin was  negatively  impacted by $1.1 million  (2.1%) of charges for
the phase out of certain  discontinued  product lines.  Excluding the effects of
these year ago period charges,  the Company's 2005 margins  declined as a result
of reduced selling prices on its digital video server/recorder product line.

Operating  expenses for 2005  increased  to $23.9  million or 42.7% of net sales
compared with $21.9 million or 41.0% of net sales in 2004. The increase included
$2.3  million  of  operating  expenses  incurred  by the  Company's  Videotronic
subsidiary.  In 2005 and 2004,  the  Company  incurred  $661,000  and  $562,000,
respectively,  of legal  expense in the  defense of a patent  infringement  suit
($1.3 million since  inception in 2003). In addition,  the Company  continued to
invest in new product development in 2005, incurring $4.8 million of engineering
and development expenses compared with $4.9 million in 2004.

The Company  incurred an operating  loss of $2.9 million in 2005 compared with a
loss of $2.2  million  in 2004.  The  current  year  results  include a $357,000
operating loss from the Company's Videotronic subsidiary as it transitioned from
former bankruptcy protection.

Interest  expense  decreased to $181,000 for 2005 compared with $187,000 in 2004
principally as a result of the paydown of bank  borrowings  offset,  in part, by
the effect of increased  interest  rates during 2005.  Interest and other income
decreased to $88,000 for 2005 compared with  $204,000 in 2004  principally  as a
result of reduced  investable  funds during the current year.  During 2005,  the
Company also  liquidated  the principal  portion of its investment in marketable
securities, resulting in a $45,000 loss for the year.

Income tax expense for 2005 was $27,000  compared with $481,000 in 2004 relating
principally to profits reported by the Company's European operation. The Company
has ceased  recognizing  tax  benefits on its U.S.  operating  losses due to the
uncertainty of its future realization.

An extraordinary gain in the amount of $211,000 was recorded in 2005 relating to
the Company's acquisition of its Videotronic subsidiary. The gain represents the
recovery of tangible net assets  acquired in excess of the purchase price of the
assets.

As a result of the foregoing, the Company incurred a net loss of $2.9 million in
2005 compared with a net loss of $2.7 million in 2004.




                                      - 8 -




                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                      ------------------------------------

RESULTS OF OPERATIONS
- ---------------------
Fiscal Year 2004 Compared with 2003
- -----------------------------------
Net sales for 2004 increased  $1.5 million or 3% to $53.5 million  compared with
$52.0  million in 2003.  Domestic  sales  increased  $.3  million or 1% to $31.2
million compared with $30.9 million in 2003.  International sales increased $1.2
million or 6% to $22.3 million compared with $21.1 million in 2003. The increase
in international  sales was due principally to the effects of favorable exchange
rate changes as the British pound and Eurodollar  strengthened  against the U.S.
dollar in the current year.  The backlog of unfilled  orders was $4.7 million at
September 30, 2004 compared with $7.4 million at September 30, 2003.

Gross profit margins for 2004 remained relatively  unchanged from 2003 levels at
36.8%.  In the current year, the Company  recognized $1.1 million of charges for
the  phase out of  discontinued  product  lines  with the  introductions  of the
Company's new network video  servers/recorders  and dome camera  product  lines.
Such inventory  provisions were largely offset by increased  profit margins from
the Company's European based operations due to the effects of favorable exchange
rate changes.

Operating  expenses for 2004 were $21.9  million or 41.0% of net sales  compared
with  $20.8  million  or 40.0% of net sales in 2003  principally  as a result of
increased  foreign  sales  office  costs  largely  due to  unfavorable  currency
translation and legal fees associated with the defense of a patent  infringement
suit.  The  Company  continued  to invest in new  product  development  in 2004,
incurring  $4.9  million of  engineering  and  development  expenses,  virtually
unchanged from 2003 levels. Prior year operating expenses included a performance
based  compensation  charge of $620,000  associated with the introduction of the
Company's new digital video product line.

The Company  incurred an operating  loss of $2.2 million in 2004 compared with a
loss of $1.7 million in 2003.

Interest expense  decreased  $54,000 to $187,000 for 2004 compared with $241,000
in 2003 principally as a result of the paydown of bank borrowings.

Income tax expense for fiscal 2004 was  $481,000  compared  with $1.8 million in
2003. In fiscal 2003, the Company recognized a $1.9 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.  Income tax
expense for fiscal 2004 and 2003 included  $469,000 and $249,000,  respectively,
relating to taxes on profits reported by the Company's European operations.

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 entire
carrying   amount  of  goodwill  was  impaired  when  tested   pursuant  to  the
requirements of a new accounting  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 2003.

As a result of the foregoing, the Company incurred a net loss of $2.7 million in
2004 compared with a net loss of $4.9 million in 2003.




                                      - 9 -




                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                      ------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used in operating activities was $514,000 for 2005 due primarily to the
$2.9 million net loss  incurred for the year offset,  in part, by a $2.6 million
reduction in inventories. Net cash provided by investing activities was $574,000
for 2005,  which included a $2.0 million  liquidation  of marketable  securities
offset by the  $868,000  acquisition  of the  Company's  Videotronic  subsidiary
operating assets and $557,000 of general capital expenditures.  Net cash used in
financing  activities was $285,000 in 2005, which included $286,000 of scheduled
repayments of bank mortgage loans. As a result of the foregoing,  cash decreased
by  $245,000  for 2005 after the  effect of  exchange  rate  changes on the cash
position of the Company.

The Company's European based subsidiary maintains a bank overdraft facility that
provides for maximum  borrowings of one million Pounds  Sterling  (approximately
$1,770,000)  to support its local working  capital  requirements.  This facility
expires  in  February  2006.  At  September  30,  2005 and 2004,  there  were no
outstanding borrowings under this facility.

The  following  is a  summary  of the  Company's  long-term  debt  and  material
operating lease obligations as of September 30, 2005:

              Debt                 Lease
Year       Repayments           Commitments         Total
- ----       ----------           -----------         -----
2006       $  409,000             $329,000       $  738,000
2007          322,000              174,000          496,000
2008        1,740,000               37,000        1,777,000

The Company has incurred  operating  losses in recent years which, if continued,
could  exhaust  the  Company's  cash  reserves  and limit its  ability to secure
additional bank financing,  if needed.  The Company has instituted certain plans
to preserve its cash,  including cost cutting  measures and inventory  reduction
initiatives. Based upon the achievement of such plans, the Company believes that
it will have sufficient cash to meet its anticipated  operating  costs,  capital
expenditures and debt service 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 is one of several defendants in a patent infringement suit commenced
by Lectrolarm  Custom  Systems,  Inc. in May 2003 in the United States  District
Court for the Western  District of Tennessee.  The alleged  infringement  by the
Company  relates to its camera dome systems and other  products  that  represent
significant sales to the Company.  Among other things, the suit seeks injunctive
relief and  unspecified  damages.  The Company and its  outside  patent  counsel
believe that the complaint  against the Company is without merit. The Company is
vigorously defending itself and is a party to a joint defense with certain other
named  defendants.  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 may
attempt  to  settle  the  case.  However,  there  can be no  assurance  that any
settlement can be reached.

In connection  with this suit, the Company filed a request with the U.S.  Patent
and Trademark Office for reexamination of the plaintiff's patent. In April 2005,
such  request was granted by the U.S.  Patent and  Trademark  Office,  who found
sufficient evidence to warrant a reexamination of the plaintiff's patent.

                                     - 10 -
<page>

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

The Company  recognizes  revenue  when  persuasive  evidence  of an  arrangement
exists,  delivery has occurred or services have been rendered, the selling price
is fixed or  determinable,  and  collectibility  of the resulting  receivable is
reasonably  assured.  As it  relates  to product  sales,  revenue  is  generally
recognized when products are sold and title is passed to the customer.  Shipping
and handling costs are included in cost of sales. 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. Pursuant to
the  adoption  of 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
delivered  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  Statement  of  Position  97-2,
"Software Revenue Recognition", as amended.

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.




                                     - 11 -
<page>

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 fiscal  2003,  the  Company  recognized  a $1.9  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  past  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.

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.

Recent Accounting Pronouncements
- --------------------------------
As  permitted by SFAS No. 123, the Company  currently  accounts for  share-based
payments to employees  using APB Opinion No. 25's intrinsic value method and, as
such,  generally  recognizes no compensation cost for employee stock options. In
December 2004, the Financial  Accounting Standards Board (FASB) issued Statement
of Financial  Accounting  Standards (SFAS) No. 123 (revised 2004),  "Share-Based
Payment",  which is a revision  of SFAS No.  123,  "Accounting  for  Stock-Based
Compensation".  SFAS No. 123(R)  supersedes  Accounting  Principles  Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees",  and amends SFAS No.
95,  "Statement  of Cash Flows".  Generally,  the approach in SFAS No. 123(R) is
similar to the approach  described  in SFAS No. 123.  However,  SFAS No.  123(R)
requires all  share-based  payments to employees,  including  grants of employee
stock  options,  to be  recognized in the income  statement  based on their fair
values at the date of grant. Pro forma disclosure is no longer an alternative.

SFAS No. 123(R) permits public companies to adopt its requirements  using one of
two prescribed methods. The "modified  prospective" method requires compensation
cost to be  recognized  based on the  requirements  of SFAS No.  123(R)  for all
outstanding  vested stock option  grants and all  share-based  payments  granted
after the effective date. Such method allows for the use of SFAS No. 123 for all
awards granted to employees  prior to the effective date of SFAS No. 123(R) that
remain  unvested on the  effective  date.  The "modified  retrospective"  method
includes the  requirements of the modified  prospective  method described above,
but also permits entities to restate based on the amounts previously  recognized
under SFAS No. 123 for  purposes of pro forma  disclosures  either (a) all prior
periods presented or (b) prior interim periods of the year of adoption.




                                     - 12 -
<page>

The Company has adopted  Statement  123(R) on October 1, 2005.  The  adoption of
this  statement  will have the effect of reducing  net income and  earnings  per
share or  increasing  net loss and net loss per share as  compared to what would
have been  reported  under the current  requirements.  The Company is  presently
unable to determine the precise  future  annual impact of this  statement on its
results of operations since such determination would require knowledge of future
events and facts unknown to the Company at this time.  However, at September 30,
2005, the Company had 294,253 unvested options on which future compensation cost
will be recognized.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB  No.  43,  Chapter  4",  which  adopts  wording  from  the  International
Accounting  Standards Board's IAS 2, "Inventories",  in an effort to improve the
comparability of cross-border  financial  reporting.  The new standard indicates
that abnormal  freight,  handling costs and wasted  materials are required to be
treated as current period  charges rather than as a portion of inventory  costs.
Additionally,  the standard  clarifies that fixed production  overhead should be
allocated  based on the normal capacity of a production  facility.  SFAS No. 151
will become  effective for the Company's  fiscal year ending September 30, 2006.
The  Company  does not  expect  that the  adoption  of SFAS No.  151 will have a
material impact on its consolidated financial position, results of operations or
cash flows.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections",  which replaces APB Opinion No. 20  "Accounting  Changes" and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements".  SFAS No.
154 is effective  for the  Company's  fiscal year ending  September 30, 2007 and
requires  retrospective  application  to prior period  financial  statements  of
voluntary changes in accounting principle, unless it is impractical to determine
either the  period-specific  effects or the cumulative effect of the change. The
Company's consolidated  financial position,  results of operations or cash flows
will only be impacted  by SFAS No. 154 if it  implements  a voluntary  change in
accounting principle or correct accounting errors in future periods.

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

Sales by the Company's U.K. and German based subsidiaries to customers in Europe
and the Middle East are made in British pounds sterling  (pounds) or Eurodollars
(Euros). In fiscal 2005, approximately $4.1 million of products were sold by the
Company to its U.K.  based  subsidiary  for  resale.  The  Company  attempts  to
minimize its currency  exposure on  intercompany  sales  through the purchase of
forward exchange contracts.

The Company's  Israeli based subsidiary  incurs Shekel based operating  expenses
which are funded by the Company in U.S. dollars.  In past years, the Company had
purchased forward exchange  contracts to minimize its currency exposure on these
expenses during periods of favorable fluctuating exchange rates.

As of September 30, 2005, the Company had forward exchange contracts outstanding
with notional  amounts  aggregating  $1.2 million.  The Company also attempts to
reduce  the  impact of an  unfavorable  exchange  rate  condition  through  cost
reductions  from its  suppliers  and  shifting  product  sourcing  to  suppliers
transacting in more stable and favorable currencies.

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


                                     - 13 -
<page>

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
Market Risk Factors
- -------------------
The Company is exposed to various  market  risks,  including  changes in foreign
currency  exchange  rates and  interest  rates.  The  Company  has a policy that
prohibits the use of currency  derivatives or other  financial  instruments  for
trading or speculative purposes.

The Company  enters into forward  exchange  contracts to hedge  certain  foreign
currency  exposures  and  minimize the effect of such  fluctuations  on reported
earnings and cash flow (see  "Foreign  Currency  Activity",  Note 1  "Derivative
Instruments"  and "Fair  Value of  Financial  Instruments"  to the  accompanying
financial  statements).  At September 30, 2005, the Company's  foreign  currency
exchange  risks  included an  aggregate  $1.8  million of  intercompany  account
balances between the Company and its subsidiaries, which are short term and will
be  settled  in fiscal  2006.  The  following  sensitivity  analysis  assumes an
instantaneous  10%  change in foreign  currency  exchange  rates  from  year-end
levels, with all other variables held constant.

At  September  30,  2005, a 10%  strengthening  or weakening of the U.S.  dollar
versus the  British  pound  would  result in a $180,000  decrease  or  increase,
respectively,  in the intercompany accounts receivable balance.  Certain of such
foreign  currency  exchange  risk at September  30, 2005 has been hedged by $1.2
million of forward exchange contracts.

At September 30, 2005, the Company had $1.6 million of outstanding floating rate
bank debt which was covered by an interest rate swap agreement that  effectively
converts the  foregoing  floating  rate debt to stated fixed rates (see "Note 6.
Long-Term Debt" to the accompanying financial statements). Thus, the Company has
substantially no net interest rate exposures on these instruments.  However, the
Company had approximately $736,000 of floating rate bank debt that is subject to
interest rate risk as it was not covered by an interest rate swap agreement. The
Company does not believe that a 10%  fluctuation  in interest rates would have a
material  effect  on  its  consolidated   financial   position  and  results  of
operations.

Related Party Transactions
- --------------------------
Refer to Item 13 and "Note 14. Related Party  Transactions"  to the accompanying
financial statements.

Inflation
- ---------
The impact of  inflation  on the Company has been minimal in recent years as the
rate of inflation remains low. However, inflation continues to increase costs to
the Company.  As operating  expenses and production costs increase,  the Company
principally seeks to increase sales and lower its product cost where possible.

"Safe Harbor"  Statement under the Private  Securities  Litigation Reform Act of
- --------------------------------------------------------------------------------
1995
- ----
Statements in this Report on Form 10-K and other  statements made by the Company
or its representatives that are not strictly historical facts including, without
limitation,   statements   included  herein  under  the  captions   "Results  of
Operations"  and  "Liquidity  and  Financial  Condition"  are  "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that should be  considered  as subject to the many risks and  uncertainties
that  exist  in  the  Company's   operations  and  business   environment.   The
forward-looking  statements  are based on  current  expectations  and  involve a
number of known and unknown risks and uncertainties  that could cause the actual
results,  performance  and/or  achievements of the Company to differ  materially
from any future results, performance or achievements, express or

                                     - 14 -
<page>

implied, by the forward-looking  statements.  Readers are cautioned not to place
undue  reliance on these  forward-looking  statements,  and that in light of the
significant uncertainties inherent in forward-looking  statements, the inclusion
of such statements  should not be regarded as a representation by the Company or
any other person that the  objectives  or plans of the Company will be achieved.
The  Company  also  assumes  no  obligation  to  publicly  update or revise  its
forward-looking  statements  or to  advise of  changes  in the  assumptions  and
factors on which they are based.

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

ITEM 9A - 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.

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 fourth quarter of the fiscal year ended  September 30, 2005 that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
registrant's internal control over financial reporting.

The Company's  size dictates that it conducts  business with a minimal number of
financial and  administrative  employees,  which inherently results in a lack of
documented  controls  and  segregation  of duties  within  the  Company  and its
operating  subsidiaries.  Management  will  continue to evaluate  the  employees
involved and the control  procedures in place,  the risks  associated  with such
lack of segregation  and whether the potential  benefits of adding  employees to
clearly  segregate  duties  justifies  the  expense  associated  with such added
personnel.  In addition,  management is aware that many of the internal controls
that are in place at the  Company  are  undocumented  controls.  The  Company is
working to document these  controls to be in compliance  with Section 404 of the
Sarbanes-Oxley Act of 2002.

Limitations on the Effectiveness of Controls
- --------------------------------------------
The Company  believes  that a control  system,  no matter how well  designed and
operated,  cannot provide absolute  assurance that the objectives of the control
system are met, and no  evaluation  of controls can provide  absolute  assurance
that all control  issues and instances of fraud,  if any,  within a company have
been detected.

ITEM 9B - OTHER INFORMATION
- ---------------------------
None.




                                     - 15 -
<page>

                                    PART III
                                    --------

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------

The Executive Officers and Directors of the Company are as follows:

           Name              Age                    Position
           ----              ---                    --------
      Kenneth M. Darby        59      Chairman of the Board, President and Chief
                                        Executive Officer
      Thomas Finstein         48      Executive Vice President, Products
                                        and Operations
      John M. Badke           46      Senior Vice President, Finance and
                                        Chief Financial Officer
      Peter A. Horn           50      Vice President, Operations
      Bret M. McGowan         40      Vice President, U.S. Sales and Marketing
      Yacov A. Pshtissky      54      Vice President, Technology and Development
      Joan L. Wolf            51      Executive Administrator and
                                        Corporate Secretary
      Christopher J. Wall     52      Managing Director, Vicon Industries Ltd.
      Yigal Abiri             56      General Manager, Vicon Systems Ltd.
      Clifton H.W. Maloney    68      Director
      Peter F. Neumann        71      Director
      W. Gregory Robertson    62      Director
      Arthur D. Roche         67      Director


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

Kenneth M. Darby - Chairman of the Board, President and Chief Executive Officer.
Mr.  Darby has  served as  Chairman  of the Board  since  April  1999,  as Chief
Executive  Officer since April 1992 and as President  since October 1991. He has
served as a  director  since  1987.  Mr.  Darby also  served as Chief  Operating
Officer and as Executive Vice President,  Vice President,  Finance and Treasurer
of the Company. He joined the Company in 1978 as Controller after more than nine
years at Peat Marwick  Mitchell & Co., a public  accounting  firm.  Mr.  Darby's
current term on the Board ends in May 2008.

Thomas  Finstein -  Executive  Vice  President,  Products  and  Operations.  Mr.
Finstein  joined the Company in May 2004 as Executive Vice  President,  Products
and Operations.  Prior to joining the Company,  Mr. Finstein served as President
and CEO of ProAct  Technologies,  an HR and Benefits Software  Solutions Company
with whom he was employed  from October 2001 until May 2004.  Prior to that,  he
served as Vice President and General Manager of Hyperion  Solutions,  a Business
Intelligence  Software  Solutions Company with whom he was employed from January
1996 until October 2001.

John M. Badke - Senior Vice President,  Finance and Chief Financial Officer. Mr.
Badke has been Senior Vice President, Finance since May 2004 and Chief Financial
Officer since December 1999.  Previously,  he was Vice President,  Finance since
October 1998 and served as Controller  since joining the Company in 1992.  Prior
to joining the Company,  Mr.  Badke was  Controller  for NEK Cable,  Inc. and an
audit manager with the  international  accounting firms of Arthur Andersen & Co.
and Peat Marwick Main & Co.




                                     - 16 -
<page>

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

Bret M. McGowan - Vice  President,  Marketing.  Mr. McGowan was promoted to Vice
President,  U.S. Sales and Marketing in April 2005. From 2001 to 2005, he served
as Vice  President,  Marketing.  Previously,  he served as Director of Marketing
since 1998 and as Marketing Manager since 1994. He joined the Company in 1993 as
a Marketing Specialist.

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

Joan L. Wolf - Executive  Administrator  and Corporate  Secretary.  Ms. Wolf has
been  Executive  Administrator  since she  joined  the  Company  in 1990 and was
appointed to the  non-operating  officer position of Corporate  Secretary in May
2002.

Christopher J. Wall - Managing Director, Vicon Industries, Ltd. Mr Wall has been
Managing  Director,  Vicon Industries,  Ltd. since February 1996.  Previously he
served as Financial Director,  Vicon Industries,  Ltd. since joining the Company
in 1989.  Prior to joining  the  Company  he held a variety of senior  financial
positions within Westland plc, a UK aerospace company.

Yigal Abiri - General  Manager,  Vicon  Systems  Ltd. Mr. Abiri has been General
Manager,   Vicon  Systems  Ltd.  since  joining  the  Company  in  August  1999.
Previously, he served as President of QSR, Ltd., a developer and manufacturer of
remote video surveillance equipment.

Clifton H.W. Maloney - Director.  Mr. Maloney has been a director of the Company
since May 2004.  Mr.  Maloney is the President of C.H.W.  Maloney & Co., Inc., a
private  investment  firm that he founded in 1981.  From 1974 to 1984,  he was a
Vice  President in investment  banking at Goldman,  Sachs & Co. Mr. Maloney is a
Director of Interpool, Inc., Chromium Industries, Inc. and The Wall Street Fund.
His current term on the Board ends in May 2007.

Peter F.  Neumann -  Director.  Mr.  Neumann  has been a director of the Company
since 1987.  He is the retired  President  of  Flynn-Neumann  Agency,  Inc.,  an
insurance  brokerage firm. Mr.  Neumann's  current term on the Board ends in May
2006.

W.  Gregory  Robertson  -  Director.  Mr.  Robertson  has been a director of the
Company  since 1991.  He is  President  of TM Capital  Corporation,  a financial
services company which he founded in 1989. From 1985 to 1989, he was employed by
Thomson  McKinnon  Securities,  Inc.  as head of  investment  banking and public
finance. Mr. Robertson's current term on the Board ends in May 2007.

Arthur D. Roche - Director.  Mr. Roche has been a director of the Company  since
1992. He served as Executive Vice President and  co-participant in the Office of
the  President of the Company from August 1993 until his  retirement in November
1999.  For the six months  prior to that time,  Mr.  Roche  provided  consulting
services to the Company.  In October  1991,  Mr.  Roche  retired as a partner of
Arthur Andersen & Co., an international accounting firm which he joined in 1960.
His current term on the Board ends in May 2008.

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




                                     - 17 -
<page>

Audit Committee Financial Expert
- --------------------------------
All  independent  directors  are  members of the Audit  Committee.  The Board of
Directors has determined that Arthur D. Roche,  Chairman of the Audit Committee,
qualifies as an "Audit Committee Financial Expert", as defined by Securities and
Exchange  Commission Rules,  based on his education,  experience and background.
Mr. Roche is  independent  as that term is used in Item  7(d)(3)(iv) of Schedule
14A under the Exchange Act.

Code of Ethics
- --------------
The  Company has  adopted a Code of Ethics  that  applies to all its  employees,
including its chief executive officer,  chief financial and accounting  officer,
controller, and any persons performing similar functions. Such Code of Ethics is
published on the Company's internet website (www.vicon-cctv.com).

Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Based solely upon a review of Forms 3 and 4 and amendments  thereto furnished to
the  Company  during the year  ended  September  30,  2005 and  certain  written
representations  that no Form 5 is  required,  no person who, at any time during
the year ended September 30, 2005 was a director, officer or beneficial owner of
more than 10 percent of any class of equity securities of the Company registered
pursuant to Section 12 of the Exchange Act failed to file on a timely basis,  as
disclosed in the above forms,  reports required by Section 16(a) of the Exchange
Act during the year ended  September 30, 2005,  except that a director and three
officers  each filed one late report on Form 3 as to their  director and officer
appointments,   respectively,  and  as  to  grants  of  stock  options  to  such
individuals.




                                     - 18 -
<page>

ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
The following table sets forth all  compensation  awarded to, earned by, or paid
for all services rendered to the Company during 2005, 2004 and 2003 by the Chief
Executive Officer and the Company's most highly  compensated  executive officers
whose total annual salary and bonus exceeded $100,000 during any such year.

<table>
<caption>
                                                 SUMMARY COMPENSATION TABLE
                                                 --------------------------
                                                                        Long-Term Compensation
                                                                        ----------------------
                                       Annual Compensation                Awards         Payouts
                                       -------------------                ------         -------
                                                     Other                                     All
                                                     Annual  Restricted  Securities           Other
Name and                                             Compen-   Stock     Underlying   LTIP   Compen-
Principal Position      Year  Salary     Bonus       sation    Award     Options (#) Payouts sation
- ------------------      ----  -------   -------      ------  ----------  ----------- ------- ------
<s>                      <c>    <c>       <c>          <c>      <c>          <c>       <c>     <c>
Kenneth M. Darby        2005  $298,462  $ 75,000 (1)    -        -            -         -       -
 Chairman and           2004   310,000    75,000 (1)    -        -            -         -       -
  Chief Executive       2003   310,000    75,000 (1)    -        -         100,000      -       -
   Officer

Thomas Finstein         2005  $225,000  $ 35,000 (1)    -        -          10,000      -       -
 Executive              2004    90,000    20,000 (2)    -        -          20,000      -       -
  Vice President        2003      -         -           -        -            -         -       -

John M. Badke           2005  $165,000  $ 35,000 (1)    -        -           5,000      -       -
 Senior Vice President  2004   152,000    35,000 (1)    -        -            -         -       -
  and Chief Financial   2003   145,000    35,000 (1)    -        -          25,000      -       -
   Officer

Christopher J. Wall     2005  $176,000  $ 14,000 (3)    -        -           5,000      -       -
 Managing Director      2004   148,000   113,000 (3)    -        -            -         -       -
  Vicon Industries Ltd. 2003   129,000    89,000 (3)    -        -          20,000      -       -

Yigal Abiri             2005  $160,000  $   -           -        -            -         -   $ 90,000 (6)
 General Manager        2004   160,000    10,725 (4)    -        -            -         -     66,946 (5)
  Vicon Systems Ltd.    2003   125,000    25,000 (4)    -        -          10,000      -    620,000 (6)

</table>


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

(2)  Represents an incentive sign-on bonus.

(3)  Represents  sales and profit  related  bonus based on financial  results of
     Vicon Industries, Ltd.

(4)  Represents discretionary bonus.

(5)  Represents $43,938 of severance pay paid into a management insurance policy
     and $23,008 paid as compensation for accrued vacation.

(6)  Represents performance based compensation  associated with the introduction
     of the Company's new digital video product line.






                                     - 19 -
<page>

OPTION GRANTS IN LAST FISCAL YEAR
- ---------------------------------
                                                            Potential Realizable
                           Individual Grants                   Value at Assumed
                           -----------------               Annual Rates of Stock
                          % of Total                          Price Appreciation
                  No. of  Granted to    Exercise               for Option Term
                 Options  Employees in   Price    Expiration -------------------
Name             Granted  Fiscal Year  Per Share     Date        5%       10%
- -------------    ------- ------------- --------- -----------  --------  -------

Thomas Finstein   10,000      11.6%      $3.00       5/11     $10,203   $ 23,147
John Badke         5,000       5.8%      $3.00       5/11     $ 5,101   $ 11,573
Christoper Wall    5,000       5.8%      $3.00       5/11     $ 5,101   $ 11,573


Options  granted in the year ended September 30, 2005 were issued under the 1999
Incentive  Stock Option Plan, the 2002  Non-Qualified  Stock Option Plan and the
2002 Incentive  Stock Option Plan and are  exercisable as follows:  up to 30% of
the shares on the second anniversary of the grant date, an additional 30% of the
shares on the third anniversary of the grant date, and the balance of the shares
on the  fourth  anniversary  of  the  grant  date,  except  that  no  option  is
exercisable after the expiration of six years from the date of grant.


               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
               -----------------------------------------------
                        AND FISCAL YEAR-END OPTION VALUES
                        ---------------------------------
                                                   At September 30, 2005
                                                   ---------------------
                                                 Number of
                                                 Securities       Value of
                                                 Underlying      Unexercised
                                                Unexercised     In-the-money
                                                  Options        Options (2)
                     Shares                    -------------   -------------
                    Acquired       Value        Exercisable/    Exercisable/
     Name          On Exercise  Realized (1)   Unexercisable   Unexercisable
- ----------------   -----------  ------------   -------------   -------------


Kenneth M. Darby       -0-          -0-        59,492/62,047   $4,530/$9,470
Thomas Finstein        -0-          -0-          -0- /30,000      -0-/800
John M. Badke          -0-          -0-        24,461/23,900    1,698/3,382
Christopher J. Wall    -0-          -0-         6,000/19,000      840/2,360
Yigal Abiri            -0-          -0-        23,000/7,000     4,500/-0-

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

(2) Calculated  based on the difference  between the closing quoted market price
($3.08) and the exercise price.




                                        - 20 -




Employment Agreements
- ---------------------
Mr. Darby is a party to an employment  agreement  with the Company that provides
for an annual salary of $310,000 through fiscal year 2006. Messrs.  Finstein and
Badke are parties to  employment  agreements  with the Company  that provide for
annual salaries of $225,000 and $150,000,  respectively,  through April 30, 2006
and  December  31,  2005,  respectively.  Each of these  agreements  provide for
payment in an amount up to three times the average annual  compensation  for the
previous five years if there is a change in control of the Company without Board
of Director  approval.  Mr. Wall is a party to an employment  agreement with the
Company that provides for an annual salary of $168,000 through fiscal year 2006.
Certain of the aforementioned  agreements were executed  subsequent to September
30, 2005,  the terms of which are disclosed in Item 15(a)(3).  In addition,  the
agreements provide for severance benefits of $620,000, $225,000 and $300,000 for
Messrs. Darby, Finstein and Badke, respectively, under certain occurrences.

Directors' Compensation and Term
- --------------------------------
Directors  are  compensated  at an annual  rate of  $16,000  for  regular  Board
meetings   and  $1,000  per   committee   meeting   attended  in  person  or  by
teleconference.  The  Chairman of the Audit  Committee  also  receives an annual
retainer  of  $8,000.  Employee  directors  are not  compensated  for  Board  or
committee meetings.  Directors may not stand for reelection after age 70, except
that any director may serve one additional three-year term after age 70 with the
unanimous consent of the Board of Directors.

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

                       Board Compensation Committee Report
                       -----------------------------------
The Compensation  Committee's  compensation policies applicable to the Company's
officers  for 2005 were to pay a  competitive  market  price for the services of
such  officers,  taking  into  account  the overall  performance  and  financial
capabilities of the Company and the officer's individual level of performance.

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

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

                                     - 21 -
<page>

This  graph  compares  the return of $100  invested  in the  Company's  stock on
October 1, 2000,  with the return on the same investment in the AMEX U.S. Market
Index and the AMEX Technology Index.





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




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

10/01/00                100                    100                 100
10/01/01                105                     72                  81
10/01/02                 95                     64                  50
10/01/03                128                     81                  72
10/01/04                145                     94                  83
10/01/05                 95                    112                  84
















                                     - 22 -
<page>

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following table sets forth the beneficial  ownership of the Company's Common
Stock as of December  15, 2005 by (i) those  persons  known by the Company to be
beneficial  owners of more than 5% of the  Company's  outstanding  Common Stock;
(ii) each current  executive  officer named in the Summary  Compensation  Table;
(iii) each director; and (iv) all directors and executive officers as a group.

   Name and Address                   Number of Shares
   of Beneficial Owner                Beneficially Owned (1)       % of Class
   -------------------                ----------------------       ----------
   CBC Co., Ltd.
    and affiliates
   2-15-13 Tsukishima,
   Chuo-ku,
   Tokyo, Japan 104                        543,715                     11.1%

   Al Frank Asset Management, Inc.
   32392 Coast Highway, Suite 260
   Laguna Beach, CA 92651                  284,814 (11)                 5.8%

   Dimensional Fund Advisors
   1299 Ocean Avenue
   Santa Monica, CA 90401                  273,600 (12)                 5.6%

******************************************************************************
   C/O Vicon Industries, Inc.

   Kenneth M. Darby                        324,080 (2)                  6.6%
   Arthur D. Roche                         151,601 (3)                  3.1%
   John M. Badke                            41,800 (4)                    *
   Peter F. Neumann                         37,072 (5)                    *
   W. Gregory Robertson                     33,847 (6)                    *
   Yigal Abiri                              23,000 (7)                    *
   Christopher J. Wall                      21,300 (8)                    *
   Clifton H.W. Maloney                     15,000 (9)                    *
   Thomas Finstein                            -                           *

 Total all Executive Officers and
   Directors as a group (13 persons)       754,463 (10)                15.4%

 * Less than 1%.


(1)  Unless otherwise indicated,  the Company believes that all persons named in
     the table have sole voting and investment  control over the shares of stock
     owned.
(2)  Includes currently exercisable options to purchase 73,988 shares.
(3)  Includes  50,000 shares held by Mr. Roche's wife and currently  exercisable
     options to purchase 21,947 shares.
(4)  Includes currently exercisable options to purchase 30,361 shares.
(5)  Includes currently exercisable options to purchase 20,000 shares.
(6)  Includes currently exercisable options to purchase 21,947 shares.
(7)  Includes currently exercisable options to purchase 23,000 shares.
(8)  Includes currently exercisable options to purchase 9,000 shares.
(9)  Includes currently exercisable options to purchase 15,000 shares.
(10) Includes currently exercisable options to purchase 257,365 shares.
(11) Al Frank Asset Management,  Inc. had voting control over 168,117 shares and
     investment control over 284,814 shares.
(12) Dimensional  Fund  Advisors  had voting  control  over  269,200  shares and
     investment  control  over  273,600 as  investment  advisor  and manager for
     various mutual funds and other clients. These shares are beneficially owned
     by such mutual funds or other clients.




                                     - 23 -




EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------------
at September 30, 2005

                                                          Number of securities
                 Number of securities  Weighted average  remaining available for
                 to be issued upon  exercise price        future issuance under
                     exercise of       of outstanding  equity compensation plans
                 outstanding options, options, warrants   (excluding securities
                 warrants and rights      and rights    reflected in column (a))
Plan category            (a)                 (b)                    c)
- ---------------  -------------------   ----------------  -----------------------

Equity
compensation
plans approved
by security
holders                   582,741               $3.35                 39,975

Equity
compensation
plans not
approved by
security holders             -                    -                      -

Total                     582,741               $3.35                 39,975

EQUITY COMPENSATION GRANTS NOT APPROVED BY SECURITY HOLDERS
- -----------------------------------------------------------
Through September 30, 2005, the Company had granted certain of its officers with
deferred  compensation  benefits  aggregating  97,337  shares  of  common  stock
currently held by the Company in treasury.  Such shares vest upon retirement or,
in the  case of  70,647  shares,  the  expiration  of one  officer's  employment
agreement in September  2006. All shares vest earlier under certain  occurrences
including death, involuntary termination or a change in control of the Company.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The Company and CBC Co.,  Ltd.(CBC),  a Japanese  corporation which beneficially
owns  11.1% of the  outstanding  shares of the  Company,  have  been  conducting
business with each other for approximately twenty-six years. During this period,
CBC has served as a lender, a product supplier and sourcing agent, and a private
label  reseller of the Company's  products.  CBC has also acted as the Company's
sourcing agent for the purchase of certain video  products.  In fiscal 2005, the
Company  purchased  approximately  $566,000 of products and  components  from or
through CBC. CBC competes with the Company in various  markets,  principally  in
the sale of video  products  and  systems.  Sales  of all  products  to CBC were
$362,000 in 2005. In fiscal 2003,  the Company  recognized  $180,000 of revenues
received from CBC pursuant to the  completion  of a contract to develop  certain
new product technology.




                                     - 24 -
<page>

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
- ------------------------------------------------
Audit Fees
- ----------
The aggregate fee arrangements with BDO Seidman,  LLP for professional  services
rendered for the audit of the Company's consolidated annual financial statements
and the review of the financial  statements  included in the Company's quarterly
reports on Form 10-Q for fiscal years 2005 and 2004 were approximately  $158,000
and $143,000, respectively.

Tax Fees
- --------
The aggregate fees billed by BDO Seidman, LLP for tax compliance, tax advice and
tax planning  during fiscal years 2005 and 2004 were  approximately  $46,000 and
$41,000, respectively. All these fees were pre-approved by the Audit Committee.

Audit Related Fees
- ------------------
None.

All Other Fees
- --------------
None.

Audit  Committee  Pre-Approval of Audit and  Permissible  Non-Audit  Services of
- --------------------------------------------------------------------------------
Independent Auditors
- --------------------
The Audit Committee  pre-approves all audit and permissible  non-audit  services
provided by the independent auditors. These services may include audit services,
audit related services, tax services and other services. The Audit Committee has
adopted a policy for the  pre-approval  of services  provided by the independent
auditors.  Under the policy,  pre-approval  generally  is provided for an annual
period and any pre-approval is detailed as to the particular service or category
of services and is subject to a specific limit. In addition, the Audit Committee
may also pre-approve  particular services on a case-by-case basis, which must be
accompanied  by a detailed  explanation  for each  proposed  service.  The Audit
Committee  may  delegate  pre-approval  authority to one or more of its members.
Such  member  must  report  any  decisions  to the Audit  Committee  at the next
scheduled meeting.




                                      - 25-
<page>

                                     PART IV
                                     -------

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES
- -------------------------------------------------
(a) (1)  Financial Statements
         --------------------
         Included in Part IV, Item 15:

         Reports of Independent Registered Public Accounting Firms

         Financial Statements:

          Consolidated  Statements of Operations,  fiscal years ended  September
          30, 2005, 2004, and 2003

          Consolidated Balance Sheets at September 30, 2005 and 2004

          Consolidated  Statements of Shareholders'  Equity,  fiscal years ended
          September 30, 2005, 2004, and 2003

          Consolidated  Statements of Cash Flows,  fiscal years ended  September
          30, 2005, 2004, and 2003

          Notes  to  Consolidated  Financial  Statements,   fiscal  years  ended
          September 30, 2005, 2004, and 2003

(a) (2)  Financial Statement Schedule
         ----------------------------
         Included in Part IV, Item 15:

          Schedule II - Valuation  and  Qualifying  Accounts for the years ended
                        September 30, 2005, 2004, and 2003

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




                                     - 26 -




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

          (.2) Amendment of the Certificate         Incorporated by reference
               of Incorporation dated               to the 2002 Annual Report
               May 7, 2002                          on Form 10-K

   4           Instruments defining the rights
               of security holders

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


  10          Material Contracts

          (.1) Employment Contract dated            10.1
               November 1, 2005 between the
               Registrant and Kenneth M. Darby


          (.2) 1994 Incentive Stock Option Plan     Incorporated by reference
                                                    to the 1994 Annual Report
                                                    on Form 10-K

          (.3) 1994 Non-Qualified Stock Option      Incorporated by
                  Plan for Outside Directors        reference to the
                                                    1994 Annual Report
                                                    on Form 10-K

          (.4) 1996 Incentive Stock Option Plan     Incorporated by
                                                    reference to the
                                                    1997 Annual Report
                                                    on Form 10-K

          (.5) 1996 Non-Qualified Stock Option      Incorporated by
               Plan for Outside Directors           reference to the
                                                    1997 Annual Report
                                                    on Form 10-K

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

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






                                     - 27 -
<page>

                                                     Exhibit Number or
Exhibit                                              Incorporation by
Numbers      Description                             Reference to
- -------      -----------                             -----------------
           (.8)  Mortgage Note between the           Incorporated by
                 Registrant and The Dime Savings     reference to the
                 Bank of New York, FSB dated         December 31, 1997
                 January 29, 1998                    filing on Form 10-Q

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

           (.10) Interest rate master swap agreement Incorporated by
                 between the Registrant and KeyBank  reference to the
                 National Association dated          December 31, 1997
                 December 11, 1997                   filing on Form 10-Q

           (.11) Schedule to the master agreement    Incorporated by
                 between the Registrant and KeyBank  reference to the
                 National Association dated          December 31, 1997
                 December 11, 1997                   filing on Form 10-Q

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

           (.13) Advice of borrowing terms           Incorporated by
                 between the Registrant and          reference to the
                 National Westminster Bank PLC       March 31, 2005 filing
                 dated March 18, 2005                on Form 10-Q

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

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

           (.16) Mortgage and Security Agreement     Incorporated by reference
                 in the amount of $1,200,000 between to the 1999 Annual Report
                 the Registrant and The Dime Savings on Form 10-K
                 Bank of New York, FSB dated
                 October 12, 1999


           (.17) 1999 Incentive Stock Option Plan     Incorporated by reference
                                                      to the 1999 Annual Report
                                                      on Form 10-K

           (.18) 1999 Non-Qualified Stock             Incorporated by reference
                 Option Plan                          to the 1999 Annual Report
                                                      on Form 10-K

           (.19) 2002 Incentive Stock Option Plan     Incorporated by reference
                                                      to the 2002 Annual Report
                                                      on Form 10-K

                                     - 28 -
<page>

                                                      Exhibit Number or
Exhibit                                               Incorporation by
Numbers    Description                                Reference to
- -------    -----------                                -----------------
           (.20) 2002 Non-Qualified Stock             Incorporated by reference
                 Option Plan                          to the 2002 Annual Report
                                                      on Form 10-K

           (.21) Employment Agreement dated           Incorporated by reference
                 May 3, 2004 between the              to the 2004 Annual Report
                 Registrant and Thomas Finstein       on Form 10-K

           (.22) Employment Agreement dated           Incorporated by reference
                 January 1, 2004 between the          to the 2004 Annual Report
                 Registrant and John M. Badke         on Form 10-K

           (.23) Employment Agreement dated           10.23
                 October 31, 2005 between the
                 Registrant and Bret M. McGowan

           (.24) Employment Agreement dated           Incorporated by reference
                 February 8, 1996 between the         to the 2004 Annual Report
                 Registrant and Christopher J. Wall   on Form 10-K

           (.25) Side Letter to the Employment        10.25
                 Agreement between the Registrant
                 and Christopher J. Wall dated
                 November 18, 2005


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

           (.1) Consent of BDO Seidman, LLP           23.1

           (.2) Consent of KPMG LLP                   23.2

  31       Rule 13a-14(a)/15d-14(a)
           Certifications

           (.1) Certification of Chief Executive
                Officer pursuant to Section
                302 of the Sarbanes-Oxley Act of 2002 31.1

           (.2) Certification of Chief Financial
                Officer pursuant to Section
                302 of the Sarbanes-Oxley Act of 2002 31.2

32          Section 1350 Certifications

           (.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     32.1

           (.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     32.2

                                     - 29 -
<page>

No other exhibits are required to be filed.


Other Matters - Form S-8 and S-2 Undertaking
- --------------------------------------------
For the purposes of complying  with the  amendments to the rules  governing Form
S-8 (effective  July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's  Registration Statements on Form S-8 Nos. 33-7892
(filed June 30, 1986),  33-34349 (filed April 1, 1990), 33-90038 (filed February
24, 1995),  333-30097 (filed June 26, 1997),  333-71410 (filed October 11, 2001)
and 333-116361  (filed June 10, 2004) and on Form S-2 No.  333-46841  (effective
May 1, 1998):

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





































                                     - 30 -
<page>

             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------

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

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Vicon
Industries,  Inc. as of September 30, 2005 and 2004 and the related consolidated
statements of operations,  stockholders'  equity, and cash flows for each of the
two  years  ended  September  30,  2005.  In  connection  with our  audit of the
consolidated financial statements,  we also have audited the financial statement
schedule  as  listed  in Part IV,  item  15(a)(2)  for the  fiscal  years  ended
September  30,  2005 and  2004.  These  consolidated  financial  statements  and
financial   statement   schedules  are  the   responsibility  of  the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  and schedule are free of material  misstatement.  The Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audits included consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial  statements  and  schedule.  An  audit  also  includes  assessing  the
accounting principles used and significant estimates made by management, as well
as evaluating the overall  financial  statement  presentation  and schedule.  We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Vicon Industries,
Inc. at September 30, 2005 and 2004,  and the results of its  operations and its
cash flows for each of the two years in the period ended  September 30, 2005, in
conformity with accounting principles generally accepted in the United States of
America.

Also, in our opinion,  the schedules present fairly,  in all material  respects,
the information set forth therein.






                                                     /s/ BDO Seidman, LLP


Melville, New York
December 8, 2005











                                     - 31 -
<page>

             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------

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

We  have  audited  the  accompanying   consolidated  statements  of  operations,
shareholders'  equity and cash flows of Vicon Industries,  Inc. and subsidiaries
(the "Company") for the fiscal year ended September 30, 2003. In connection with
our audit, we also audited the related fiscal 2003 financial  statement schedule
as listed in Part IV,  item  15(a)(2)  for the fiscal year ended  September  30,
2003. These consolidated  financial  statements and financial statement schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these  consolidated  financial  statements  and  financial
statement schedule based on our audit.

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

In our opinion,  the fiscal 2003 consolidated  financial  statements referred to
above present fairly,  in all material  respects,  the results of operations and
cash flows of Vicon Industries,  Inc. and subsidiaries for the fiscal year ended
September 30, 2003, in conformity with accounting  principles generally accepted
in the United  States of America.  Also in our  opinion,  the related  financial
statement  schedule  referred to above, when considered in relation to the basic
consolidated  financial  statements taken as a whole,  presents  fairly,  in all
material respects, the information set forth therein.






                                     /s/ KPMG LLP


Melville, New York
January 14, 2004

















                                     - 32 -




                     VICON INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              Fiscal Years Ended September 30, 2005, 2004 and 2003





                                          2005          2004          2003
                                          ----          ----          ----


Net sales                              $56,055,715   $53,532,631   $51,953,650
Cost of sales                           35,060,060    33,821,618    32,862,590
                                       ------------  ------------  ------------
    Gross profit                        20,995,655    19,711,013    19,091,060

Operating expenses:
 Selling, general and
  administrative expense                19,152,692    17,058,460    15,889,164
 Engineering and development expense     4,773,516     4,878,981     4,879,294
                                       ------------  ------------  -------------
                                        23,926,208    21,937,441    20,768,458
                                       ------------  ------------  ------------

    Operating loss                      (2,930,553)   (2,226,428)   (1,677,398)

Other expense (income):
 Interest expense                          181,126       187,390       240,843
 Interest and other income                 (88,026)     (204,224)     (179,716)
 Loss on sale of marketable securities      44,936         -             -
                                       ------------  ------------  -------------
   Loss before income taxes             (3,068,589)   (2,209,594)   (1,738,525)
Income tax expense                          27,000       481,000     1,763,023
                                       ------------  ------------  ------------

   Loss before extraordinary gain and
    cumulative effect of a change in
    accounting principle                (3,095,589)   (2,690,594)   (3,501,548)

Extraordinary gain (Note 15)               210,968         -             -

Cumulative effect of a change in
  accounting principle (Note 2)              -             -        (1,372,606)
                                       ------------  ------------  -------------

    Net loss                           $(2,884,621)  $(2,690,594)  $(4,874,154)
                                       ============  ============  ============



Basic and diluted loss per share:

Loss before extraordinary gain and
 cumulative effect of a change in
  accounting principle                   $( .68)        $ (.59)       $ (.75)
Extraordinary gain                          .05             -             -
Cumulative effect of a change in
 accounting principle                        -              -           (.30)
    Net loss                             ------         -------       -------
                                         $( .63)        $ (.59)       $(1.05)
                                         ======         =======       =======



See accompanying notes to consolidated financial statements.



                                     - 33 -



                     VICON INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           September 30, 2005 and 2004

ASSETS                                                 2005             2004
- ------                                                 ----             ----
Current Assets:
  Cash and cash equivalents                        $ 5,818,178      $ 6,063,198
  Marketable securities                                121,830        2,118,698
  Accounts receivable (less allowance of
   $1,297,000 in 2005 and $1,162,000 in 2004)       10,125,967        9,661,563
  Inventories:
    Parts, components, and materials                 2,277,415        3,239,461
    Work-in-process                                  2,782,761        3,675,122
    Finished products                                5,406,593        5,758,990
                                                   -----------      -----------
                                                    10,466,769       12,673,573
  Recoverable income taxes                               -              239,402
  Prepaid expenses and other current assets            419,942          388,347
                                                   -----------      -----------
     Total current assets                           26,952,686       31,144,781
Property, plant and equipment:
   Land                                              1,217,450        1,224,850
   Buildings and improvements                        5,730,548        5,720,721
   Machinery, equipment, and vehicles                5,942,803        5,452,557
                                                   -----------      -----------
                                                    12,890,801       12,398,128
   Less accumulated depreciation and amortization    6,274,975        5,307,699
                                                   -----------      -----------
                                                     6,615,826        7,090,429
Other assets                                           623,393          631,807
                                                   -----------      -----------
   Total assets                                    $34,191,905      $38,867,017
                                                   ===========      ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Current maturities of long-term debt             $   409,343      $   348,615
  Accounts payable                                   2,462,671        3,282,671
  Accrued compensation and employee benefits         2,353,849        2,048,417
  Accrued expenses                                   1,403,734        1,541,888
  Unearned revenue                                     566,065          792,073
  Income taxes payable                                  44,306          337,632
                                                   -----------      -----------
     Total current liabilities                       7,239,968        8,351,296

Long-term debt                                       2,061,825        2,410,190
Unearned revenue                                       582,679          401,352
Other long-term liabilities                            328,953          790,834
Commitments and contingencies - Note 12
Shareholders' equity:
 Common stock, par value $.01 per share
 authorized - 25,000,000 shares
 issued - 4,857,401 and 4,849,046 shares                48,574           48,490
Capital in excess of par value                      22,459,478       22,505,100
Retained earnings                                    2,281,045        5,165,666
                                                   -----------      -----------
                                                    24,789,097       27,719,256
  Treasury stock at cost, 287,817 shares
    in 2005 and 283,317 shares in 2004              (1,299,999)      (1,278,884)
  Accumulated other comprehensive income               557,045          617,239
  Deferred compensation                                (67,663)        (144,266)
                                                   -----------      -----------
     Total shareholders' equity                     23,978,480       26,913,345
                                                   -----------      -----------
      Total liabilities and shareholders' equity   $34,191,905      $38,867,017
                                                   ===========      ===========








  See accompanying notes to consolidated financial statements.








                                     - 34 -



<table>
<caption>

                     VICON INDUSTRIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              Fiscal Years Ended September 30, 2005, 2004, and 2003

                                                                                              Accumulated
                                                          Capital in                             other      Deferred     Total
                                                Common    excess of    Retained     Treasury  comprehensive compen-  shareholders'
                                      Shares    Stock     par value    earnings       Stock      income     sation       equity
                                      ------   -------   -----------  ----------    --------- ------------  --------  --------------
<s>                                     <c>       <c>        <c>          <c>         <c>         <c>         <c>         <c>
Balance September 30, 2002           4,823,979  $48,239  $21,760,002 $12,730,414   $(842,024) $ (157,924)  $  -       $33,538,707

Comprehensive income (loss):
  Net loss                               -          -           -     (4,874,154)        -           -        -       (4,874,154)
  Foreign currency translation
    adjustment                           -          -           -            -           -       272,188      -          272,188
  Unrealized loss on derivatives         -          -           -            -           -       (16,009)     -          (16,009)
  Unrealized loss on marketable
    securities                           -          -           -            -           -        (6,555)     -           (6,555)
Total comprehensive income (loss)        -          -           -            -           -           -        -       (4,624,530)
Repurchases of common
  stock (46,500 shares)                  -          -           -            -      (138,175)        -        -         (138,175)
Exercise of stock options                8,597       87       26,001         -           -           -        -           26,088
Stock-based compensation                 -          -         43,345         -           -           -        -           43,345
Deferred compensation awards
  and amortization                       -          -        610,289         -           -           -    (220,993)      389,296
                                     ---------   ------   ----------  ----------  ----------- ---------- ----------   ----------
Balance September 30, 2003           4,832,576   48,326   22,439,637   7,856,260    (980,199)     91,700  (220,993)   29,234,731

Comprehensive income (loss):
  Net loss                               -          -            -    (2,690,594)        -           -        -       (2,690,594)
  Foreign currency translation
    adjustment                           -          -            -           -           -       459,779      -          459,779
  Unrealized gain on derivatives         -          -            -           -           -       107,782      -          107,782
  Unrealized loss on marketable
    securities                           -          -            -           -           -       (42,022)     -          (42,022)
Total comprehensive income (loss)        -          -            -           -           -           -        -       (2,165,055)
Repurchases of common
  stock (64,400 shares)                  -          -            -           -      (298,685)        -        -         (298,685)
Exercise of stock options               16,470      164       38,359         -           -           -        -           38,523
Stock-based compensation                 -          -         27,104         -           -           -        -           27,104
Deferred compensation amortization       -          -            -           -           -           -      76,727        76,727
                                     ---------  -------  ----------- -----------  ----------- ----------  ---------  -----------
Balance September 30, 2004           4,849,046   48,490   22,505,100   5,165,666  (1,278,884)    617,239  (144,266)   26,913,345

Comprehensive income (loss):
  Net loss                               -          -            -    (2,884,621)        -           -        -       (2,884,621)
  Foreign currency translation
    adjustment                           -          -            -           -           -      (201,918)     -         (201,918)
  Unrealized gain on derivatives         -          -            -           -           -        95,198      -           95,198
  Change in unrealized loss on
    marketable securities                -          -            -           -           -        46,526      -           46,526
Total comprehensive income (loss)        -          -            -           -           -           -        -       (2,944,815)
Repurchases of common
  stock (4,500 shares)                   -          -            -           -       (21,115)        -        -          (21,115)
Exercise of stock options                8,355       84       22,096         -           -           -        -           22,180
Stock-based compensation                 -          -        (67,718)        -           -           -        -          (67,718)
Deferred compensation amortization       -          -            -           -           -           -      76,603        76,603
                                     ---------  -------  ----------- ----------- -----------  ---------- ---------   -----------
Balance September 30, 2005           4,857,401  $48,574  $22,459,478 $ 2,281,045 $(1,299,999) $  557,045 $ (67,663)  $23,978,480
                                     =========  =======  =========== =========== ===========  ========== =========   ===========

</table>

See accompanying notes to consolidated financial statements.


                                     - 35 -



<table>
<caption>

                     VICON INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              Fiscal Years Ended September 30, 2005, 2004 and 2003


      <s>                                             <c>            <c>            <c>
                                                     2005           2004           2003
                                                     ----           ----           ----
Cash flows from operating activities:
 Net loss                                        $(2,884,621)   $(2,690,594)   $(4,874,154)
 Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
   Depreciation and amortization                     999,942      1,046,553      1,133,110
   Amortization of deferred compensation              76,603         76,727           -
   Stock compensation expense                        (67,718)        27,104         43,345
   Deferred income taxes                                -              -         1,853,957
   Extraordinary gain on acquisition                (210,968)          -              -
   Loss on sale of marketable securities              44,936           -              -
   Cumulative effect of a change in
     accounting principle                               -              -         1,372,606
Change in assets and liabilities:
  Accounts receivable, net                           133,959      1,728,523       (431,820)
  Inventories                                      2,605,961       (470,812)     1,563,024
  Recoverable income taxes                           239,402      1,813,260       (339,934)
  Prepaid expenses and other current assets          (36,549)       325,889       (197,284)
  Other assets                                         6,434        (98,919)       (40,489)
  Accounts payable                                  (847,762)       688,172        111,802
  Accrued compensation and employee benefits         277,966          4,462        173,842
  Accrued expenses                                  (137,935)      (900,647)       904,714
  Unearned revenue                                   (48,048)      (595,074)      (994,643)
  Income taxes payable                              (299,358)       233,309        (51,981)
  Other liabilities                                 (366,684)       254,731        317,096
  Net cash provided by (used in)
   operating activities                           -----------    -----------    ------------
                                                    (514,440)     1,442,684        543,191
                                                  -----------    -----------    ------------

Cash flows from investing activities:
  Capital expenditures                              (556,643)      (730,102)      (674,429)
  Acquisition, net of cash acquired                 (868,000)          -              -
  Net decrease (increase) in
    marketable securities                          1,998,458      1,165,053     (3,332,328)
                                                 -----------    ------------   -------------
  Net cash provided by (used in)
    investing activities                             573,815        434,951     (4,006,757)
                                                 -----------    ------------   -------------

Cash flows from financing activities:
  Repayments of U.S. term loan                          -              -          (825,000)
  Repayments of long-term debt                      (286,470)      (324,639)      (479,346)
  Proceeds from exercise of stock options             22,180         38,523         26,088
  Repurchases of common stock                        (21,115)      (298,685)      (138,175)
                                                 -----------    -----------    -------------
  Net cash used in financing activities             (285,405)      (584,801)    (1,416,433)
                                                 -----------    -----------    -------------

Effect of exchange rate changes on cash              (18,990)       (65,784)       (55,657)
                                                 -----------    -----------    -------------
Net increase (decrease) in cash                     (245,020)     1,227,050     (4,935,656)
Cash at beginning of year                          6,063,198      4,836,148      9,771,804
                                                 -----------    -----------    -------------
Cash at end of year                              $ 5,818,178    $ 6,063,198    $ 4,836,148
                                                 ===========    ===========    =============



 Cash paid during the fiscal year for:
   Income taxes                                  $  345,396     $   309,780    $   328,566
   Interest                                      $  176,435     $   233,898    $   245,892


</table>





See accompanying notes to consolidated financial statements.












                                       - 36 -





VICON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years ended September 30, 2005, 2004, and 2003

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

Basis of Presentation
- ---------------------
The accompanying consolidated financial statements include the accounts of Vicon
Industries,  Inc.  (the  Company)  and  its  wholly  owned  subsidiaries:  Vicon
Industries,  Limited and subsidiary (Videotronic  Infosystems GmbH) and TeleSite
U.S.A.,   Inc.  and  subsidiary  (Vicon  Systems  Ltd.),  after  elimination  of
intercompany accounts and transactions.

Revenue Recognition
- -------------------
The Company  recognizes  revenue  when  persuasive  evidence  of an  arrangement
exists,  delivery has occurred or services have been rendered, the selling price
is fixed or  determinable,  and  collectibility  of the resulting  receivable is
reasonably  assured.  As it  relates  to product  sales,  revenue  is  generally
recognized when products are sold and title is passed to the customer.  Shipping
and handling costs are included in cost of sales. 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. Pursuant to
the  adoption  of 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
delivered  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  Statement  of  Position  97-2,
"Software Revenue Recognition", as amended.

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

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 was $123,881 and $2,167,275 at September 30,
2005 and 2004,  respectively,  with  $2,051  and  $48,577 of  unrealized  losses
included in the carrying amounts at September 30, 2005 and 2004, respectively.



                                     - 37 -
<page>

Allowances for Doubtful Accounts
- --------------------------------
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.

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

Long-Lived Assets
- -----------------
Property,   plant,  and  equipment  are  recorded  at  cost.   Depreciation  and
amortization  of assets under capital leases,  is computed by the  straight-line
method  over the  estimated  useful  lives  of the  related  assets.  Machinery,
equipment and vehicles are being  depreciated  over periods ranging from 2 to 10
years. The Company's  buildings are being  depreciated over periods ranging from
25 to 40 years and leasehold improvements are amortized over the lesser of their
estimated  useful lives or the remaining  lease term.  Fully  depreciated  fixed
assets are retired from the balance sheet when they are no longer in use. During
fiscal year 2005, the Company wrote down $5.9 million of fully depreciated fixed
assets effective as of September 30, 2004 for comparative disclosure purposes.

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

Engineering and Development
- ---------------------------
Product  engineering and  development  costs are charged to expense as incurred,
and amounted to  approximately  $4,800,000,  $4,900,000 and $4,900,000 in fiscal
2005, 2004, and 2003, respectively.

Earnings (Loss) Per Share
- -------------------------
Basic EPS is computed  based on the  weighted  average  number of common  shares
outstanding.  Diluted EPS reflects the maximum dilution that would have resulted
from the exercise of stock options,  warrants and  incremental  shares  issuable
under a deferred  compensation  agreement  (see Note 11). In periods when losses
are  incurred,  the  effects  of these  securities  would be  antidilutive  and,
therefore, excluded from the computation of diluted EPS.

Foreign Currency Translation
- ----------------------------
The Company translates the financial  statements of its foreign  subsidiaries by
applying  the  current  rate  method  under  which  assets and  liabilities  are
translated  at the  exchange  rate on the balance  sheet date,  while  revenues,
costs,  and  expenses  are  translated  at the  average  exchange  rate  for the
reporting period. The resulting  cumulative  translation  adjustment of $573,000
and  $775,000 at  September  30, 2005 and 2004,  respectively,  is recorded as a
component of  shareholders'  equity in accumulated  other  comprehensive  income
(loss).




                                     - 38 -
<page>

Income Taxes
- ------------
The Company  accounts  for income  taxes under the  provisions  of SFAS No. 109,
"Accounting  for Income  Taxes",  which  requires  recognition  of deferred  tax
liabilities and assets for the expected  future tax  consequences of events that
have been  included  in the  financial  statements  or tax  returns.  Under this
method,  deferred  tax  liabilities  and  assets  are  determined  based  on the
difference  between  the  financial  statement  and  tax  bases  of  assets  and
liabilities  using  enacted  tax  rates in  effect  for the  year in  which  the
differences are expected to reverse. Deferred U.S. income taxes are not provided
on  undistributed  earnings of foreign  subsidiaries  as the  Company  presently
intends to reinvest such earnings  indefinitely,  and any plan to repatriate any
of  such  earnings  in the  future  is not  expected  to  result  in a  material
incremental  tax liability to the Company.  In fiscal 2005 and 2004, the Company
recognized  a  valuation  allowance  against its entire net  deferred  tax asset
balance due to the  uncertainty  of future  realization  (see Note 5 for further
discussion).

Product Warranties
- ------------------
The Company  provides for the estimated  cost of product  warranties at the time
revenue is recognized (see Note 4). 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.

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

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

As of  September  30, 2005,  the Company had an interest  rate swap and currency
forwards  outstanding  with notional  amounts  aggregating $1.6 million and $1.2
million,   respectively,   whose   aggregate  fair  value  was  a  liability  of
approximately  $14,000.  The  change in the fair value of these  derivatives  is
reflected  in  other  comprehensive  income  in the  accompanying  statement  of
shareholders' equity, net of tax where applicable.  The forwards have maturities
of less  than one  year and  require  the  Company  to  exchange  currencies  at
specified  dates and rates.  The interest  rate swap matures in the same amounts
and over the same periods as the related debt. The Company  considers the credit
risk related to the interest  rate swaps and the forwards to be low because such
instruments  are entered  into with  financial  institutions  having high credit
ratings and are generally settled on a net basis.  There were no gains or losses
recognized  in operations  due to hedge  ineffectiveness  during the  three-year
period ended  September  30, 2005.  The Company does not expect the amounts that
are currently  classified in  accumulated  other  comprehensive  income that are
expected to be recognized in operations in the next fiscal year to be material.

                                     - 39 -
<page>

Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts for trade accounts and other receivables,  accounts payable
and accrued expenses  approximate  fair value due to the short-term  maturity of
these  instruments.  The  carrying  amounts  of  the  Company's  long-term  debt
instruments  approximate fair value. The Company's  interest rate swap agreement
is carried at its fair  market  value  (which was a liability  of  approximately
$58,000 at September 30, 2005).  This value  represents the estimated amount the
Company would need to pay if such  agreement  was  terminated  before  maturity,
principally resulting from market interest rate decreases. The fair value of the
Company's foreign currency forward exchange  contracts is estimated by obtaining
quoted  market  prices.  The  contracted  exchange  rates on  committed  forward
exchange  contracts was  approximately  $44,000 more  favorable  than the market
rates for similar term contracts at September 30, 2005.

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.

Accounting for Stock-Based Compensation
- ---------------------------------------
The Company follows Accounting  Principles Board Opinion No. 25, "Accounting for
Stock  Issued  to  Employees"  ("APB No.  25") and  related  interpretations  in
accounting  for  its  employee  stock-based  compensation.  Under  APB  No.  25,
compensation  expense  would be  recorded  if, on the date of grant,  the market
price of the underlying  stock exceeded its exercise price. As permitted by SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") and SFAS No.
148 "Accounting  for  Stock-Based  Compensation - Transition and Disclosure - An
Amendment of FASB Statement No. 123" ("SFAS No. 148"),  the Company has retained
the  accounting  prescribed  by APB No.  25 and  has  presented  the  disclosure
information prescribed by SFAS No. 123 and SFAS No. 148 below.

Pro forma information  regarding net income (loss) and earnings (loss) per share
is required by SFAS 123, and has been determined as if the Company had accounted
for its employee  stock options  under the fair value method of this  Statement.
The  fair  value  for  options  was  estimated  at the  date  of  grant  using a
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions for 2005, 2004 and 2003:

                                      2005            2004            2003
                                      ----            ----            ----

Risk-free interest rate                3.8%            3.5%            2.7%
Dividend yield                         0.0%            0.0%            0.0%
Volatility factor                     62.2%           67.9%           68.0%
Weighted average expected life       4 years         4 years         4 years


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




                                     - 40 -
<page>

In the Company's consolidated financial statements,  no compensation expense has
been  recognized for stock option grants issued under any of the Company's fixed
stock option plans.  See Note 9 for  discussion of variable  stock option plans.
Had  compensation  expense for fixed stock option grants issued been  determined
under the fair value method of SFAS No. 123, the Company's net loss and loss per
share (EPS) for the fiscal years ended  September 30, 2005,  2004 and 2003 would
have been:

                                         2005         2004          2003
                                      ----------    --------      --------

Reported net loss                   $(2,884,621)  $(2,690,594)  $(4,874,154)
Stock-based compensation cost,
  net of tax                           (194,935)     (227,113)     (351,138)
                                    ------------  ------------   -----------
Pro forma net loss                  $(3,079,556)  $(2,917,707)  $(5,225,292)
                                    ============  ============  ============

Reported basic and diluted EPS         $ (.63)      $  (.59)       $ (1.05)
Pro forma basic and diluted EPS        $ (.67)      $  (.63)       $ (1.13)

Weighted average fair value
  of options granted                  $  1.52      $  2.90        $  1.79

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

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

NOTE 2.  Goodwill
- -----------------
The  Company  adopted  SFAS  No.  142  on  October  1,  2002  and,  accordingly,
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 in 2003.

NOTE 3.  Short-Term Borrowings
- ------------------------------
The Company's European based subsidiary maintains a bank overdraft facility that
provides for maximum borrowings of one million Pounds Sterling  ($1,770,000) and
is  secured  by all the  assets of the  subsidiary.  This  facility  expires  in
February 2006. During fiscal 2005 and 2004, there were no outstanding borrowings
under this facility.




                                     - 41 -
<page>

NOTE 4.  Accrued Warranty Obligation
- ------------------------------------
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 years ended September 30, 2005 and 2004:

Balance as of September 30, 2003                          $ 325,000
Deduct: Expenditures                                       (295,000)
Add: Provision                                              511,000
                                                          ---------
Balance as of September 30, 2004                          $ 541,000
Deduct: Expenditures                                       (302,000)
Add: Provision                                              213,000
                                                          ---------
Balance as of September 30, 2005                          $ 452,000
                                                          =========

NOTE 5.  Income Taxes
- ---------------------
The  components  of income tax expense  for the fiscal  years  indicated  are as
follows:

                                            2005            2004           2003
                                            ----            ----           ----

Federal:
 Current                                $     -        $      -      $ (339,934)
 Deferred                                     -               -       1,853,957
                                        ------------   -----------   -----------
                                              -               -       1,514,023

State                                          8,805        12,015          -
Foreign                                       18,195       468,985      249,000
                                        ------------   -----------   -----------
 Total income tax expense               $     27,000   $   481,000   $1,763,023
                                        ============   ===========   ===========



A reconciliation of the U.S.  statutory tax rate to the Company's  effective tax
rate follows:
                             2005                 2004                2003
                             ----                 ----                ----

                       Amount   Percent      Amount  Percent     Amount  Percent
                       ------   -------      ------  -------     ------  -------
U.S. statutory tax  $ (972,000) (34.0)% $ (751,000) (34.0)% $ (591,000) (34.0)%
Increase in valuation
  allowance          1,019,000   35.6     1,408,000   63.7    2,436,000  140.1
Prior year loss
  carryback refund        -        -           -        -      (115,000)  (6.6)
State tax, net of
  federal benefit        6,000    0.2         8,000    0.4         -        -
Dissolution of
  subsidiary              -        -       (192,000)  (8.7)        -        -
Other                  (26,000)  (0.9)        8,000    0.4       33,000    1.9
                   -----------  ------   ----------  ------   ---------  ------
Effective Tax Rate $    27,000    0.9%   $  481,000   21.8%  $1,763,000  101.4%
                   ===========  ======   ==========  ======  ==========  =====














                                     - 42 -
<page>

The tax effects of temporary  differences  that give rise to deferred tax assets
and liabilities at September 30, 2005 and 2004 are presented below:

                                                      2005             2004
                                                      ----             ----

Deferred tax assets:
  Inventories                                    $   797,000       $  902,000
  Deferred compensation accruals                     199,000          171,000
  Severance accruals                                 289,000          183,000
  Warranty accrual                                   166,000          198,000
  Depreciation                                       240,000          224,000
  Allowance for doubtful
    accounts receivable                              414,000          356,000
  Unearned revenue                                   268,000          307,000
  Net operating loss carryforwards                 2,621,000        1,614,000
  Unrealized loss on derivatives                       5,000           40,000
  Other                                                1,000           18,000
                                                 -----------      -----------
    Gross deferred tax assets                      5,000,000        4,013,000

Deferred tax liabilities:
  Other                                              137,000          169,000
                                                 -----------      -----------
   Gross deferred tax liabilities                    137,000          169,000
                                                 -----------      -----------

   Total deferred tax assets and liabilities     $ 4,863,000      $ 3,844,000

   Less valuation allowance                       (4,863,000)      (3,844,000)
                                                 -----------      -----------
   Net deferred tax assets and liabilities       $     -          $     -
                                                 ===========      ============

In 2003,  the Company  recognized a $1.9  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  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 2003 includes the
recognition  of an  available  tax  effected  net  operating  loss  carryback of
$225,000.  Deferred U.S. income taxes are not provided on undistributed earnings
of foreign  subsidiaries  as the  Company  presently  intends to  reinvest  such
earnings  indefinitely,  and any plan to repatriate  any of such earnings in the
future is not expected to result in a material  incremental tax liability to the
Company.

The Company  has  approximately  $7.7  million of U.S.  federal  income tax loss
carryforwards that expire in 2023 through 2025.

Pretax domestic loss amounted to  approximately  $(2,767,000),  $(3,856,000) and
$(2,458,000) in fiscal years 2005, 2004 and 2003,  respectively.  Pretax foreign
income (loss) amounted to  approximately  $(91,000),  $1,646,000 and $719,000 in
fiscal years 2005, 2004 and 2003, respectively.

NOTE 6.  Long-Term Debt
- -----------------------
Long-term debt is comprised of the following at September 30, 2005 and 2004:

                                                 2005               2004
                                                 ----               ----

  U.S. bank mortgage loans                    $2,266,867         $2,510,865
  U.K. bank term loan                            140,124            233,791
  Other                                           64,177             14,149
                                              ----------         -----------
                                               2,471,168          2,758,805
  Less current maturities                        409,343            348,615
                                              ----------         ----------

                                              $2,061,825         $2,410,190
                                              ==========         ==========





                                     - 43 -
<page>

In January 1998, the Company entered into an aggregate $2.9 million mortgage and
term  loan  agreement  with a bank to  finance  the  purchase  of its  principal
operating facility.  Such agreement includes a $2,512,000 ten-year mortgage loan
payable in monthly  installments through January 2008, with a $1,188,000 payment
due at the end of the term.  The agreement  also  provided a $388,000  five-year
term loan that was repaid in monthly  installments  through  January 2003 with a
$138,500  payment  that was made at the end of the term in  February  2003.  The
mortgage  loan bears  interest at the bank's  prime rate minus 1.35%  (5.40% and
3.40% at September  30, 2005 and 2004,  respectively)  and is secured by all the
assets of the Company.  At the same time, the Company entered into interest rate
swap  agreements  with the  same  bank at the time to  effectively  convert  the
foregoing floating rate long-term loans to fixed rate loans. Subsequently,  such
bank sold its local  operations,  including the Company's loans, to another bank
while retaining the Company's  interest rate swap  agreements.  These agreements
effectively fixed the Company's interest rate on its $2,512,000 mortgage loan at
7.79%. The interest rate swap agreement matures in the same amounts and over the
same periods as the related mortgage loan.

In October 1999, the Company entered into a $1.2 million mortgage loan agreement
with its bank to finance the expansion of its principal operating facility.  The
loan is payable in equal monthly  principal  installments  through January 2008,
with a $460,000  payment due at the end of the term.  The loan bears interest at
the bank's prime rate minus 160 basis points  (5.15% and 3.15% at September  30,
2005 and 2004,  respectively) or, at the Company's option,  LIBOR plus 100 basis
points (5.06% and 3.01% at September 30, 2005 and 2004, respectively).

In April 1997,  the Company's  Europe based  subsidiary  entered into a ten-year
500,000 pound sterling (approximately $885,000) bank term loan. The term loan is
payable in equal monthly  installments  with interest at a fixed rate of 9%. The
loan is secured by a first  mortgage on the  subsidiary's  property and contains
restrictive  covenants  that,  among other  things,  require the  subsidiary  to
maintain certain levels of net worth, earnings and debt service coverage.

Current and long-term  debt  maturing in each of the fiscal years  subsequent to
September  30,  2005  approximates  $409,000  in  2006,  $322,000  in  2007  and
$1,740,000 in 2008.

NOTE 7.  Other Comprehensive Income
- -----------------------------------
The accumulated  other  comprehensive  income balances at September 30, 2005 and
2004 consisted of the following:


                                                      2005            2004
                                                      ----            ----
Foreign currency translation adjustment            $ 572,846      $ 774,764
Unrealized loss on derivatives                       (13,750)      (108,948)
Unrealized loss on securities                         (2,051)       (48,577)
                                                   ----------     ----------
Accumulated other comprehensive income             $ 557,045      $ 617,239
                                                   ==========     ==========

NOTE 8.  Segment and Related Information
- ----------------------------------------
The Company operates in one industry which encompasses the design,  manufacture,
assembly and marketing of video systems and system components for the electronic
protection  segment of the security  industry.  The Company manages its business
segments  primarily on a geographic  basis. The Company's  principal  reportable
segments are comprised of its United States (U.S.) and United  Kingdom  (Europe)
based operations.  Its U.S. based operations consist of Vicon Industries,  Inc.,
the Company's corporate  headquarters and principal operating entity. Its Europe
based  operations  consist of Vicon  Industries  Limited and its newly  acquired
Videotronic  subsidiary,  which market and  distribute  the  Company's  products
principally  within  Europe  and the Middle  East.  Other  segments  principally
include the  operations  of Vicon  Systems  Ltd.,  an Israeli based wholly owned
subsidiary  which  designs and produces the  Company's  principal  digital video
systems.




                                     - 44 -
<page>

The Company evaluates  performance and allocates resources based on, among other
things, the net profit for each segment,  which excludes  intersegment sales and
profits. Segment information for the fiscal years ended September 30, 2005, 2004
and 2003 is as follows:

<table>

2005                       U.S.        Europe      Other   Consolidating   Totals
- ----                    ----------   ----------  --------- -------------   ------
 <s>                        <c>          <c>         <c>        <c>          <c>
Net sales to
 external customers    $35,993,000 $19,627,000  $  436,000 $      -     $56,056,000
Intersegment
 net sales               4,146,000       -       5,699,000   (9,845,000)      -
Net income (loss)       (2,937,000)   (109,000)     77,000       84,000  (2,885,000)
Interest expense           159,000     118,000       1,000      (97,000)    181,000
Interest income            164,000      26,000      12,000     (114,000)     88,000
Depreciation and
 amortization              686,000     130,000     184,000        -       1,000,000
Total assets            25,187,000   9,421,000   1,747,000   (2,163,000) 34,192,000
Capital expenditures   $   338,000 $    72,000  $  147,000 $      -     $   557,000

2004                       U.S.        Europe      Other   Consolidating   Totals
- ----                    ----------   ----------  --------- -------------   ------
Net sales to
 external customers    $36,451,000 $16,637,000 $   445,000 $    -       $53,533,000
Intersegment
 net sales               4,820,000       -       6,456,000 (11,276,000)       -
Net income (loss)       (3,639,000)  1,177,000    (261,000)     32,000   (2,691,000)
Interest expense           162,000     147,000       2,000    (124,000)     187,000
Interest income            269,000      45,000       4,000    (114,000)     204,000
Depreciation and
 amortization              721,000     209,000     117,000      -         1,047,000
Total assets            27,438,000  10,744,000   3,503,000  (2,818,000)  38,867,000
Capital expenditures   $   456,000  $  174,000 $   100,000 $    -       $   730,000

2003                       U.S.        Europe      Other   Consolidating   Totals
- ----                    ----------   ----------  --------- -------------   ------
Net sales to
 external customers    $34,745,000 $15,486,000  $1,723,000 $    -       $51,954,000
Intersegment
 net sales               6,043,000       -       3,870,000 (9,913,000)        -
Net income (loss)       (4,880,000)    471,000    (346,000)  (119,000)   (4,874,000)
Interest expense           204,000     158,000       7,000   (128,000)      241,000
Interest income            282,000      21,000       -       (123,000)      180,000
Depreciation and
 amortization              744,000     169,000     220,000      -         1,133,000
Total assets            32,007,000   8,594,000   5,033,000 (3,741,000)   41,893,000
Capital expenditures   $   459,000  $  132,000  $   83,000 $    -       $   674,000

</table>

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

Net sales and  long-lived  assets related to operations in the United States and
other foreign countries for the fiscal years ended September 30, 2005, 2004, and
2003 are as follows:

                                       2005             2004            2003
                                       ----             ----            ----
Net sales
U.S.                               $36,035,000      $36,530,000     $34,909,000
Foreign                             20,021,000       17,003,000      17,045,000
                                   -----------      -----------     ------------
   Total                           $56,056,000      $53,533,000     $51,954,000

Long-lived assets
 U.S.                              $ 4,710,000      $ 5,059,000     $ 5,324,000
 Foreign                             1,906,000        2,031,000       1,962,000
                                    ----------      -----------     -----------
   Total                           $ 6,616,000      $ 7,090,000     $ 7,286,000

U.S.  sales include  $6,969,000,  $5,310,000 and $4,030,000 for export in fiscal
years 2005, 2004, and 2003,  respectively.  Foreign sales principally  represent
sales from the Company's Europe based subsidiary.

                                     - 45 -
<page>

NOTE 9.  Stock Option Plans
- ---------------------------
The Company  maintains  stock option  plans which  include  both  incentive  and
non-qualified  options  covering  a total of  620,381  shares  of  common  stock
reserved for issuance to key employees,  including officers and directors, as of
September 30, 2005. Such amount includes a total of 200,000 options reserved for
issuance  under the 2002  Incentive  Stock  Option  Plan,  as well as a total of
200,000 options reserved for issuance under the 2002 Non-Qualified  Stock Option
Plan,  approved by the  shareholders in May 2002. All options are issued at fair
market  value at the grant  date and are  exercisable  in  varying  installments
according  to the plans.  The plans  allow for the  payment of option  exercises
through the surrender of previously owned mature shares based on the fair market
value  of such  shares  at the  date of  surrender.  There  were  39,975  shares
available for grant at September 30, 2005.

Changes in  outstanding  stock  options for the three years ended  September 30,
2005 are as follows:
                                                       Weighted
                                    Number             Average
                                    of                 Exercise
                                    Shares             Price
- ----------------------------------------------------------------
Balance - September 30, 2002        218,172            $3.24
Options granted                     401,508            $3.37
Options exercised                    (8,597)           $3.03
Options forfeited                   (48,546)           $3.18
- ----------------------------------------------------------------
Balance - September 30, 2003        562,537            $3.34
Options granted                      35,000            $5.40
Options exercised                   (16,470)           $2.34
Options forfeited                   (25,747)           $3.33
- ----------------------------------------------------------------
Balance - September 30, 2004        555,320            $3.50
Options granted                      86,000            $3.00
Options exercised                    (8,355)           $2.65
Options forfeited                   (50,224)           $4.58
- ----------------------------------------------------------------
Balance - September 30, 2005        582,741            $3.35
Price range $2.20 - $3.00
  (weighted-average contractual     283,800            $2.79
   life of 3.6 years)
Price range $3.01 - $5.40
  (weighted-average contractual     298,941            $3.88
   life of 3.1 years)
________________________________________________________________
Exercisable options -
  September 30, 2003                 93,546            $3.71
  September 30, 2004                189,529            $3.49
  September 30, 2005                288,488            $3.29
- ----------------------------------------------------------------


On April 20, 2000, the Board of Directors  granted  holders of stock options the
right to surrender  their  underwater  options by May 31, 2000 in exchange for a
reduced  option  grant at an  exercise  price of $3.18 per  share,  based on the
closing  market price of the  Company's  common  stock on such date.  On May 31,
2000, the Company granted 67,823 new options and cancelled  156,750 options with
exercise  prices  ranging  from $6.75 to $8.19 per share.  These new grants were
treated as repricings  and are subject to variable plan  accounting  pursuant to
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation."  Accordingly,  compensation expense (benefit) is recorded for any
changes in the Company's  stock price above the price of $3.18.  In fiscal 2005,
2004 and 2003,  compensation expense (benefit) related to these repriced options
was $(67,718), $27,104 and $43,345, respectively.




                                     - 46 -
<page>

NOTE 10.  Shareholder Rights Plan
- ---------------------------------
On November 14, 2001,  the  Company's  Board of Directors  adopted a Shareholder
Rights Plan,  which  declared a dividend of one Common Stock  Purchase  Right (a
Right) for each outstanding share of common stock of the Company to shareholders
of record on December 21, 2001.  Each Right entitles the holder to purchase from
the Company one share of common stock at a purchase  price of $15 per share.  In
the event of the acquisition of or tender offer for 20% or more of the Company's
outstanding  common  stock by  certain  persons  or group  without  the Board of
Directors' consent,  such purchase price will be adjusted to equal fifty percent
of the average market price of the Company's common stock for a period of thirty
consecutive trading days immediately prior to the event. Until the Rights become
exercisable, they have no dilutive effect on the Company's earnings per share.

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

NOTE 11.  Earnings (Loss) Per Share
- -----------------------------------
The following  table  provides the  components of the basic and diluted loss per
share (EPS) computations:

                                       2005            2004           2003
                                       ----            ----           ----
Basic and Diluted EPS Computation
- ---------------------------------
Net loss                           $(2,884,621)    $(2,690,594)   $(4,874,154)
Weighted average shares
  outstanding                        4,566,621       4,597,961      4,630,745

Basic and diluted loss per share   $      (.63)     $     (.59)    $    (1.05)
                                   ============     ===========    ===========

In 2005, 2004 and 2003, 148,645, 238,717 and 70,718 shares, respectively, have
been omitted from the calculation of diluted EPS as their effect would have been
antidilutive.

NOTE 12.  Commitments and Contingencies
- ---------------------------------------
The Company  occupies  certain  facilities under operating leases that expire at
various dates through 2008. The leases,  which cover periods from three to eight
years,  generally  provide for renewal options at specified rental amounts.  The
aggregate  operating  lease  commitment  at September 30, 2005 was $540,000 with
minimum rentals for the fiscal years shown as follows:  2006 - $329,000;  2007 -
$174,000; and 2008 - $37,000.










                                     - 47 -
<page>

The Company is a party to  employment  agreements  with  certain of its officers
that provide for, among other things,  the payment of compensation if there is a
change  in  control  without  Board of  Director  approval  (as  defined  in the
agreements). The contingent liability under such change in control provisions at
September  30, 2005 was  approximately  $2.2  million.  Certain of the Company's
employment  agreements with its officers provide for a severance  benefit at the
expiration  of the  agreement  or at a specified  date of  retirement,  absent a
change in control,  aggregating  $1.9 million at September 30, 2005. The Company
is amortizing certain of such obligation to expense on the straight-line  method
through  the  specified   dates  of   retirement.   Such  expense   amounted  to
approximately $289,000 and $279,000 in fiscal 2005 and 2004, respectively.

The Company has  agreements  with  certain of its officers to provide a deferred
compensation benefit in the form of 97,337 shares of common stock currently held
by the Company in treasury.  Such shares vest upon retirement or, in the case of
70,647 shares, the expiration of one officer's employment agreement in September
2006.  All shares  vest  earlier  under  certain  occurrences  including  death,
involuntary  termination or a change in control of the Company. The market value
of such  shares  approximated  $610,000  at the dates of  grant,  which is being
amortized on the straight-line  method through the specified dates of retirement
or over the term of the employment agreement.

NOTE 13.  Litigation
- --------------------
The Company is one of several defendants in a patent infringement suit commenced
by Lectrolarm  Custom  Systems,  Inc. in May 2003 in the United States  District
Court for the Western  District of Tennessee.  The alleged  infringement  by the
Company  relates to its camera dome systems and other  products  that  represent
significant sales to the Company.  Among other things, the suit seeks injunctive
relief and  unspecified  damages.  The Company and its  outside  patent  counsel
believe that the complaint  against the Company is without merit. The Company is
vigorously defending itself and is a party to a joint defense with certain other
named  defendants.  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 may
attempt  to  settle  the  case.  However,  there  can be no  assurance  that any
settlement can be reached.

In connection  with this suit, the Company filed a request with the U.S.  Patent
and Trademark Office for reexamination of the plaintiff's patent. In April 2005,
such  request was granted by the U.S.  Patent and  Trademark  Office,  who found
sufficient evidence to warrant a reexamination of the plaintiff's patent.

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 14.  Related Party Transactions
- ------------------------------------
As  of  September  30,  2005,  CBC  Co.,  Ltd.  and  affiliates   ("CBC")  owned
approximately  11.9% of the Company's  outstanding  common  stock.  The Company,
which has been conducting business with CBC for approximately  twenty-six years,
imports certain finished products and components  through CBC and also sells its
products to CBC.  The Company  purchased  approximately  $566,000,  $651,000 and
$832,000 of products and  components  from CBC in fiscal years 2005,  2004,  and
2003,  respectively,  and the Company  sold  $362,000,  $712,000 and $370,000 of
products  to CBC  for  distribution  in  fiscal  years  2005,  2004,  and  2003,
respectively.  At  September  30, 2005 and 2004,  the Company  owed  $37,000 and
$62,000, respectively, to CBC and CBC owed $32,000 and $55,000, respectively, to
the Company resulting from purchases of products.

In fiscal 2003, the Company  recognized  $180,000 of revenues  received from CBC
pursuant  to the  completion  of a  contract  to  develop  certain  new  product
technology.


                                      - 48-
<page>

Note 15:  Asset Purchase
- ------------------------
On October 1, 2004, the Company entered into an agreement to purchase all of the
operating  assets of Videotronic  Infosystems  GmbH  ("Videotronic"),  a Germany
based video system supplier which was operating under insolvency protection, for
700,000  Eurodollars  (approximately  $868,000).  The  purchase  was ratified by
Videotronic's  Creditors on November 26, 2004.  During the year ended  September
30, 2005, the Company  recognized a $211,000  extraordinary gain on the recovery
of Videotronic net assets in excess of their allocated purchase price. Such gain
includes  adjustments to assigned  values of accounts  receivable,  inventories,
trade payables and severance  liabilities.  Pro forma results of operations have
not been presented due to the relative  insignificance  of the operating  assets
acquired.

Note 16:  Recent Accounting Pronouncements
- ------------------------------------------
As  permitted by SFAS No. 123, the Company  currently  accounts for  share-based
payments to employees  using APB Opinion No. 25's intrinsic value method and, as
such,  generally  recognizes no compensation cost for employee stock options. In
December 2004, the Financial  Accounting Standards Board (FASB) issued Statement
of Financial  Accounting  Standards (SFAS) No. 123 (revised 2004),  "Share-Based
Payment",  which is a revision  of SFAS No.  123,  "Accounting  for  Stock-Based
Compensation".  SFAS No. 123(R)  supersedes  Accounting  Principles  Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees",  and amends SFAS No.
95,  "Statement  of Cash Flows".  Generally,  the approach in SFAS No. 123(R) is
similar to the approach  described  in SFAS No. 123.  However,  SFAS No.  123(R)
requires all  share-based  payments to employees,  including  grants of employee
stock  options,  to be  recognized in the income  statement  based on their fair
values at the date of grant. Pro forma disclosure is no longer an alternative.

SFAS No. 123(R) permits public companies to adopt its requirements  using one of
two prescribed methods. The "modified  prospective" method requires compensation
cost to be  recognized  based on the  requirements  of SFAS No.  123(R)  for all
outstanding  vested stock option  grants and all  share-based  payments  granted
after the effective date. Such method allows for the use of SFAS No. 123 for all
awards granted to employees  prior to the effective date of SFAS No. 123(R) that
remain  unvested on the  effective  date.  The "modified  retrospective"  method
includes the  requirements of the modified  prospective  method described above,
but also permits entities to restate based on the amounts previously  recognized
under SFAS No. 123 for  purposes of pro forma  disclosures  either (a) all prior
periods presented or (b) prior interim periods of the year of adoption.

The Company has adopted  Statement  123(R) on October 1, 2005.  The  adoption of
this  statement  will have the effect of reducing  net income and  earnings  per
share or  increasing  net loss and net loss per share as  compared to what would
have been  reported  under the current  requirements.  The Company is  presently
unable to determine the precise  future  annual impact of this  statement on its
results of operations since such determination would require knowledge of future
events and facts unknown to the Company at this time.  However, at September 30,
2005, the Company had 294,253 unvested options on which future compensation cost
will be recognized.

In November 2004, the FASB issued SFAS No. 151,  "Inventory  Costs, an amendment
of ARB  No.  43,  Chapter  4",  which  adopts  wording  from  the  International
Accounting  Standards Board's IAS 2, "Inventories",  in an effort to improve the
comparability of cross-border  financial  reporting.  The new standard indicates
that abnormal  freight,  handling costs and wasted  materials are required to be
treated as current period  charges rather than as a portion of inventory  costs.
Additionally,  the standard  clarifies that fixed production  overhead should be
allocated  based on the normal capacity of a production  facility.  SFAS No. 151
will become  effective for the Company's  fiscal year ending September 30, 2006.
The  Company  does not  expect  that the  adoption  of SFAS No.  151 will have a
material impact on its consolidated financial position, results of operations or
cash flows.




                                     - 49 -
<page>

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections",  which replaces APB Opinion No. 20  "Accounting  Changes" and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements".  SFAS No.
154 is effective  for the  Company's  fiscal year ending  September 30, 2007 and
requires  retrospective  application  to prior period  financial  statements  of
voluntary changes in accounting principle, unless it is impractical to determine
either the  period-specific  effects or the cumulative effect of the change. The
Company's consolidated  financial position,  results of operations or cash flows
will only be impacted  by SFAS No. 154 if it  implements  a voluntary  change in
accounting principle or correct accounting errors in future periods.

NOTE 17.  Quarterly Financial Data (unaudited)
- ----------------------------------------------
                                                             Earnings (Loss)
                                                  Net           Per Share
  Quarter          Net            Gross          Income      ---------------
   Ended          Sales           Profit         (Loss)      Basic   Diluted

Fiscal 2005
December       $15,582,000      $5,868,000    $  (740,000)   $ (.16)   $ (.16)
March           12,802,000       4,708,000     (1,169,000)     (.26)     (.26)
June            13,991,000       5,319,000       (548,000)     (.12)     (.12)
September       13,681,000       5,101,000       (428,000)     (.09)     (.09)
               -----------     -----------    -----------    ------    ------
 Total         $56,056,000     $20,996,000    $(2,885,000)   $ (.63)   $ (.63)
               ===========     ===========    ===========    ======    ======

Fiscal 2004
December       $14,338,000      $5,847,000    $   122,000    $  .03    $  .03
March           12,235,000       4,525,000       (901,000)     (.20)     (.20)
June            13,573,000       5,004,000       (425,000)     (.09)     (.09)
September       13,387,000       4,335,000     (1,487,000)     (.32)     (.32)
               -----------     -----------    -----------    ------    ------
 Total         $53,533,000     $19,711,000    $(2,691,000)   $ (.59)   $ (.59)
               ===========     ===========    ===========    ======    ======


In the quarter  ended  September  30,  2004,  the Company  recognized a $638,000
charge for the phase out of a discontinued  product line,  which was an addition
to an initial  assessment charge of $316,000 taken in the previous quarter ended
June 30, 2004.

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

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























                                     - 50 -
<page>

                                  SCHEDULE II
                                  -----------

                     VICON INDUSTRIES, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

                 Years ended September 30, 2005, 2004, and 2003



                            Balance at    Charged to               Balance
                            beginning     costs and                at end
     Description            of period     expenses    Deductions   of period
     -----------            ---------     ----------  ----------   ---------
Allowance for uncollectible
  accounts:


September 30, 2005          $1,162,000     $198,000    $ 63,000   $1,297,000
                            ==========     ========    ========   ==========

September 30, 2004          $1,135,000     $192,000    $165,000   $1,162,000
                            ==========     ========    ========   ==========

September 30, 2003          $1,077,000     $546,000    $488,000   $1,135,000
                            ==========     ========    ========   ==========



















                                     - 51 -
<page>

                                   SIGNATURES
                                   ----------

Pursuant  to the  requirements  of the  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

VICON INDUSTRIES, INC.

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


December 29, 2005

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

VICON INDUSTRIES, INC.


/s/ Kenneth M. Darby                                   December 29, 2005
- ---------------------                                  ---------------------
Kenneth M. Darby          Chairman and CEO             Date

/s/ Clifton H.W. Maloney                               December 29, 2005
- ------------------------                               ---------------------
Clifton H.W. Maloney      Director                     Date

/s/ Peter F. Neumann                                   December 29, 2005
- ---------------------                                  ---------------------
Peter F. Neumann          Director                     Date

/s/ W. Gregory Robertson                               December 29, 2005
- ------------------------                               ---------------------
W. Gregory Robertson      Director                     Date

/s/ Arthur D. Roche                                    December 29, 2005
- ---------------------                                  ---------------------
Arthur D. Roche           Director                     Date




























                                     - 52 -