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, 1996                               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.)

525 Broad Hollow Road, Melville, New York                             11747
- ---------------------------------------------------------------------------
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code:            (516) 293-2200
- -----------------------------------------------------------------------------

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

                                     None

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



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

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

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

                               Yes    X        No

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


The  aggregate  market  value of  Common  Stock  held by  non-affiliates  of the
registrant as of December 15, 1996 was approximately $5,500,000.

The number of shares outstanding of the registrant's Common Stock as of December
15, 1996 was 2,777,328.









                                    PART I



ITEM 1 - BUSINESS

General

Vicon  Industries,  Inc. (the  "Company"),  incorporated in New York in October,
1967,  designs,  manufactures,  assembles  and  markets  a wide  range of closed
circuit   television   ("CCTV")   components  and  CCTV  systems  for  security,
surveillance, safety, process and control applications by end users. The Company
sells CCTV components and systems directly to distributors, dealers and original
equipment  manufacturers,  principally  within the security  industry.  The U.S.
security  industry is a  multi-billion  dollar  industry  which  includes  guard
services,  armored  carrier,  electronic  alarms and sensing  equipment,  safes,
locking devices and access systems, as well as CCTV. The nature of the Company's
business and the general security market it serves has not changed materially in
the past five years.

Users  of the  Company's  products  typically  utilize  them as a  visual  crime
deterrent, for visual documentation,  observing inaccessible or hazardous areas,
enhancing  safety,  obtaining cost savings (such as lower  insurance  premiums),
managing  control  systems,  and improving the efficiency and  effectiveness  of
personnel.  The  Company's  products are marketed  under its own brand names and
registered trademarks.  In fiscal 1996, no customer represented more than 10% of
consolidated revenues.

Products

The Company's  product line  consists of  approximately  600 products,  of which
about a third represent model variations. The Company's product line consists of
various  elements  of a video  surveillance  system,  including  video  cameras,
display units  (monitors),  cassette  recorders,  switching  equipment for video
distribution, digital video and signal processing units (which perform character
generation,  multi screen display, video insertion,  intrusion detection, source
identification  and alarm  processing),  motorized  zoom lenses,  remote  camera
positioning  devices,  manual and computer based system controls,  environmental
camera  enclosures  and consoles for system  assembly.  The Company  maintains a
large  line  of  products  due to  the  many  varied  climatic  and  operational
environments  under which the products  are expected to perform.  In addition to
selling from a standard catalog line, for significant  orders,  the Company will
produce to  specification  or 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 approximately  one hundred thousand dollars  (depending upon
configuration) for a large digital control and video switching system.















                                     - 2 -








Marketing

The  Company's   products  are  sold   worldwide,   principally  to  independent
distributors,  dealers  and  integrators  of various  types of  security-related
systems.  Sales are made by in-house  customer  service  representatives,  field
sales engineers and by independent sales representatives in certain areas of the
United  States.  The sales effort is supported by several  in-house  application
engineers.

Although  the Company  does not sell  directly  to end users,  much of its sales
promotion  and  advertising  is  directed  at end user  markets.  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  surveillance;  (5) gaming
casinos, where video security is often mandated by local statute; and (6) health
care facilities, such as hospitals, particularly psychiatric wards and intensive
care units.  The Company  estimates that  approximately  50 percent of its total
revenues are sales for commercial and industrial uses.

The  Company's  principal  sales  offices  are  located in  Melville,  New York;
Atlanta, Georgia and Segensworth, England.

International Sales

The Company sells  internationally by direct export to dealers and distributors,
and, in Europe through the Company's United Kingdom (U.K.) subsidiary. In fiscal
1996,  the  operating  profit and  identifiable  assets for the  Company's  U.K.
subsidiary  amounted to approximately  $421,000 and $4.8 million,  respectively.
For  more  information  regarding  foreign  operations,  see  Note 7 of Notes to
Consolidated Financial Statements included elsewhere herein. Direct export sales
and sales from the Company's U.K.  subsidiary  amounted to $16.2 million,  $17.5
million,  and $16.7  million or 38%,  40% and 35% of  consolidated  revenues  in
fiscal years 1996, 1995, and 1994, respectively. Export sales are made through a
wholly-owned  subsidiary,  Vicon  Industries  Foreign Sales  Corporation,  a tax
advantaged  foreign sales corporation.  The Company's  principal foreign markets
are Europe and the Far East,  which  together  accounted  for  approximately  82
percent  of  international  sales in  fiscal  1996.  Additional  information  is
contained in the discussion of foreign currency activity included in Item 7.


















                                     - 3 -








Competition

The  Company  competes  in areas of  price,  service,  product  performance  and
availability with several large and small public and  privately-owned  companies
in the  manufacture and  distribution of CCTV systems and components  (excluding
cameras,  monitors and video cassette  recorders  "Video  Products")  within the
security  industry.  The  Company's  Video  Products  compete  with  many  large
companies  whose financial  resources and scope of operations are  substantially
greater  than  the  Company's.  The  Company  is  one of a few  domestic  market
suppliers that design,  assemble,  manufacture,  market and support an extensive
line of products  offering a comprehensive  system capability in a wide range of
applications. Many competitors, including manufacturers of cameras, monitors and
recorders,  typically  produce a  limited  product  line  since  components  and
accessories are low volume items.  The Company  believes a broad product line is
desirable since many customers prefer to obtain a complete video system from one
supplier with the assurance of product compatibility and reliability.  In recent
years,  price competition has intensified  limiting the amount of cost increases
the Company  can pass on to  customers  and in some  instances  requiring  price
reductions.

Research and Development

The  Company is  engaged  in ongoing  research  and  development  activities  in
connection  with new or  existing  products.  Changes  in CCTV  technology  have
incorporated the use of advanced  electronic  components and new materials which
add to product life and performance. Nineteen professional employees devote full
time to the  development  of new  products and to improving  the  qualities  and
capabilities of existing products.  Further, the Company engages the services of
others to assist in the development of new products.  Expenditures  for research
and  development  amounted to  approximately  $1,800,000 in 1996,  $1,900,000 in
1995, and $1,600,000 in 1994 or approximately  4.2% of revenues in 1996, 4.2% of
revenues in 1995, and 3.4% of revenues in 1994.

Source and Availability of Raw Materials

The Company has not experienced shortages or significant difficulty in obtaining
its raw materials,  components or purchased finished products. Raw materials are
principally  aluminum,  steel and plastics,  while components are mainly motors,
video  lenses and  standard  electronic  parts.  In 1996,  the Company  procured
directly and  indirectly  approximately  20% of its product  purchases from Chun
Shin Electronics,  Inc., its South Korean joint venture company (see Item 13 for
further discussion of this joint venture). The Company is not dependent upon any
other single source for a significant amount of its raw materials, components or
purchased finished products.

Patents and Trademarks

The  Company  owns a limited  number of design and utility  patents  expiring at
various times and has several  patent  applications  pending with respect to the
design  and/or  mechanical  function  of its  products.  The Company has certain
trademarks  registered and several other trademark  applications pending both in
the United  States and in Europe.  The Company has no  licenses,  franchises  or
concessions  with  respect to any of its  products  or  business  dealings.  The
Company  does not deem its  patents  and  trademarks,  or the lack of  licenses,
franchises  and  concessions,  to be of  substantial  significance  or to have a
material effect on its business.





                                     - 4 -







Inventories

The  Company  maintains  an  inventory  of  finished   products   sufficient  to
accommodate   its   customers'   requirements,   since   most   sales   are   to
dealer/contractors  who  do  not  carry  large  stock  inventories.   Parts  and
components  inventories  are also  carried in  sufficient  quantities  to permit
prompt  delivery of certain  items.  The Company  would  rather  carry  adequate
inventory quantities than experience shortages which detract from the production
process and sales effort. The Company's business is not seasonal.

Backlog

The backlog of orders  believed to be firm as of September 30, 1996 and 1995 was
approximately  $3.1  million  and $2.7  million,  respectively.  All  orders are
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, 1996,  the Company  employed 176 full-time  employees,  of whom
five are officers, 41 administrative personnel, 77 employed in sales capacities,
26 in  engineering,  and 27 production  employees.  At September  30, 1995,  the
Company  employed 175 persons  categorized  in similar  proportions  to those of
1996.  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

In January  1988,  the  Company  sold and  subsequently  leased back its 108,000
square foot headquarters facility in Melville,  New York, which accommodates the
Company's sales, distribution,  administration,  product development and limited
assembly and manufacturing  operations.  Currently, the Company subleases 28,000
sq. ft. of its facility under an agreement which expires on January 30, 1998. In
November 1994, the Company entered into a sublease agreement dated as of January
1, 1993, which gives a company  affiliated with its landlord the right to occupy
approximately  25,000 sq. ft. of its primary operating  facility with two months
notice in exchange for  specified  rent payments  through the  expiration of the
primary lease in 1998. In connection with such  agreement,  the landlord and the
subtenant  were each  granted an option to ask the  Company to vacate the entire
premises with six months  notice and the landlord  agreed to release the Company
from all future  obligations under its lease in exchange for a lease termination
payment by the Company.  (See Notes 3 and 10 of Notes to Consolidated  Financial
Statements included elsewhere herein for further information).

In  October  1996,  the  landlord  exercised  the  aforementioned  option  which
obligates the Company to vacate the Melville facility in April 1997. In December
1996,  the  Company  entered  into a five year  lease for a 56,000  square  foot
facility which will  accomodate  all of the operations of the vacated  facility.
The Company  also  operates,  under lease,  a regional  sales office in Atlanta,
Georgia. In addition,  the Company owns a 14,000 square foot sales,  service and
warehouse  facility in southern  England  which  services  the U.K. and European
Community markets.

ITEM 3 - LEGAL PROCEEDINGS

None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                                     - 5 -







                                    PART II


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

The Company's  stock is traded on the American  Stock  Exchange 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 the  American  Stock
Exchange:

          Quarter
           Ended            High        Low



          Fiscal 1996
          December          2-3/8       1- 3/16
          March             2           1- 1/4
          June              2-3/4       1-11/16
          September         5-7/16      2- 1/16


          Fiscal 1995
          December          2-1/16      1-1/2
          March             2-15/16     1-1/2
          June              2-1/2       1-3/8
          September         2-1/8       1-9/16










The Company has not declared or paid cash  dividends on its Common Stock for any
of the foregoing periods.  Additionally,  under the current loan agreement,  the
Company may not declare  dividends.  The approximate number of holders of Common
Stock at December 15, 1996 was 1,500.




















                                     - 6 -







ITEM 6 - SELECTED FINANCIAL DATA




FISCAL YEAR                 1996         1995     1994       1993       1992
                            ----         ----     ----       ----       ----

                                 (in thousands, except per share data)

Net sales                $43,191   $  43,847    $ 47,714  $ 45,923   $ 45,041
Gross profit              10,957       9,546      10,714     9,724      8,150*
Pretax income (loss)         385      (1,267)         74    (1,858)    (3,317)
Net income (loss)            300      (1,347)         45    (1,875)    (3,906)
Income (loss) per share:
  Primary                    .11        (.49)        .02      (.68)     (1.42)
  Fully diluted              .10        (.49)        .02      (.68)     (1.42)
Total assets              28,085      26,423      28,857    26,069     26,701
Long-term debt             6,429       5,339       6,059     5,621      6,273
Working capital           12,064      10,721      13,359    13,420     15,741
Property, plant and
  equipment (net)          3,034       3,262       3,180     3,245      3,913

Cash dividends               -            -         -          -          -

* Includes a provision of $2.7 million for  discontinuance  of certain  products
  and product lines.




































                                     - 7 -








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

RESULTS OF OPERATIONS

Fiscal Year 1996 Compared with 1995


Net sales for 1996 were $43.2 million,  a decrease of 1.5%,  compared with $43.8
million in 1995. The sales decline was principally the result of the termination
of low margin video product sales (cameras and VCR's) to a Far East distributor.
Lower sales in Europe due to delays in new product  introduction  were offset by
increased other export sales. Domestic revenue levels were essentially unchanged
from 1995. The backlog of orders was $3.1 million at September 30, 1996 compared
with $2.7 million at September 30, 1995.

Gross  profit  margins were 25.4% of net sales in 1996,  compared  with 21.8% in
1995. The margin  improvement was due  principally to a beneficial  sales mix of
higher margin products,  particularly new proprietary digital video products and
control  systems.  The Company also shifted  sourcing of a major  portion of its
video product line to lower cost suppliers outside of Japan. In addition, during
1996, the value of the dollar increased against the Japanese yen which increased
margins for those few products still sourced in Japan.

Operating  expenses  totaled $9.7 million in 1996  compared with $9.8 million in
1995. Operating expenses,  as a percent of sales, amounted to 22.5% and 22.4% in
1996 and 1995,  respectively.  The  decline in  expenses  was due  primarily  to
ongoing cost control measures.

During  1996,  the  Company  recorded an  unrealized  foreign  exchange  gain of
$42,000.   This  gain  resulted  from  the  Company's  revaluation  of  its  yen
denominated  mortgage  obligation into U.S.  dollars as the value of the British
pound sterling gained against the Japanese yen.

Interest expense declined $131,000 due principally to the lower cost of new bank
borrowings.

Income improved approximately $1.6 million principally as a result of the higher
gross margins discussed above.






















                                     - 8 -







                     MANAGEMENT'S DISCUSSION AND ANALYSIS


RESULTS OF OPERATIONS

Fiscal Year 1995 Compared with 1994

Net sales for 1995 were $43.8 million,  a decrease of 8.1%,  compared with $47.7
million in 1994. The sales decline was the result of lower  domestic  shipments,
while foreign sales increased $.8 million to $17.5 million.  Domestic sales were
affected by several factors such as direct end user selling by competition; lack
of  competitiveness  of certain  products  whose cost is denominated in yen; and
shortened  product life cycles which made certain of the  Company's  key control
systems  less  competitive.  The backlog of orders was $2.7 million at September
30, 1995 compared with $3.0 million at September 30, 1994.

Gross  profit  margins were 21.8% of net sales in 1995,  compared  with 22.5% in
1994.  The margin  decline was due  principally  to the impact of lower sales in
relation to a substantially fixed overhead structure.  In addition, the value of
the dollar declined  significantly against the Japanese yen for most of the year
which lowered margins of those products sourced in Japan.

Operating  expenses in 1995 totaled $9.8 million  compared  with $9.9 million in
1994. Operating expenses,  as a percent of sales, amounted to 22.4% and 20.7% in
1995 and 1994,  respectively.  The increase in expenses as a percent of sales is
due in part to higher bad debt expense,  severance  pay,  bank and  professional
fees.

During  1994,  the  Company  recorded an  unrealized  foreign  exchange  gain of
$45,000.   This  gain  resulted  from  the  Company's  revaluation  of  its  yen
denominated  mortgage  obligation into U.S.  dollars as the value of the British
pound sterling gained against the Japanese yen.

Interest expense increased $230,000 as a result of higher interest rates.

The net loss of $1.3 million compared with a profit of $45,000 was the result of
lower sales and gross margins and higher interest expenses as discussed above.

























                                     - 9 -







                     MANAGEMENT'S DISCUSSION AND ANALYSIS

LIQUIDITY AND FINANCIAL CONDITION

September 30, 1996 Compared with 1995

Total shareholders' equity increased  approximately  $335,000 to $9.0 million at
September 30, 1996, due primarily to the year's reported profit. Working capital
increased  approximately $1.3 million to $12.1 million at September 30, 1996 due
principally to increased long term bank  borrowings to finance higher  inventory
levels.

Accounts  receivable  increased  approximately  $.3  million to $8.6  million at
September  30, 1996.  The increase was  principally  the result of higher fourth
quarter sales compared with the prior year.  Inventories  increased $2.6 million
to $14.7 million at September 30, 1996. Finished products inventories  increased
$2.3 million due  principally to the  introduction of new digital video products
and a general increase in stocking levels to meet  anticipated  customer demand.
Raw material and component  inventories also increased principally to accomodate
production  of a new  camera  dome  system.  Total  accounts  payable  increased
approximately  $1.0 million to $9.3 million at September 30, 1996 to support the
higher inventory levels.


The Company maintains an overdraft  facility of 700,000 pounds sterling (approx.
$1.1  million) in the U.K. to support  local working  capital  requirements.  At
September 30, 1996, borrowings under this facility were approximately $960,000.

In December 1995, the Company repaid $2.8 million of bank debt with the proceeds
of a new U.S. bank loan.  The new two year loan  agreement  provides for maximum
borrowings  of  $5,500,000  at September  30, 1996,  subject to an  availability
formula based on U.S. accounts receivable and inventories. Borrowings under such
agreement  amounted  to  approximately  $4.1  million  at  September  30,  1996.
Concurrent  with the new loan  agreement,  the Company  amended  its  $2,000,000
secured  promissory note with Chugai Boyeki Co., Ltd., a related party, to defer
all scheduled principal installments to July 1998. The Company believes that the
new loan agreement and its other sources of credit provide  adequate  funding to
meet its near term cash requirements.

























                                    - 10 -







Foreign Currency Activity

The  Company's  foreign  exchange   exposure  is  principally   limited  to  the
relationship  of the U.S.  dollar  to the  Japanese  yen and the  British  pound
sterling.

Japan sourced products denominated in Japanese yen accounted for approximately 7
percent of product  purchases in fiscal 1996  compared with 19 percent in fiscal
1995.  Although the dollar  strengthened  against the Japanese yen during fiscal
1996, in past years the dollar had weakened dramatically in relation to the yen,
resulting in increased costs for such products.  When market conditions  permit,
cost increases due to currency  fluctuations are passed on to customers  through
price  increases.  The  Company  also  attempts  to  reduce  the  impact  of  an
unfavorable  exchange rate condition through cost reductions from its suppliers,
lowering production cost through product redesign, and shifting product sourcing
to suppliers transacting in more stable and favorable currencies.  The Company's
purchases  from  Japan  are  denominated  in  Japanese  yen.  At  the  Company's
direction,  Chugai Boyeki Co.,  Ltd.,  its Japanese  supplier,  has entered into
foreign  exchange  contracts on behalf of the Company to hedge the currency risk
on these product purchases.

Sales to the  Company's  U.K.  subsidiary,  which  approximated  $3.7 million in
fiscal 1996, are made in pounds sterling and include  products  sourced from the
Far East. In the years when the pound  weakened  significantly  against the U.S.
dollar and Japanese yen, the cost of U.S. and Japanese  sourced  product sold by
the Company's U.K. subsidiary increased.  When market conditions permitted, such
cost  increases  were passed on to the customer  through  price  increases.  The
Company attempts to minimize its currency exposure on intercompany sales through
the purchase of forward exchange contracts.

The Company  intends to increase  prices and seek lower prices from suppliers to
mitigate exchange rate exposures,  however,  there can be no assurance that such
steps will be effective in limiting foreign currency exposure.

Inflation

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

New Accounting Pronouncements

In  October  1995,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement No. 123,  "Accounting  for  Stock-Based  Compensation,"  which must be
adopted by the Company in fiscal 1997.  The Company has elected not to implement
the fair value based  accounting  method for  employee  stock  options,  but has
elected to disclose,  commencing  in fiscal 1997,  the  pro-forma net income and
earnings  per share as if such method had been used to account  for  stock-based
compensation cost as described in the Statement.

In March 1995, the FASB issued Statement No.121,  "Accounting for the Impairment
of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of," which must
also be  adopted by the  Company in fiscal  1997.  The  effect of  adopting  the
standard will be insignificant.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Part IV,  Item 14, for an index to  consolidated  financial  statements  and
financial statement schedules.


                                    - 11 -






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

None



























































                                     - 12 -






                                   PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


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

      Directors and Executive Officers

      Donald N. Horn, age 67           Chairman of the Board (since 1967);
                                         term ends April 1999
      Kenneth M. Darby, age 50         President, Chief Executive Officer,
                                         Assistant Secretary, and Director
                                         (since 1987); term ends April, 1997
      Arthur D. Roche, age 58          Executive Vice President, Chief
                                         Financial Officer, Secretary, Member
                                         of the Office of the President and
                                         Director (since 1992); term ends
                                         April 1999
      Peter F. Barry, age 67           Director since 1984; term ends April
                                         1999
      Milton F. Gidge, age 67          Director since 1987; term ends April
                                         1998
      Michael D. Katz, age 58          Director since 1993; term ends April
                                         1998
      Peter F. Neumann, age 62         Director since 1987; term ends April
                                         1997
      W. Gregory Robertson, age 52     Director since 1991; term ends April
                                         1998
      Kazuyoshi Sudo, age 54           Director since 1987; term ends April
                                         1997
      Arthur V. Wallace, age 71        Director since 1974; term ends April
                                         1998
      John L. Eckman, age 47           Vice President, U.S. Sales
      Peter A. Horn, age 41            Vice President, Compliance and Quality
                                         Assurance
      Yacov A. Pshtissky, age 45       Vice President, Engineering
      Gregory Stempkoski, age 36       Vice President, Export Sales


Mr. D. Horn founded the Company in 1967 and has served as Chairman of the Board
since its inception.  He also served as Chief Executive Officer from the
Company's inception until April 1992 and as President to September, 1991.

Mr.  Darby has  served  as Chief  Executive  Officer  since  April,  1992 and as
President since October,  1991. Mr. Darby also served as Chief Operating Officer
and as Executive Vice President,  Vice  President,  Finance and Treasurer of the
Company.  He first joined the Company in 1978 as Controller after more than nine
years at KPMG Peat Marwick, a major public accounting firm.

Mr. Roche joined the Company as Executive Vice President and co-participant in
the Office of the President in August 1993.  For the six months earlier, 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
whom he joined in 1960.

Mr. Barry is a retired executive of Grumman Corp., an aerospace manufacturer,
for whom he served from August 1988 to March 1991 as Senior Vice President of
Washington D.C. operations.  Previously, he served since 1974 as President of
Hartman Systems, Inc., a manufacturer of electronic controls and display devices
for military applications.  Mr. Barry currently acts as a consultant to private
industry on government relations.

                                    - 13 -







Mr. Gidge is a retired executive officer of Lincoln Savings Bank (1976-1994) and
served as its Chairman,  Credit  Policy.  He has also served as a director since
1980 of Interboro  Mutual  Indemnity  Insurance Co., a general  insurance mutual
company and since 1988 as a director of  Intervest  Corporation  of New York,  a
mortgage banking company.

Mr. Katz is a physician practicing in New York.  He is the President of Katz,
Rosenthal, Ganz, Snyder & PDC.  He has served in that capacity since 1970.

Mr. Neumann has been President of Flynn-Neumann Agency, Inc. an insurance
brokerage firm, since 1971.  He has also served since 1978 as a director of
Reliance Federal Savings Bank.

Mr. Robertson is President of TM Capital Corporation, a financial services
company, an organization 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. Sudo has been Treasurer of Chugai Boyeki (America) Corp., a distributor of
electronic, chemical and optical products, since 1985.

Mr. Wallace, who joined the Company in 1970, was Executive Vice President from
1979 until he retired in September, 1990.

Mr. Eckman joined the Company in August 1995 as Eastern Regional Manager.  He 
was promoted to Vice President, U.S. Sales in July, 1996.  Prior to joining the
Company, he was Director of Field Operations for Cardkey Systems, Inc. with whom
he was employed for twelve years.

Mr. P. Horn joined the Company in January, 1974 and has been employed in various
technical capacities.  In 1986 he was appointed as Vice President,  Engineering;
in May, 1990 as Vice President,  New Products and Technical Support Services; in
September  1993, he was appointed  Vice  President,  Marketing;  in 1994 as Vice
President,  Product  Management;  and in 1995 as Vice President,  Compliance and
Quality Assurance.

Mr. Pshtissky,  who joined the Company in September 1979 as an Electrical Design
Engineer,  was promoted to Director of Electrical Product  Development in March,
1988 and to Vice President, Engineering in May, 1990.

Mr. Stempkoski joined the Company in June 1986 as an Inside Sales Administrator.
In October 1990, he was promoted to International  Sales Manager and in October,
1996 he was promoted to Vice President, Export Sales.

There are no family relationships between any director, executive officer or
person nominated or chosen by the Company to become a director or officer except
for the relationship between Peter A. Horn, an officer of the Company, and 
Donald N. Horn, Chairman of the Board.  Peter A. Horn is the son of Donald N.
Horn.












                                    - 14 -









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, 1996 and Form 5 and amendments
thereto  furnished  to the  Company  with  respect to the year ended and certain
written  representations,  no  person,  who,  at any time  during the year ended
September 30, 1996 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 of the Exchange Act during the
year ended September 30, 1996.

ITEM 11 - EXECUTIVE COMPENSATION

The following  information is set forth with respect to all compensation paid by
the  Company to its Chief  Executive  Officer  and its most  highly  compensated
executive  officers  other  than  the CEO  whose  annual  compensation  exceeded
$100,000, for each of the past three fiscal years.

                                          Annual      Long Term
                                       Compensation  Compensation
                          Fiscal
Name and                 Year Ended                    Options       All Other
Principal Position      September 30,      Salary    No. of Shares  Compensation

Kenneth M. Darby             1996       $195,000        95,000      $34,750 (2)
Chief Executive Officer      1995       $195,000           -        $ 3,000 (1)
                             1994       $195,000        59,194      $ 3,000 (1)

Arthur D. Roche              1996       $150,000        25,000      $15,875 (3)
Executive Vice President     1995       $150,000           -            -
                             1994       $150,000        50,000          -

No listed officer  received other non-cash  compensation  amounting to more than
10% of salary.


(1)   Represents life insurance policy payment.

(2)   Represents  life insurance  policy payment of $3,000 and bonus in the form
      of 16,933 shares of common stock to be issued from Treasury.

(3)   Bonus in the form of 8,467 shares of common stock to be issued
      from Treasury.
















                                       - 15 -








Stock Options


                          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%
- ----------------- ---------- ------------- --------- ---------- -------  ------


Kenneth M. Darby    95,000      39%         1.6875    11/00     $44,300  $97,900
Arthur D. Roche     25,000      10%         1.6875    11/00     $11,700  $25,800

Options  granted in the year ended  September  30, 1996 were either issued under
the 1994 Incentive  Stock Option Plan or reissued under the 1986 Incentive Stock
Option Plan. The options granted above are exercisable as follows:  up to 30% of
the  shares at the grant  date,  an  additional  30% of the  shares on the first
anniversary  of the grant  date,  and the  balance  of the  shares on the second
anniversary of the grant date,  except that no option is  exercisable  after the
expiration of five years from the date of grant.



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

                                                     Value of Unexercised In-
                    Number of Unexercised Options     the-Money Options at
                      As of September 30, 1996        September 30, 1996 (1)
                    -----------------------------   ------------------------

     Name           Exercisable  Unexercisable      Exercisable Unexercisable

Kenneth M. Darby       114,392       66,500           $66,800      $54,000

Arthur D. Roche         57,500       17,500           $37,300      $14,200


No options were  exercised by any of the  above-named  officers  during the year
ended September 30, 1996.

(1)  Calculated  based on $2.50 per share closing  market value at September 30,
1996.


















                                       - 16 -








Mr. Darby has entered into an employment contract with the Company that entitles
him to receive an annual salary of $225,000  through fiscal year 2001. Mr. Roche
has an employment  agreement  with the Company that provides an annual salary of
$170,000  through  September  30,  1999.  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  without  Board of Director
approval (as defined in the agreements).

Messrs.  D. Horn and A. Wallace  (current  directors) each have insured deferred
compensation  agreements  with the  Company  which  provide  that upon  reaching
retirement  age total payments of $917,000 and $631,000,  respectively,  will be
made  in  monthly  installments  over  a ten  year  period.  The  full  deferred
compensation  payment  is  subject  to such  individuals'  adherence  to certain
non-compete  covenants.  Mr.  Wallace,  who  retired in  September  1990,  began
receiving  payments  under the  agreement  in  October,  1990 and Mr. Horn began
receiving payments under the agreement in January, 1994.

Directors,  except the  Chairman of the Board and employee  directors,  are each
compensated at the rate of $600 per Board meeting and $300 per committee meeting
attended  in person.  The  Chairman of the Board is  compensated  at the rate of
$1,000 per Board  meeting  and $300 per  committee  meeting  attended in person.
Effective  January 1, 1997,  the directors and Chairman will be  compensated  at
annual rates of $6,000 and $10,000,  respectively.  Committee  fees will be $500
per meeting attended in person.








































                                     - 17 -







COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The  Compensation  Committee  of the  Board of  Directors  consists  of  Messrs.
Neumann,  Robertson and Wallace,  none of whom are or ever have been officers of
the Company, except Mr. Wallace who retired in 1990 as Executive Vice President.
See the  section  entitled  "Certain  Relationships  and  Related  Transactions"
included  elsewhere  herein,  for a discussion  of certain  other  relationships
maintained by Mr. Neumann and Mr. Robertson with the Company.



                      BOARD COMPENSATION COMMITTEE REPORT


The Compensation  Committee's  compensation policies applicable to the Company's
executive  officers for the last completed fiscal year 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  executive  officers  other than Mr.
Darby.  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 such officer.
For each executive  officer,  the  Committee's  determinations  are based on the
committee's  conclusions  concerning  each officer's  performance and comparable
compensation  levels in the CCTV Industry and the Long Island area for similarly
situated  officers at other  companies.  The overall level of performance of the
Company is taken into account but is not specifically related to the base salary
of these  executive  officers.  Also,  the Company has  established an incentive
compensation plan for all of its executive officers,  which provides a specified
bonus  to  each  officer  upon  the  Company's  achievement  of  certain  annual
profitability targets.

The  Compensation  Committee  grants  options to  executive  officers to connect
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 based on  significant  contributions  of an executive
officer to the performance of the Company.

In addition,  in determining  the salary  compensation  of Mr. Darby as CEO, the
Committee  considered  the  responsibility  assumed  by him in  formulating  and
implementing a management and operating restructuring plan.


                            Compensation Committee



               Peter F. Neumann, Chairman, W. Gregory Robertson
                        and Arthur V. Wallace










                                    - 18 -







This  graph  compares  the return of $100  invested  in the  Company's  stock on
October 1, 1991, with the return on the same investment in the AMEX Market Value
Index and the AMEX High Technology Index.





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



                                                          AMEX High
                 Vicon                    AMEX Market     Technology
Date             Industries, Inc.         Value Index     Index

10/01/91             100                    100             100
10/01/92             133                    101              94
10/01/93              78                    123             111
10/01/94              81                    123             116
10/01/95              83                    145             155
10/01/96             111                    153             196








































                                     - 19 -






ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following sets forth information as to each person,  known to the Company to
be a  "beneficial  owner"  (as  defined in  regulations  of the  Securities  and
Exchange  Commission)  of more than five percent of the  Company's  Common Stock
outstanding  as of December  15, 1996 and the shares  beneficially  owned by the
Company's Directors and by all Officers and Directors as a group.

   Name and Address                   Amount of
   of Beneficial Owner                Beneficial Ownership (1)       % of Class
   -------------------                ------------------------       ----------

   Chugai Boyeki (America) Corp.
   55 Mall Drive
   Commack, NY   11725
            and
   Chugai Boyeki Company, Ltd.
   2-15-13 Tsukishima
   Chuo-ku
   Tokyo, Japan 104                        548,715                     17.6%

   Chu Chun
   C/O I.I.I. Companies, Inc.
   915 Hartford Turnpike
   Shrewsbury, MA   01545                  300,557                      9.7%

   Dongwon Securities Co., Ltd.
   34-7, Yoido-Dong
   Youngdungpo-Gu
   Seoul 150-010, Korea                    143,000                      4.6%

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

   Michael D. Katz                         271,400 (2)                  8.7%

   Kenneth M. Darby                        225,239 (3)                  7.2%

   Donald N. Horn                          124,300 (2)                  4.0%

   Arthur D. Roche                         103,967 (4)                  3.3%

   Arthur V. Wallace                        61,695                      2.0%

   Kazuyoshi Sudo                           12,000 (2)                   .4%

   Milton F. Gidge                           6,500 (2)                   .2%

   Peter F. Barry                            5,600 (2)                   .2%

   Peter F. Neumann                          3,000                       .1%

   W. Gregory Robertson                         --                       --

   Total all officers and
     directors as a group
     (14 persons)                          882,751 (5)                28.4%

(1)         The nature of beneficial ownership of all shares is sole voting and
            investment power.
(2)   Includes currently exercisable options to purchase 5,000 shares.
(3)   Includes currently exercisable options to purchase 136,032 shares and
      16,933 shares issuable from Treasury.

                                    - 20 -







(4)   Includes currently exercisable options to purchase 65,000 shares and 8,467
      shares issuable from Treasury.
(5)   Includes  currently  exercisable  options to purchase  293,832  shares and
      25,400 shares issuable from Treasury.


























































                                    - 21 -






ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company and Chugai Boyeki Company,  Ltd. (Chugai),  a Japanese  corporation,
which owns 19.8% of the outstanding shares of the Company,  have been conducting
business with each other for  approximately  seventeen years whereby the Company
imports  certain  video  products and lenses  through  Chugai and also sells its
products  to Chugai who  resells  the  products  in certain  Asian and  European
markets.  In fiscal 1996, the Company  purchased  approximately  $9.2 million of
products  through  Chugai  and sold  products  to  Chugai  for  resale  totaling
approximately $2.1 million.  Kazuyoshi Sudo, a director,  is Treasurer of Chugai
Boyeki (America) Corp., a U.S. subsidiary of Chugai.

Chu S. Chun, who controls 10.8% of the outstanding shares of the Company, also
owns Chun Shin Industries, Inc. (CSI).  CSI is a 50% partner with the Company in
Chun Shin Electronics, Inc. (CSE), a joint venture company which manufactures
and assembles certain Vicon products in South Korea.  In fiscal 1996, CSE sold
approximately $5.8 million of product to the Company through I.I.I. Companies,
Inc. (I.I.I.), a U.S. based company controlled by Mr. Chun.  I.I.I. arranges the
importation and provides short term financing on all the Company's product
purchases from CSE.  CSE also sold approximately $1.7 million of product to CSI
which sells Vicon product exclusively in Korea.  In addition, I.I.I. purchased
approximately $900,000 of products directly from the Company during fiscal 1996
for resale to CSI.

Peter F.  Neumann,  a director of the Company,  is a principal in the  insurance
brokerage  firm of Bradley & Parker,  Inc.  which is the agent for a majority of
the Company's commercial insurance. The premium paid for such insurance amounted
to approximately $109,000 in fiscal 1996.

W.  Gregory  Robertson,  a director of the  Company,  is President of TM Capital
Corporation,  an  investment  banking  firm which  provides  investment  banking
services to the Company on a periodic  basis.  Services  rendered to the Company
during fiscal 1996 amounted to approximately $40,000.

During 1996, the Company purchased approximately $72,000 of products from
Pro/Four Video Products, Inc., in which Donald N. Horn and Arthur V. Wallace,
directors of the Company, have an ownership interest.

























                                    - 22 -







                                    PART IV


ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND
          REPORTS ON FORM 8-K

(a) (1)  Financial Statements

         Included in Part IV, Item 14:

         Independent Auditors' Report

         Financial Statements:

            Consolidated Statements of Operations, fiscal years ended
            September 30, 1996, 1995, and 1994

            Consolidated Balance Sheets at September 30, 1996 and 1995

            Consolidated Statements of Shareholders' Equity, fiscal years ended
            September 30, 1996, 1995, and 1994

            Consolidated Statements of Cash Flows, fiscal years ended
            September 30, 1996, 1995, and 1994

            Notes to Consolidated Financial Statements, fiscal years ended
            September 30, 1996, 1995, and 1994

(a) (2)  Financial Statement Schedule

         Included in Part IV, Item 14:

         Schedule I   -  Valuation and Qualifying Accounts for the years
                         ended September 30, 1996, 1995, and 1994

     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.
























                                    - 23 -







14(a)(3)           Exhibits

                                                      Exhibit Number or
Exhibit                                               Incorporation by
Numbers     Description                               Reference to

 3          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

10          Material Contracts

            (.1) Credit and Security Agreement       Incorporated by reference
                 dated December 27, 1995             to the 1995 Annual Report
                 between the Registrant and          on Form 10-K
                 IBJ Schroder Bank and Trust
                 Company

            (.2) Credit and Security Agreement       10.2
                 between the Registrant and IBJ
                 Schroder Bank and Trust Company,
                 First Amendment dated August 19,
                 1996.

            (.3) Promissory Note dated               Incorporated by reference
                 October 5, 1993  as amended         to the 1995 Annual Report
                 between Registrant and Chugai       on Form 10-K
                 Boyeki Company, Ltd.

            (.4) Mortgage Loan Agreement dated       Incorporated by
                 June 2, 1989 between                reference to the 1989
                 Registrant and Chugai Boyeki        Annual Report on
                 Company, Ltd.                       Form 10-K


            (.5) Employment Contract dated           10.5
                 October 1, 1996 between the
                 Registrant and Kenneth M. Darby

            (.6) Employment Contract dated October   10.6
                 1, 1996 between Registrant
                 and Arthur D. Roche

            (.7) Employment Agreement dated August   10.7
                 1, 1996 between Registrant and
                 John L. Eckman

            (.8) Employment Agreement dated June     10.8
                 1, 1996 between Registrant and
                 Peter Horn

            (.9) Employment Agreement dated June     10.9
                 1, 1996 between Registrant and
                 Yacov Pshtissky





                                    - 24 -






           (.10) Deferred Compensation Agreements    Incorporated by
                 dated November 1, 1986 between the  reference to the 1992
                 Registrant and Donald N. Horn and   Annual Report on
                 Arthur V. Wallace                   Form 10K

           (.11) Agreement of lease dated            Incorporated by
                 January 18, 1988 between the        reference to the 1988
                 Registrant and Allan V. Rose        Annual Report on Form
                                                     10-K

          (.12) Sublease Agreement dated             Incorporated by reference
                as of January 1, 1993 between        to the 1994 Annual Report
                the Registrant and AVR               on Form 10-K
                Mart Inc.

          (.13) Consent of Overlandlord and          Incorporated by reference
                Release Agreement (undated)          to the 1994 Annual Report
                between the Registrant and           on Form 10-K
                Allan V. Rose

          (.14) Sublease Agreement dated             Incorporated by reference
                as of September 1, 1995 between      to the 1995 Annual Report
                the Registrant and New York          on Form 10-K
                Blood Center

          (.15) Amended and restated 1986            Incorporated by
                Incentive Stock Option Plan          reference to the 1990
                                                     Annual Report on Form
                                                     10-K

          (.16) 1994 Incentive Stock                 Incorporated by reference
                Option Plan                          to the 1994 Annual Report
                                                     on Form 10-K

         (.17) 1994 Non-Qualified Stock Option       Incorporated by reference
               Plan for Outside Directors            to the 1994 Annual Report
                                                     on Form 10-K

         (.18) Lease agreement dated December 24,    10.10
               1996 between the Registrant and
               RREEF MIDAMERICA/EAST-V NINE, INC.

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

24          Independent Auditors' Consent            24

No other exhibits are required to be filed.


14(b) - REPORTS ON FORM 8-K

No reports on Form 8-K were  required to be filed during the last quarter of the
period covered by this report.







                                    - 25 -







Other Matters - Form S-8 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) and  33-90038  (filed
February 24, 1995):

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.







































                                    - 26 -












                         Independent Auditors' Report


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

We have audited the consolidated financial statements of Vicon Industries,  Inc.
and  subsidiaries  as listed in Part IV, item 14(a)(1).  In connection  with our
audits  of the  consolidated  financial  statements,  we also have  audited  the
financial  statement  schedule  as  listed  in Part  IV,  item  14(a)(2).  These
consolidated  financial  statements  and  financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Vicon Industries,
Inc. and  subsidiaries  at September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  September 30, 1996,  in conformity  with  generally  accepted  accounting
principles.  Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.





                                     KPMG PEAT MARWICK LLP


Jericho, New York
November 12, 1996













                                    - 27 -






                    VICON INDUSTRIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
             Fiscal Years Ended September 30, 1996, 1995 and 1994





                                           1996         1995          1994
                                           ----         ----          ----


Net sales                              $43,191,446    $43,846,571   $47,713,892
Cost of sales                           32,234,192     34,300,638    37,000,055
                                      ------------     ----------   -----------

    Gross profit                        10,957,254      9,545,933    10,713,837


Operating expenses:
 General and administrative expense      2,931,333      3,366,662     3,188,183
 Selling expense                         6,800,361      6,433,483     6,712,436
                                         ---------      ---------   -----------
                                         9,731,694      9,800,145     9,900,619
                                         ---------      ---------   -----------


    Operating profit (loss)              1,225,560       (254,212)      813,218


Unrealized foreign exchange gain           (41,908)          (550)      (44,748)
Interest expense                           882,290      1,013,383       783,731
                                        ----------    -----------   -----------
   Income (loss) before income taxes       385,178     (1,267,045)       74,235

Income tax expense                          85,000         80,000        29,000
                                        ----------    -----------   -----------


    Net income (loss)                   $  300,178    $(1,347,045)  $    45,235
                                        ==========    ===========   ===========



Income (loss) per share:

  Primary                                    $ .11          $(.49)        $.02
                                             =====         ======         ====

   Fully diluted                             $ .10          $(.49)        $.02
                                             =====         ======         ====


See accompanying notes to consolidated financial statements.


















                                       - 28 -






                       VICON INDUSTRIES, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS
                             September 30, 1996 and 1995

ASSETS                                                 1996             1995
- ------                                                 ----             ----

Current Assets:
  Cash                                             $   205,876       $1,151,850
  Accounts receivable (less allowance
    of $396,000 in 1996 and
    $542,000 in 1995)                                8,635,020        8,352,845
  Other receivables                                     71,819          261,864
  Inventories:
    Parts, components, and materials                 2,175,408        1,594,462
    Work-in-process                                  1,391,552        1,686,287
    Finished products                               11,135,798        8,831,852
                                                    ----------       ----------
                                                    14,702,758       12,112,601
  Prepaid expenses                                     529,631          309,288
                                                    ----------       ----------
                 Total current assets               24,145,104       22,188,448
Property, plant and equipment:
   Land                                                290,448          292,298
   Building and improvements                         1,507,630        1,512,601
   Machinery, equipment, and vehicles               11,842,120       11,417,598
                                                    ----------       ----------
                                                    13,640,198       13,222,497
   Less accumulated depreciation
    and amortization                                10,606,013        9,960,558
                                                    ----------       ----------
                                                     3,034,185        3,261,939
Other assets                                           905,327          973,107
                                                    ----------       ----------
                                                   $28,084,616      $26,423,494

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Borrowings under revolving credit agreement      $   959,583      $   906,955
  Current maturities of long-term debt                 203,719          220,739
  Accounts payable:
    Related party                                    7,457,482        6,895,073
    Other                                            1,811,730        1,335,935
  Accrued wages and expenses                         1,229,087        1,697,732
  Income taxes payable                                  87,205           78,583
  Deferred gain on sale and leaseback                  332,100          332,100
                                                   -----------       ----------
                 Total current liabilities          12,080,906       11,467,117

Long-term debt:
  Related party                                      2,262,005        2,437,259
  Other                                              4,166,881        2,901,490
Deferred gain on sale and leaseback                    101,893          433,993
Other long-term liabilities                            504,776          550,609
Commitments and contingencies - Note 10
Shareholders' equity
  Common Stock, par value $.01 per share
    Authorized - 10,000,000 shares
    Issued 2,802,728 and 2,788,228 shares               28,027           27,882
  Capital in excess of par value                     9,423,089        9,396,890
  Accumulated deficit                                 (283,611)        (583,789)
                                                    ----------       ----------
                                                     9,167,505        8,840,983
  Less treasury stock at cost, 25,400 shares           (82,901)         (82,901)
  Foreign currency translation adjustment             (116,449)        (125,056)
                                                    ----------       ----------
                Total shareholders' equity           8,968,155        8,633,026
                                                    ----------       ----------
                                                   $28,084,616      $26,423,494

 See accompanying notes to consolidated financial statements.

                                       - 29 -












                       VICON INDUSTRIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                Fiscal Years Ended September 30, 1996, 1995, and 1994


                                                                                       Foreign       Total
                                                   Capital in   Retained               currency      share-
                                         Common     excess of   earnings    Treasury   translation   holders'
                               Shares     Stock     par value   (deficit)    Stock     adjustment    equity
                                                                              
Balance September 30, 1993    2,788,228  $27,882  $9,396,890  $ 718,021   $(82,901)  $ (179,622)   $ 9,880,270

Foreign currency translation
  adjustment                        -        -           -          -          -        117,027        117,027
Net income                          -        -           -       45,235        -            -           45,235
                              ---------  -------  ----------  ---------   --------   ----------    -----------
Balance September 30, 1994    2,788,228  $27,882  $9,396,890  $ 763,256   $(82,901)  $  (62,595)   $10,042,532

Foreign currency translation
  adjustment                        -        -           -           -         -        (62,461)       (62,461)
Net loss                            -        -           -    (1,347,045)      -            -       (1,347,045)
                              ---------   ------  ----------  ----------  ---------  ----------    -----------
Balance September 30, 1995    2,788,228  $27,882  $9,396,890  $ (583,789) $(82,901)  $ (125,056)   $ 8,633,026

Foreign currency translation
  adjustment                        -        -           -           -         -          8,607          8,607
Exercise of stock options        14,500      145      26,199         -         -            -           26,344
Net income                          -        -           -       300,178       -            -          300,178
                              ---------   ------  ----------  ----------  --------   ----------    -----------
Balance September 30, 1996    2,802,728  $28,027  $9,423,089  $ (283,611) $(82,901)  $ (116,449)   $ 8,968,155
                              =========  =======  ==========  ==========  ========   ==========    ===========



See accompanying notes to consolidated financial statements.














                                       - 30 -








                       VICON INDUSTRIES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                Fiscal Years Ended September 30, 1996, 1995 and 1994

                                             1996          1995         1994
                                             ----          ----         ----
Cash flows from operating activities:
 Net income (loss)                     $   300,178   $ (1,347,045) $    45,235
 Adjustments to reconcile net income
  (loss) to net cash (used in)
  provided by operating activities:
  Depreciation and amortization            699,211        704,900      722,488
   Amortization of deferred gain
   on sale and leaseback                  (332,100)      (332,100)    (332,100)
   Unrealized foreign exchange
   gain                                    (41,908)          (550)     (44,748)
 Change in assets and liabilities:
 Accounts receivable                      (312,207)     1,377,405     (422,815)
 Other receivables                         190,045         39,684      230,259
 Inventories                            (2,593,382)     1,358,533   (2,201,508)
 Prepaid expenses                         (218,762)        13,513      (17,618)
 Other assets                               67,780        (30,000)    (359,547)
 Accounts payable                        1,045,453        708,591      572,724
 Accrued wages and expenses               (460,350)       409,285      (22,020)
 Income taxes payable                        7,517         48,077        8,220
  Other liabilities                        (45,833)       (63,878)     (35,277)
                                       -----------    -----------   ----------

        Net cash (used in) provided
          by operating activities       (1,694,358)     2,886,415   (1,856,707)
                                       -----------     ----------  -----------

Cash flows from investing activities:
    Capital expenditures, net of
      minor disposals                     (482,111)      (608,808)    (573,100)
                                       -----------    -----------   ----------
        Net cash used in
          investing activities            (482,111)      (608,808)    (573,100)
                                       -----------    -----------   ----------

Cash flows from financing activities: Borrowings under U.S.
      credit and security agreement      4,142,898            -            -
    Repayments of U.S. revolving
      credit agreement                  (2,800,000)    (1,700,000)    (396,000)
    Proceeds from exercise of stock
      options                               26,344            -            -
    Increase (decrease) in borrowings
      under U.K. revolving credit
      agreement                             57,251       (29,511)      941,365
    Issuance of promissory note
   to related party                              -             -     2,000,000
    Repayments of other debt              (220,625)     (237,723)     (229,506)
                                         ----------    ----------   ----------
      Net cash provided by (used
          in) financing activities       1,205,868    (1,967,234)    2,315,859
                                        ----------    ----------    ----------
Effect of exchange rate changes on cash     24,627       (68,923)      (14,765)
                                        ----------    ----------    ----------

Net (decrease) increase in cash           (945,974)      241,450      (128,713)

Cash at beginning of year                1,151,850       910,400     1,039,113
                                        ----------    ----------    ----------
Cash at end of year                     $  205,876    $1,151,850    $  910,400
                                        ==========    ==========    ==========

Non-cash investing and financing activities:
  Capital lease obligations                    -      $  178,151        -

Cash paid during the fiscal year for:
  Income taxes                           $   78,121   $    32,097   $   17,431
  Interest                               $  888,061   $   974,640   $  707,357


See accompanying notes to consolidated financial statements.

                                       - 31 -







VICON INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years ended September 30, 1996, 1995, and 1994


NOTE 1.  Summary of Significant Accounting Policies

Nature of Operations

The  Company  designs,  manufactures,   assembles  and  markets  closed  circuit
television  components  and systems for use in security,  surveillance,  safety,
process and control  applications by end users. The Company markets its products
worldwide   directly   to   distributors,   dealers   and   original   equipment
manufacturers, principally within the security industry.

Principles of Consolidation

The consolidated  financial statements include the accounts of Vicon Industries,
Inc. (the Company) and its wholly owned  subsidiaries,  Vicon Industries Foreign
Sales Corp., a Foreign Sales Corporation (FCC) and Vicon Industries (U.K.), Ltd.
after elimination of intercompany accounts and transactions.

Revenue Recognition

Revenues are  recognized  when  products are sold and title is passed to a third
party, generally at the time of shipment.

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.

Property, Plant and Equipment

Property, plant, and equipment are recorded at cost and include expenditures for
replacements or major improvements. Depreciation, which includes amortization of
assets under capital leases,  is computed by the  straight-line  method over the
estimated  useful lives of the related assets for financial  reporting  purposes
and on an accelerated  basis for income tax purposes.  Machinery,  equipment and
vehicles  are being  depreciated  over periods  ranging from 2 to 10 years.  The
Company's  building is being depreciated over a period of 40 years and leasehold
improvements  are amortized over the lesser of their  estimated  useful lives or
the remaining lease term.

Research and Development

Product research and development costs are charged to cost of sales as incurred,
and amounted to  approximately  $1,800,000,  $1,900,000 and $1,600,000 in fiscal
1996, 1995, and 1994, respectively.

Earnings Per Share

Earnings per share are computed  based on the weighted  average number of shares
outstanding  and equivalent  shares from dilutive stock options.  The numbers of
shares used to compute primary  earnings/(loss) per share were 2,841,000 in 1996
and 2,763,000 in 1995 and 1994, respectively.

Fully diluted  earnings per share  reflect the maximum  dilution that would have
resulted  from the  exercise  of stock  options.  The  number of shares  used to
compute fully diluted earnings per share were 2,874,000 in 1996 and 2,763,000 in
1995 and 1994, respectively.

Foreign Currency Translation

Foreign  currency  translation  is performed  utilizing  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

                                       - 32 -






reporting  period.  The  resulting  translation  adjustment  of  $(116,449)  and
$(125,056)  at  September  30,  1996 and 1995,  respectively,  is  recorded as a
component of shareholders' equity. Intercompany balances not deemed long-term in
nature at the  balance  sheet date  resulted in a  translation  gain of $14,399,
$46,893 and $46,216 in 1996, 1995, and 1994, respectively, which is reflected in
cost of sales.  Gains and  losses on  contracts  which  hedge  specific  foreign
currency denominated commitments,  primarly inventory purchases, are included in
cost of sales.

Income Taxes

The  Company  accounts  for  income  taxes  under the  provisions  of  Financial
Accounting  Standards  (SFAS) No.  109,  "Accounting  for Income  Taxes",  which
requires  recognition  of deferred tax  liabilities  and assets for the expected
future tax  consequences  of events  that have been  included  in the  financial
statements  or tax returns.  Under this method,  deferred  tax  liabilities  and
assets are determined  based on the difference  between the financial  statement
and tax bases of assets and  liabilities  using  enacted tax rates in effect for
the year in which the  differences  are expected to be recovered or settled (see
Note 5).

Fair Value of Financial Instruments

Statement of Financial  Accounting  Standards No. 107,  "Disclosures  About Fair
Value of  Financial  Instruments",  requires  disclosure  of the  fair  value of
certain  financial  instruments.  The  carrying  amounts for  accounts and other
receivables,  accounts  payable  and  accrued  expenses  approximate  fair value
because of the short-term maturity of these instruments. The carrying amounts of
the Company's  long-term debt and extended term related party  accounts  payable
approximates   fair  value  since  the  interest  rates  are  prime-based   and,
accordingly,  are  adjusted  for  market  rate  fluctuations.  The fair value of
forward exchange  contracts is estimated by obtaining quoted market prices.  The
exchange  rates on committed  forward  exchange  contracts at September 30, 1996
approximated market rates for similar term contracts.

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.
Actual results could differ from those estimates.

Reclassification

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

NOTE 2.  Investment in Affiliate

The Company's 50 percent ownership  interest in Chun Shin  Electronics,  Inc., a
joint venture company which assembles  certain Vicon products in South Korea, is
accounted for using the equity method of accounting  which  reflects the cost of
the  Company's  investment  adjusted for the  Company's  proportionate  share of
earnings or losses. Such earnings or losses have been insignificant  during each
of the three  years  ended  September  30,  1996.  Assets and sales of the joint
venture were approximately $3.1 million and $8.1 million,  respectively, for the
fiscal year ended  September  30, 1996. A  significant  portion of joint venture
product  sales were to related  parties  including  approximately  $5.8  million
indirectly to the Company and  approximately  $1.7 million to a company owned by
the other joint venture partner (see Note 11).

NOTE 3.  Deferred Gain on Sale and Leaseback

In fiscal  1988,  under a sale and  leaseback  agreement,  the Company  sold its
principal operating facility in Melville, New York for approximately $11 million
and leased it back under a ten-year lease agreement. The transaction resulted in
a net gain of  $3,321,000  which was  deferred and is being  amortized  over the
ten-year lease period (see Note 10).




                                       - 33 -






NOTE 4.  Short-Term Borrowings

Borrowings under the revolving credit agreement  represent short term borrowings
by the Company's U.K. subsidiary.  Maximum borrowings during 1996, 1995 and 1994
amounted to approximately $1,045,000,  $1,083,000 and $1,123,000,  respectively.
The weighted-average interest rate on borrowings during these years was 8.00% in
1996, 8.50% in 1995 and 7.25% in 1994.

At  September  30,  1996 and 1995,  Accounts  Payable - related  party  included
approximately $4.4 million and $4.5 million,  respectively, of extended accounts
payable balances due Chugai Boyeki Company,  Ltd., a shareholder of the Company.
The extended  accounts payable balance at September 30, 1996 and 1995,  includes
approximately  $4.1  million  and  $.5  million,   respectively,   of  purchases
denominated in U.S. dollars which bear interest at the prime rate of the related
party's  U.S.   bank  (8.25%  and  8.75%  at   September   30,  1996  and  1995,
respectively).  The remaining  balances are denominated in Japanese yen and bear
interest  at the  related  party's  internal  lending  rate  (4.0%  and 4.25% at
September 30, 1996 and 1995, respectively).

NOTE 5.  Income Taxes

The components of income tax expense  (recovery) for the fiscal years  indicated
are as follows:


                         Current       Deferred         Total


       1996
      Federal        $      -        $     -         $      -
      State                 -              -                -
      Foreign               85,000         -                85,000
                     -------------   ------------    -------------
                     $      85,000   $     -         $      85,000
                     =============   ============    =============


       1995
      Federal        $       -       $     -         $       -
      State                  -             -                 -
      Foreign               80,000         -                80,000
                     -------------   ------------    -------------
                     $      80,000   $     -         $      80,000
                     =============   ============    =============


        1994
      Federal        $       -       $     -         $       -
      State                  -             -                 -
      Foreign               29,000         -                29,000
                     -------------   ------------    -------------
                     $      29,000   $     -         $      29,000
                     =============   ============    =============



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




                              1996                1995                1994
                              ----                ----                ----
                          Amount   Percent    Amount    Percent     Amount  Percent
                                                             
U.S. statutory tax        $131,000    34.0%   $(431,000)  34.0 %   $  25,000   34.0%
U.S. net operating
  loss carryforward        (56,000)  (14.5)     532,000   42.0       (21,000) (28.3)
Foreign subsidiary
  operations                  -        -        (42,000)  (3.3)        6,000    8.0
Officers' life insurance     5,000     1.3       17,000    1.3        17,000   22.8
Other                        5,000     1.3        4,000    0.3     $   2,000    2.6
                          --------   ------    --------   -----    ---------  -----
      Effective Tax Rate  $ 85,000    22.1%    $ 80,000    6.3%    $   29,000  39.1%
                          ========   ======    ========   =====    ==========  =====



                                        - 34 -






The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and  liabilities  at September  30, 1996 and 1995 are
presented below:

                                                     1996             1995
                                                     ----             ----

Deferred tax assets:
  Deferred gain on sale and leaseback             $  146,000       $  259,000
  Inventory obsolescence and
    disposition reserves                             418,000          328,000
  Deferred compensation accruals                     206,000          221,000
  Allowance for doubtful
    accounts receivable                              123,000          177,000
  Net operating loss carryforwards                 1,987,000        1,926,000
  General business credit carryforwards              186,000          186,000
  Other                                                8,000           18,000
                                                  ----------       ----------
    Total deferred tax assets                      3,074,000        3,115,000
Less valuation allowance                          (2,998,000)      (3,054,000)
                                                  ----------       ----------
    Net deferred tax assets                           76,000           61,000
                                                  ----------       ----------

Deferred tax liabilities:
  Cash surrender value of officers'
  life insurance                                      61,000           61,000
  Other                                                15,000            -
                                                   ----------      ----------
   Total deferred tax liabilities                      76,000          61,000
                                                   ----------      ----------
Net deferred tax assets and liabilities            $  -0-          $   -0-
                                                   ----------      ----------

The Company has provided a valuation  allowance of  $2,998,000  for deferred tax
assets since  realization  of these assets was not assured due to the  Company's
recent history of operating  losses.  At September 30, 1996, the Company had net
operating loss  carryforwards  for federal income tax purposes of  approximately
$5,800,000 which are available to offset future federal taxable income,  if any,
through 2011. The Company also had general business tax credit carryforwards for
federal  income tax purposes of  approximately  $186,000  which are available to
reduce future federal income taxes, if any, through 2003. Pretax domestic income
(loss) amounted to approximately  $136,000,  ($1,626,000),  and $6,000 in fiscal
years 1996,  1995 and 1994,  respectively.  Pretax  foreign  income  amounted to
approximately  $311,000,  $291,000  and $83,000 in fiscal  years 1996,  1995 and
1994, respectively.

































                                       - 35 -






NOTE 6.  Long-Term Debt

Long-term debt is comprised of the following at September 30, 1996 and 1995:
                                                   1996            1995
                                                   ----            ----
Related party:
  Mortgage loan denominated in Japanese
  yen at a formula interest rate
  (6.3% and 6.1% at September 30, 1996
  and 1995) with annual installments of
  14,400,000 yen to December 1998             $  393,008         $  583,010

  Term loan with interest rate of 1%
  above the prevailing  prime rate
  (9.25% and 10.0% at September 30, 1996
  and 1995) due July 1998                      2,000,000          2,000,000
                                              ----------         ----------
                                               2,393,008          2,583,010
  Less installments due within one year          131,003            145,751
                                              ----------         ----------
                                              $2,262,005         $2,437,259
                                              ==========         ==========
Banks and other:
  Revolving credit loan (see below)           $4,142,898         $2,800,000
  Capital lease obligations                       86,520            146,048
  Other                                           10,179             30,430
                                              ----------         ----------
                                               4,239,597          2,976,478
  Less installments due within one year           72,716             74,988
                                              ----------         ----------

                                              $4,166,881         $2,901,490

In October 1993,  the Company  issued a $2,000,000  secured  promissory  note to
Chugai Boyeki Co., Ltd., a related  party.  The note is  subordinated  to senior
bank debt with regard to liens and interest under certain  conditions and is due
in July 1998.

At September  30, 1995,  the Company was a party to a secured  Revolving  Credit
Agreement  with two banks which  provided for  aggregate  maximum  borrowings of
$2,800,000  subject to an  availability  formula  based on accounts  receivable.
Borrowings under the Credit  Agreement were due in October,  1995, with interest
at 3% above the banks' prime rate (11.75% at September 30,  1995),  and required
no compensating  balances.  At September 30, 1995, the Company was in default of
certain  financial  covenants  under  this  agreement.  Such debt was  repaid on
December  28, 1995 with the  proceeds  received  under a new two year Credit and
Security  Agreement with another bank which  provides for maximum  borrowings of
$5,500,000,  subject to an availability formula based on accounts receivable and
inventory  balances.  Borrowings under the agreement bear interest at the bank's
prime rate plus 1.25% (9.50% at September 30, 1996).

The Credit and Security  Agreement contains  restrictive  covenants which, among
other  things,  require  the Company to  maintain  certain  levels of net worth,
earnings and ratios of interest coverage and debt to net worth. Borrowings under
this agreement are secured by substantially all assets of the Company.

Long-term  debt  maturing  in each  of the  three  fiscal  years  subsequent  to
September  30,  1996  approximates  $204,000  in  1997,  $6,298,000  in 1998 and
$131,000 in 1999, respectively.

















                                       - 36 -






At September  30, 1996,  future  minimum  annual  rental  commitments  under the
non-cancellable  capital lease obligations were as follows:  $68,556 in 1997 and
$24,585 in 1998,  which includes  imputed interest of $6,019 in 1997 and $602 in
1998.

NOTE 7.  Foreign Operations

The Company operates one foreign entity, Vicon Industries (U.K.), Ltd., a wholly
owned   subsidiary   which  markets  and  distributes  the  Company's   products
principally within the United Kingdom and Europe.

The following summarizes certain information concerning the Company's operations
in the U.S. and U.K. for fiscal years 1996, 1995, and 1994:

                                    1996                1995           1994
                                    ----                ----           ----
Net sales
 U.S.                            $35,468,000         $34,294,000    $39,342,000
 U.K.                              7,723,000           9,553,000      8,372,000
                                 -----------         -----------    -----------
    Total                        $43,191,000         $43,847,000    $47,714,000
Operating profit (loss)
  U.S.                           $   805,000         $  (827,000)   $   542,000
  U.K.                               421,000             573,000        271,000
                                 -----------         -----------    -----------
    Total                        $ 1,226,000         $  (254,000)   $   813,000
Identifiable assets
  U.S.                           $23,260,000         $21,213,000    $23,388,000
  U.K.                             4,825,000           5,210,000      5,469,000
                                 -----------         -----------    -----------
    Total                        $28,085,000         $26,423,000    $28,857,000

Net assets-- U.K.                $   935,000         $   711,000    $   499,000

U.S.  sales include  $8,531,000,  $7,987,000  and  $8,358,000 for export in
fiscal  years  1996,  1995,  and 1994,  respectively.  Operating  profit  (loss)
excludes  unrealized  foreign  exchange  gain/loss,  interest expense and income
taxes.  U.S. assets include $117,000,  $1,127,000,  and $888,000 in fiscal years
1996, 1995, and 1994, respectively, of cash for general corporate use.

NOTE 8.  Stock Options and Stock Purchase Rights

The Company  maintains  stock option  plans which  include  both  incentive  and
non-qualified  options  covering  a total of  477,584  shares  of  common  stock
reserved for issuance to key employees,  including officers and directors.  Such
amount includes a total of 200,000  options  reserved for issuance in 1994 under
an Incentive  Stock Option Plan, as well as a total of 50,000  options  reserved
for  issuance  in 1994  under a  Non-Qualified  Stock  Option  Plan for  Outside
Directors. All options are issued at fair market value at the grant date and are
exercisable in varying  installments  according to the plans.  There were 32,935
and  227,923  shares  available  for  grant at  September  30,  1996  and  1995,
respectively.  As of September 30, 1996,  1995,  and 1994,  options  exercisable
pursuant to the plans amounted to 289,471, 198,783, and 268,054, respectively.























                                       - 37 -






Changes in  outstanding  stock  options for the three years ended  September 30,
1996, are presented below:
                                             Shares      Price Range Per Share

Balance-September 30, 1993                   313,174     $ 2.12   --   4.88

    Granted                                  221,694     $ 1.88   --   --
    Cancelled                               (103,694)    $ 2.12   --   4.88
                                             -------
Balance-September 30, 1994                   431,174     $ 1.88   --   2.38
                                             -------

    Granted                                   25,000     $ 1.94   --   --
    Cancelled                               (156,513)    $ 1.88   --   2.25
                                             -------
Balance-September 30, 1995                   299,661     $ 1.88   --   2.38
                                             -------

    Granted                                  245,397     $ 1.69   --   2.25
    Exercised                                (14,500)    $ 1.69   --   1.88
    Cancelled                                (85,909)    $ 1.69   --   2.38
                                             -------
Balance-September 30, 1996                   444,649     $ 1.69   --   2.25
                                             =======




In  November  1986,  the Board of  Directors  declared a  dividend  of one Stock
Purchase  Right for each share of common stock  outstanding on December 1, 1986.
In  addition,   385,715  Rights  were   distributed   with  certain  new  shares
subsequently  issued by the Company.  The Rights  entitle the holder to purchase
for  $15  one  share  of  common  stock  subject  to  adjustment  under  certain
conditions.  The Rights are  redeemable by the Company  until the  occurrence of
certain events at $.05 per Right. The Rights expire on November 30, 1996.

NOTE 9.  Industry Segment and Major Customer

The Company operates in one industry which encompasses the design,  manufacture,
assembly,  and  marketing of  closed-circuit  television  (CCTV)  equipment  and
systems for the CCTV segment of the security  products  industry.  The Company's
products  include all components of a video  surveillance  system such as remote
positioning devices,  cameras,  monitors,  video switchers,  housings,  mounting
accessories,  recording devices,  manual and motorized lenses,  controls,  video
signal  equipment,  and consoles for system  assembly.  No customer  represented
sales in excess of ten percent of consolidated  revenues during any of the three
fiscal years presented.

NOTE 10.  Commitments

In  January  1988,  the  Company  entered  into a sale and  leaseback  agreement
involving its  principal  operating  facility  (see Note 3). The ten-year  lease
provides for rent of $1,128,000 in the first year, increasing 4 percent annually
through 1998.

In November 1994, the Company entered into a sublease  agreement,  dated January
1, 1993,  with an affiliated  company of the landlord which provides for minimum
sublease payments to the Company of $120,000 in calendar year 1993;  $180,000 in
1994;  $240,000  in 1995 and  $300,000  per year from  January  1, 1996  through
January 19, 1998,  in exchange for the right to occupy a total of  approximately
25,000 sq. ft. of office and warehouse space in the Company's  primary operating
facility.  At the same time,  the Company  entered  into an  agreement  with its
landlord and  subtenant  whereby the Company has agreed to vacate its  principal
operating  facility  at  anytime  after  January  1995,  at  the  landlord's  or
subtenant's  option, and the landlord has agreed to release the Company from its
future lease obligations in consideration of a lease termination  payment by the
Company to the landlord of  $1,000,000.  Such option,  if exercised,  would also
require the  landlord to provide  the  Company  with at least six months  notice
prior to the required vacate date. The lease termination payment will be reduced
by $27,778  for each month  after  January  31,  1995 that the  Company  remains
obligated under the primary lease.  In October 1996, the landlord  exercised its
option  that the  Company  vacate  within  six  months.  The  lease  termination
obligation will be  approximately  $260,000.  Such expense will be substantially
offset by the remaining  unamortized  balance of the deferred sale and leaseback
gain. In the event the Company is unable to vacate by the required date, it will
be required to refund all sublease  payments  received through the actual vacate
date as specified above in the November 1994 sublease agreement.



                                       - 38 -






Additionally,  the Company occupies certain other facilities, or is contingently
liable,  under long-term  operating leases which expire at various dates through
1998. The leases, which cover periods from one to four years,  generally provide
for renewal options at specified rental amounts.  The aggregate  operating lease
commitment  (net of sublease  rental) at September 30, 1996 was $1,180,000  with
minimum  rentals  for  the  fiscal  years  shown  as  follows:   1997--$907,000;
1998--$273,000.  Subsequent  to year end,  the Company  entered into a five year
lease agreement for a new principal operating facility. The aggregate commitment
under such agreement  amounted to $1,803,000 with minimum rentals for the fiscal
years shown as follows:  1997 -- $182,000;  1998 -- $369,000;  1999 -- $377,000;
2000 -- $384,000; 2001 and thereafter -- $491,000.

The  Company is a party to  employment  agreements  with five  executives  which
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 these change in control provisions
at  September  30, 1996 was  approximately  $1,635,000.  The total  compensation
payable under these agreements  aggregated $1,264,000 at September 30, 1996. The
Company is also a party to insured  deferred  compensation  agreements  with two
retired officers. The aggregate remaining compensation payments of approximately
$966,000 as of September  30, 1996 are subject to the  individuals  adherence to
certain non-compete covenants, and are payable over a ten year period commencing
upon retirement.

Sales to the  Company's  U.K.  subsidiary  are  denominated  in  British  pounds
sterling.  The  Company  attempts  to minimize  its  currency  exposure on these
intercompany  sales through the purchase of forward exchange  contracts to cover
unpaid  receivables.  These  contracts  generally  involve  the  exchange of one
currency for another at a future date and specified  exchange rate. At September
30,  1996,  the Company had  approximately  $2,000,000  of  outstanding  forward
exchange  contracts to sell British  pounds.  Such  contracts  expire at varying
dates and exchange rates through April 25, 1997.

The Company's  purchases of Japanese sourced products through Chugai Boyeki Co.,
Ltd., a related party,  are  denominated in Japanese yen. At September 30, 1996,
Chugai had purchased,  on the Company's  behalf,  forward exchange  contracts to
purchase  approximately  100 million  Japanese yen to hedge the currency risk on
accounts payables  denominated in Japanese yen. Such contracts expire at varying
dates and exchange rates through December 1996.

































                                       - 39 -








NOTE 11:  Related Party Transactions

As of September 30, 1996 and 1995, Chugai Boyeki Company,  Ltd. ("Chugai") owned
548,715  shares of the  Company's  common stock (19.8% of the total  outstanding
shares).  The  Company,  which has been  conducting  business  with  Chugai  for
approximately 17 years, imports certain finished products and components through
Chugai and also sells its products to Chugai who resells the products in certain
Asian and European markets. The Company purchased  approximately $9.2, $11.6 and
$14.1 million of products and components from Chugai in fiscal years 1996, 1995,
and 1994,  respectively,  and the Company sold $2.1,  $3.4,  and $3.5 million of
product  to Chugai  for  distribution  in fiscal  years  1996,  1995,  and 1994,
respectively.  At September 30, 1996 and 1995, the Company owed $7.5 million and
$6.9  million,  respectively,  to Chugai and Chugai owed  $148,000  and $92,000,
respectively,  to the Company resulting from purchases of products.  The amounts
owed to Chugai  are  secured by a  subordinated  lien on  substantially  all the
Company's assets. During fiscal 1989, Chugai made a mortgage loan to the Company
in the amount of  $1,026,000  to  partially  finance the  construction  of a new
sales/distribution facility in the U.K. In October 1993, the Company borrowed $2
million from Chugai under a promissory note agreement.  See Note 6 for a further
discussion of this transaction.

As of September 30, 1996, Mr. Chu S. Chun controlled  300,557 shares of the
Company's common stock (10.8% of the total  outstanding  shares).  Mr. Chun owns
Chun Shin  Industries,  Inc.,  the  Company's  50% South  Korean  joint  venture
partner, and Chun Shin Electronics. (CSE) which purchases product from the joint
venture (see Note 2). Mr. Chun also controls I.I.I. Companies,  Inc. (I.I.I.), a
U.S.  based  company,  which  arranges the  importation  and provides short term
financing on all the Company's  product  purchases  from Chun Shin  Electronics,
Inc. During fiscal years 1996 and 1995, the Company purchased approximately $5.8
million and $5.1 million of products from I.I.I. under this agreement.  Further,
the Company sold approximately $900,000 of its products to I.I.I. during each of
fiscal years 1996 and 1995.  At  September  30, 1996 and 1995,  I.I.I.  owed the
Company approximately $368,000 and $422,000, respectively.






































                                       - 40 -






                       VICON INDUSTRIES, INC. AND SUBSIDIARIES
                              QUARTERLY FINANCIAL DATA

(Unaudited)


                                                            Net Earnings (loss)
                                                                per share
  Quarter          Net          Gross           Net
   Ended          Sales        Profit      Profit (Loss)  Primary  Fully Diluted


Fiscal 1996
December       $10,512,000    $2,706,000    $   102,000   $ .04       $ .04
March           10,856,000     2,748,000        125,000     .05         .05
June            10,902,000     2,735,000         41,000     .01         .01
September       10,921,000     2,768,000         32,000     .01         .01
               -----------   -----------    -----------   -----       -----
 Total         $43,191,000   $10,957,000    $   300,000   $ .11       $ .10
               ===========   ===========    ===========   =====       =====



Fiscal 1995
December       $11,828,000    $2,698,000    $    16,000   $ .01       $ .01
March           10,952,000     2,351,000       (467,000)   (.17)       (.17)
June            10,287,000     2,247,000       (540,000)   (.20)       (.20)
September       10,780,000     2,250,000       (356,000)   (.13)       (.13)
               -----------    ----------    -----------   -----        ----
 Total         $43,847,000    $9,546,000    $(1,347,000)  $(.49)      $(.49)
               ===========    ==========    ===========   =====       =====







The Company has not declared or paid cash  dividends on its common stock for any
of the foregoing  periods.  Additionally,  certain loan agreements  restrict the
payment of any cash dividends in future 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.




























                                        - 41 -







                                                          SCHEDULE I




                       VICON INDUSTRIES, INC. AND SUBSIDIARIES

                          VALUATION AND QUALIFYING ACCOUNTS


                   Years ended September 30, 1996, 1995, and 1994



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

Reserves and allowances
  deducted from asset
  accounts:

Allowance for uncollectible
  accounts:



September 30, 1996            $542,000     $186,000    $332,000   $396,000
                              ========     ========    ========   ========

September 30, 1995            $309,000     $381,000    $148,000   $542,000
                              ========     ========    ========   ========

September 30, 1994            $295,000     $180,000    $166,000   $309,000
                              ========     ========    ========   ========




































                                       - 42 -










                                     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 Kenneth M. Darby          By Arthur D. Roche           By John M. Badke
   Kenneth M. Darby             Arthur D. Roche              John M. Badke
   President                    Executive Vice President     Controller
  (Chief Executive Officer)  (Chief Financial Officer)    (Chief Acctg. Officer)

December 26, 1996

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.


Donald N. Horn                                         December 26, 1996
- ---------------------                                  -----------------
Donald N. Horn            Chairman of the Board        Date

Kenneth M. Darby          Director                     December 26, 1996
- ---------------------                                  -----------------
Kenneth M. Darby                                       Date

Arthur D. Roche           Director                     December 26, 1996
- ---------------------                                  -----------------
Arthur D. Roche                                        Date

Arthur V. Wallace         Director                     December 26, 1996
- ---------------------                                  -----------------
Arthur V. Wallace                                      Date

Peter F. Barry                                         December 26, 1996
- ---------------------                                  -----------------
Peter F. Barry            Director                     Date

Milton F. Gidge                                        December 26, 1996
- ---------------------                                  -----------------
Milton F. Gidge           Director                     Date

Michael D. Katz                                        December 26, 1996
- ---------------------                                  -----------------
Michael D. Katz           Director                     Date

Peter F. Neumann                                       December 26, 1996
- ---------------------                                  -----------------
Peter F. Neumann          Director                     Date

W. Gregory Robertson                                   December 26, 1996
W. Gregory Robertson      Director                     Date

Kazuyoshi Sudo                                         December 26, 1996
Kazuyoshi Sudo            Director                     Date













                                       - 43 -










                                     SIGNATURES

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

VICON INDUSTRIES, INC.


By                          By                            By
   Kenneth M. Darby            Arthur D. Roche              John M. Badke
   President                   Executive Vice President     Controller
  (Chief Executive Officer)   (Chief Financial Officer)   (Chief Acctg. Officer)

December   , 1996

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

VICON INDUSTRIES, INC.


                                                       December    , 1996
Donald N. Horn            Chairman of the Board        Date


                          Director                     December    , 1996
Kenneth M. Darby                                       Date


                          Director                     December    , 1996
Arthur D. Roche                                        Date


                          Director                     December    , 1996
Arthur V. Wallace                                      Date


                                                       December     , 1996
Peter F. Barry            Director                     Date


                                                       December     , 1996
Milton F. Gidge           Director                     Date


                                                       December     , 1996
Michael D. Katz           Director                     Date


                                                       December     , 1996
Peter F. Neumann          Director                     Date


                                                       December     , 1996
W. Gregory Robertson      Director                     Date


                                                       December     , 1996
Kazuyoshi Sudo            Director                     Date


                                       - 43 -