Edgar Filing: VICON INDUSTRIES INC /NY/

f10q_033109.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

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

For the transition period from to

Commission File Number: 1-7939

VICON INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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

89 Arkay Drive, Hauppauge, New York		11788
(Address of principal executive offices)		(Zip Code)

(631) 952-2288

(Registrant’s telephone number, including area code)

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

[x] Yes

[ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[ ] Yes

[ ] No

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

Large accelerated filer [ ]		Accelerated filer [ ]

Non-accelerated filer [ ]		Smaller reporting company [x]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] No

At May 14, 2009, the registrant had outstanding 4,591,891 shares of Common Stock, $.01 par value.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

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Part I. Financial Information Page Number

Item 1. Financial Statements

Condensed Consolidated Statements of Operations

- Three Months Ended March 31, 2009 and 2008 3

Condensed Consolidated Statements of Operations

- Six Months Ended March 31, 2009 and 2008 4

Condensed Consolidated Balance Sheets 5

Condensed Consolidated Statements of Cash Flows 6

Notes to Condensed Consolidated Financial Statements 7

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

and Results of Operations 12

Item 3. Qualitative and Quantitative Disclosures about Market Risk 18

Item 4. Controls and Procedures 18

Part II. Other Information 19

Item 1. Legal Proceedings 19

Item 1A. Risk Factors 20

Item 2. Unregistered Sales of Equity and Use of Proceeds 20

Item 3. Defaults Upon Senior Securities 20

Item 4. Submission of Matters to a Vote of Security Holders 20

Item 5. Other Information 20

Item 6. Exhibits 20

Signatures 21

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended

	3/31/09			3/31/08

Net sales	$	14,706,475		$	15,335,168
Cost of sales		8,149,336			8,538,718
Gross profit		6,557,139			6,796,450

Operating expenses:
Selling, general and administrative expense		4,565,229			4,950,571
Engineering & development expense		1,372,743			1,521,272
		5,937,972			6,471,843

Operating income		619,167			324,607

Interest income		(14,286	)		(60,825	)
Interest expense		-			10,614
Other expense		13,584			-

Income before income taxes		619,869			374,818

Income tax expense		230,000			169,000

Net income	$	389,869		$	205,818


Earnings per share:
Basic and diluted	$	.08		$	.04


Shares used in computing earnings per share:

Basic		4,619,220			4,810,191

Diluted		4,720,671			4,998,260

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Six Months Ended

	3/31/09			3/31/08

Net sales	$	30,406,704		$	30,978,709
Cost of sales		16,702,396			17,254,896
Gross profit		13,704,308			13,723,813

Operating expenses:
Selling, general and administrative expense		9,369,209			9,967,994
Engineering & development expense		2,899,628			2,914,335
		12,268,837			12,882,329

Operating income		1,435,471			841,484

Interest income		(51,776	)		(148,929	)
Interest expense		-			42,684
Other expense		59,392			-

Income before income taxes		1,427,855			947,729

Income tax expense		530,000			397,000

Net income	$	897,855		$	550,729


Earnings per share:
Basic and diluted	$	.19		$	.11


Shares used in computing earnings per share:

Basic		4,648,211			4,805,964

Diluted		4,745,350			5,031,780

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS	3/31/09			9/30/08
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	11,280,300		$	9,560,966
Marketable securities		175,558			227,237
Accounts receivable, net		10,321,266			14,763,914
Inventories:
Parts, components, and materials		4,560,312			3,612,862
Work-in-process		2,512,539			2,407,980
Finished products		5,912,735			6,545,046
		12,985,586			12,565,888
Deferred income taxes		1,300,299			1,230,702
Prepaid expenses and other current assets		638,777			818,768
TOTAL CURRENT ASSETS		36,701,786			39,167,475

Property, plant and equipment		12,545,945			12,971,714
Less accumulated depreciation and amortization		(7,598,916	)		(7,670,717	)
		4,947,029			5,300,997
Deferred income taxes		869,556			1,224,120
Other assets		1,062,958			1,271,683
TOTAL ASSETS	$	43,581,329		$	46,964,275

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable		3,399,956			4,267,620
Accrued compensation and employee benefits		2,010,237			2,779,368
Accrued expenses		1,646,000			1,760,147
Unearned revenue		662,959			872,195
Income taxes payable		144,491			307,242
TOTAL CURRENT LIABILITIES		7,863,643			9,986,572

Unearned revenue		309,590			303,857
Other long-term liabilities		2,059,165			2,069,866
TOTAL LIABILITIES		10,232,398			12,360,295

SHAREHOLDERS’ EQUITY
Common stock, par value $.01		51,556			51,246
Capital in excess of par value		23,503,570			23,261,936
Retained earnings		13,232,638			12,334,783
Less treasury stock, at cost		(2,633,694	)		(1,768,135	)
Accumulated other comprehensive income (loss)		(805,139	)		724,150
TOTAL SHAREHOLDERS’ EQUITY		33,348,931			34,603,980
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	43,581,329		$	46,964,275

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	3/31/09			3/31/08
Cash flows from operating activities:
Net income	$	897,855		$	550,729
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		348,905			400,547
Amortization of deferred compensation		9,719			5,320
Stock compensation expense		145,215			40,155
Deferred income taxes		343,708			180,781
Change in assets and liabilities:
Accounts receivable, net		3,375,049			2,069,039
Inventories		(1,074,394	)		(476,337	)
Prepaid expenses and other current assets		(12,406	)		(211,000	)
Other assets		208,725			(4,603	)
Accounts payable		(559,952	)		348,013
Accrued compensation and employee benefits		(672,693	)		(952,295	)
Accrued expenses		(136,358	)		(184,453	)
Unearned revenue		(195,800	)		(82,454	)
Income taxes payable		(110,745	)		100,111
Other liabilities		(7,864	)		51,389
Net cash provided by operating activities		2,558,964			1,834,942

Cash flows from investing activities:
Capital expenditures		(244,892	)		(276,181	)
Net decrease in marketable securities		56,421			4,412
Net cash used in investing activities		(188,471	)		(271,769	)

Cash flows from financing activities:
Repurchases of common stock		(837,559	)		-
Proceeds from exercise of stock options		59,010			59,268
Repayments of debt		-			(1,740,335	)
Net cash used in financing activities		(778,549	)		(1,681,067	)
Effect of exchange rate changes on cash		127,390			66,771

Net increase (decrease) in cash		1,719,334			(51,123	)
Cash at beginning of year		9,560,966			8,808,110
Cash at end of period	$	11,280,300		$	8,756,987

See Accompanying Notes to Condensed Consolidated Financial Statements.

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VICON INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2009

Note 1: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ended September 30, 2009. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2008. Certain prior year amounts have been reclassified to conform to the current period presentation.

Note 2: Marketable Securities

Marketable securities consist of mutual fund investments in U.S. government debt securities and holdings in an equity security. Such mutual fund investments are stated at market value and are classified as available-for-sale under Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 115, with unrealized gains and losses reported in accumulated other comprehensive income (loss) as a component of shareholders’ equity. The cost of such securities at March 31, 2009 was $172,724, with $2,834 of cumulative unrealized gains, net of tax, reported at March 31, 2009.

Note 3: Accounts Receivable

Accounts receivable is stated net of an allowance for uncollectible accounts of $1,316,000 and $1,196,000 as of March 31, 2009 and September 30, 2008, respectively.

Note 4: Earnings per Share

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

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The following tables provide the components of the basic and diluted EPS computations for the three month and six month periods ended March 31, 2009 and 2008:

	Three Months Ended March 31,				Six Months Ended March 31,
	2009		2008		2009		2008
Basic EPS Computation
Net income	$	389,869	$	205,818	$	897,855	$	550,729
Weighted average shares outstanding		4,619,220		4,810,191		4,648,211		4,805,964
Basic earnings per share	$	.08	$	.04	$	.19	$	.11

	Three Months Ended March 31,				Six Months Ended March 31,
	2009		2008		2009		2008
Diluted EPS Computation
Net income	$	389,869	$	205,818	$	897,855	$	550,729
Weighted average shares outstanding		4,619,220		4,810,191		4,648,211		4,805,964
Stock options		77,642		163,984		74,084		200,401
Stock compensation arrangements		23,809		24,085		23,055		25,415
Diluted shares outstanding		4,720,671		4,998,260		4,745,350		5,031,780
Diluted earnings per share	$	.08	$	.04	$	.19	$	.11

Note 5: Comprehensive Income (Loss)

The Company's total comprehensive income (loss) for the three month and six month periods ended March 31, 2009 and 2008 was as follows:

	Three Months Ended March 31,						Six Months Ended March 31,
	2009			2008			2009			2008
Net income	$	389,869		$	205,818		$	897,855		$	550,729
Other comprehensive income (loss), net of tax:
Unrealized gain on securities		445			1,964			2,988			4,311
Unrealized gain (loss) on derivatives		(140,966	)		(19,307	)		(121,492	)		38,106
Foreign currency translation adjustment		(131,595	)		110,564			(1,410,785	)		(124,742	)
Comprehensive income (loss)	$	117,753		$	299,039		$	(631,434	)	$	468,404

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The accumulated other comprehensive income (loss) balances at March 31, 2009 and September 30, 2008 consisted of the following:

	March 31, 2009			September 30, 2008
Foreign currency translation adjustment	$	(745,929	)	$	664,856
Unrealized gain (loss) on derivatives, net of tax		(62,044	)		59,448
Unrealized gain (loss) on securities, net of tax		2,834			(154	)
Accumulated other comprehensive income (loss)	$	(805,139	)	$	724,150

Note 6: Derivative Instruments

The Company enters into forward exchange contracts to hedge certain foreign currency exposures and minimize the effect of such fluctuations on reported earnings and cash flow. The Company’s ongoing foreign currency exchange risks include intercompany sales of product and services between subsidiary companies operating in differing functional currencies.

At March 31, 2009, the Company had forward exchange contracts outstanding with notional amounts aggregating $4.3 million, whose aggregate fair value was a liability of approximately $98,482. Such fair value was determined using published market exchange rates. The change in the amount of the asset or liability for these instruments is shown as a component of accumulated other comprehensive income (loss), net of tax.

Note 7: Stock-Based Compensation

The Company maintains stock option plans that include both incentive and non-qualified options reserved for issuance to key employees, including officers and directors. All options are issued at fair market value at the grant date and are exercisable in varying installments according to the plans. The plans allow for the payment of option exercises through the surrender of previously owned mature shares based on the fair market value of such shares at the date of surrender.

SFAS No. 123(R), “Share-Based Payment”, requires that all share based payments to employees, including stock options, be recognized as compensation expense in the consolidated financial statements based on their fair values and over the requisite service period. For the three-month periods ended March 31, 2009 and 2008, the Company recorded non-cash compensation expense of $77,269 and $19,388, respectively, ($.02 and $.004 per basic and diluted share, respectively) relating to stock options. For the six-month periods ended March 31, 2009 and 2008, the Company recorded non-cash compensation expense of $145,215 and $40,155, respectively, ($.03 and $.01 per basic and diluted share, respectively) relating to stock options. The Company elected to utilize the modified-prospective application method, whereby compensation expense is recorded for all awards granted after October 1, 2005 and for the unvested portion of awards granted prior to this date.

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Note 8: Litigation

The Company is one of several defendants in a patent infringement suit commenced by Lectrolarm Custom Systems, Inc. in May 2003 in the United States District Court for the Western District of Tennessee. The alleged infringement by the Company relates to its camera dome systems and other products that represent significant sales to the Company. Among other things, the suit seeks past and enhanced damages, injunctive relief and attorney’s fees. In January 2006, the Company received the plaintiff’s claim for past damages through December 31, 2005 that approximated $11.7 million plus pre-judgment interest. The Company and its outside patent counsel believe that the complaint against the Company is without merit. The Company is vigorously defending itself and is a party to a joint defense with certain other named defendants.

In January 2005, the Company petitioned the U.S. Patent and Trademark Office (USPTO) to reexamine the plaintiff’s patent, believing it to be invalid. In April 2006, the USPTO issued a non-final office action rejecting all of the plaintiff’s patent claims asserted against the Company citing the existence of prior art of the Company and another defendant. On June 30, 2006, the Federal District Court granted the defendants’ motion for continuance (delay) of the trial, pending the outcome of the USPTO’s reexamination proceedings. In February 2007, the USPTO issued a Final Rejection of the six claims in the plaintiff’s patent asserted against the Company, which was reaffirmed in June 2007 after the plaintiff filed a response with the USPTO requesting reconsideration of its Final Rejection. The plaintiff has appealed the examiner’s decision to the USPTO Board of Patent Appeals and Interferences and has an additional appeal available to it thereafter in the Court of Appeals for the Federal Circuit.

The Company is unable to reasonably estimate a range of possible loss, if any, at this time. Although the Company has received favorable rulings from the USPTO with respect to the reexamination proceedings, there is always the possibility that the plaintiff’s patent claims could be upheld on appeal and the matter would proceed to trial. Should this occur and the Company receives an unfavorable outcome at trial, it could result in a liability that is material to the Company’s results of operations and financial position.

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

Note 9: Recent Accounting Pronouncements

In September 2006, the FASB issued Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurement,” which defines fair value, establishes a framework for measuring fair value and expands disclosures regarding assets and liabilities measured at fair value. In February 2008, the FASB issued FASB Staff Position (FSP) 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (FSP 157-1) and FSP 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP 157-1 amends SFAS 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the Company’s first quarter of fiscal 2010. The adoption of the provisions related to financial assets and financial liabilities were effective for the Company’s first quarter of fiscal 2009 and did not have a material impact on its consolidated financial position, results of operations or cash flows. The Company does not expect that the adoption of the remaining provisions of SFAS 157 will have a material impact on its consolidated financial position, results of operations or cash flows.

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In December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The Company has not yet evaluated the impact, if any, of adopting this pronouncement.

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (NCI) and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not yet evaluated the impact, if any, of adopting this pronouncement.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement 133” (“SFAS 161”). SFAS 161 will change the disclosure requirements for derivative instruments and hedging activities. Entities will be required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 was effective for the Company’s second quarter of fiscal 2009 and did not have a material impact on its consolidated financial position, results of operations or cash flows.

Note 10: Income Taxes

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”) effective as of October 1, 2007. The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company files U.S. Federal and State income tax returns and foreign tax returns in the United Kingdom, Germany and Israel. The Company is generally no longer subject to tax examinations in such jurisdictions for fiscal years prior to 2003 in the U.S., 2001 in the U.K., 2005 in Germany and 2002 in Israel.

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

Results of Operations

Three Months Ended March 31, 2009 Compared with March 31, 2008

Net sales for the quarter ended March 31, 2009 decreased 4% to $14.7 million compared with $15.3 million in the year ago period. Domestic sales were unchanged for the quarter at $7.6 million while international sales decreased 8% to $7.1 million compared with $7.7 million in the year ago period. The decrease in international sales was wholly attributed to negative currency exchange rate changes in the current quarter as European currencies significantly weakened against the U.S. dollar. Excluding such currency translation effects, international sales would have increased an estimated 4% in the current quarter. Order intake for the quarter ended March 31, 2009 decreased $1.8 million or 11% to $14.1 million compared with $15.9 million in the year ago period. The order intake decrease resulted from lower European orders due to the effects of currency translation and included the cancellation of a $739,000 international order that was placed in the December 31, 2008 quarter. The backlog of unfilled orders was $5.9 million at March 31, 2009 compared with $3.9 million at September 30, 2008.

Gross profit margins for the second quarter of fiscal 2009 increased to 44.6% compared with 44.3% in the year ago period. The small increase reflects an improvement in U.S. margins, which was substantially offset by lower margins in Europe caused by weakening European currencies during the quarter. The Company’s Europe based subsidiaries experienced increased costs on U.S. dollar denominated product purchases as a result of such unfavorable currency changes.

Total operating expenses for the second quarter of fiscal 2009 decreased to $5.9 million compared with $6.5 million in the year ago quarter. The reduction was principally the result of lower foreign operating costs due to currency translation as local currencies weakened against the U.S. dollar during the current quarter. Product development expense in the current quarter was $1.4 million compared with $1.5 million in the year ago period.

The Company generated operating income of $619,000 in the second quarter of fiscal 2009 compared with operating income of $325,000 in the year ago period.

Interest income decreased to $14,000 for the second quarter of fiscal 2009 compared with $61,000 in the year ago period due to lower interest yields in the current year period. Interest expense decreased $11,000 from the year ago period as a result of the repayment of bank borrowings in January 2008. Other expense of $14,000 for the second quarter of fiscal 2009 principally represents market losses on securities held.

Income tax expense for the second quarter of fiscal 2009 increased to $230,000 compared with $169,000 in the year ago period as a result of increased taxable income.

As a result of the foregoing, the Company reported net income of $390,000 for the second quarter of fiscal 2009 compared with net income of $206,000 in the year ago period.

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Results of Operations

Six Months Ended March 31, 2009 Compared with March 31, 2008

Net sales for the six months ended March 31, 2009 decreased 2% to $30.4 million compared with $31.0 million in the year ago period. Domestic sales decreased 2% to $15.4 million compared with $15.7 million in the year ago period while international sales decreased 2% to $15.0 million compared with $15.3 million in the year ago period. The decrease in international sales was wholly attributed to negative currency exchange rate changes in the current period as European currencies significantly weakened against the U.S. dollar. Excluding such currency translation effects, international sales would have increased an estimated 8% in the current period. Order intake for the first six months of fiscal 2009 increased 1% to $32.4 million compared with $31.9 million in the year ago period. The current period order rate was similarly impacted by negative exchange rate changes in the current period.

Gross profit margins for the first six months of fiscal 2009 increased to 45.1% compared with 44.3% in the year ago period. The increase was principally the result of improved U.S. margins, offset in part by lower margins in Europe caused by weakening European currencies during the period. The Company’s European based subsidiaries experienced increased costs on U.S. dollar denominated product purchases as a result of such unfavorable currency changes.

Total operating expenses for the first six months of fiscal 2009 decreased to $12.3 million compared with $12.9 million in the year ago period principally as a result of lower European subsidiary operating costs due to currency translation. The Company continued to invest in new product development in the current year period, incurring $2.9 million of engineering and development costs compared with the same amount in the year ago period.

The Company generated operating income of $1.4 million in the first six months of fiscal 2009 compared with $841,000 in the year ago period.

Interest income decreased to $52,000 for the first six months of fiscal 2009 compared with $149,000 in the year ago period due to lower interest yields in the current year period. Interest expense decreased $43,000 from the year ago period as a result of the repayment of bank borrowings in January 2008. Other expense of $59,000 for the first six months of fiscal 2009 principally represents market losses on securities held.

Income tax expense for the first six months of fiscal 2009 increased to $530,000 compared with $397,000 in the year ago period as a result of increased taxable income.

As a result of the foregoing, the Company reported net income of $898,000 for the first six months of fiscal 2009 compared with net income of $551,000 in the year ago period.

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Liquidity and Capital Resources

Net cash provided by operating activities was $2.6 million for the first six months of fiscal 2009, which included $898,000 of net income and $848,000 of non-cash charges for the period. In addition, net cash provided by a $3.4 million decrease in accounts receivable resulting from lower sales was offset in part by a $1.1 million increase in inventories, a $560,000 decrease in accounts payable and a $673,000 decrease in accrued compensation and employee benefits. Net cash used in investing activities was $188,000 for the first six months of fiscal 2009 due principally to $245,000 of general capital expenditures offset in part by a $56,000 decrease in marketable securities. Net cash used in financing activities was $779,000 for the first six months of fiscal 2009, which included $838,000 of common stock repurchases offset in part by $59,000 of proceeds received from the exercise of stock options. As a result of the foregoing, cash increased by $1.7 million for the first six months of fiscal 2009 after the effect of exchange rate changes on the cash position of the Company.

The following is a summary of the Company’s debt and material lease obligations as of March 31, 2009:

Payments Due By Period	Debt Repayments		Lease Commitments		Total
Less than 1 year	$	-	$	535,000	$	535,000
1-3 years		-		371,000		371,000
3-5 years		-		-		-
Total	$	-	$	906,000	$	906,000

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

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

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Critical Accounting Policies

The Company's significant accounting policies are fully described in Note 1 to the Company's consolidated financial statements included in its September 30, 2008 Annual Report on Form 10-K. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility of the resulting receivable is reasonably assured. As it relates to product sales, revenue is generally recognized when products are sold and title is passed to the customer. Shipping and handling costs are included in cost of sales. Advance service billings under equipment maintenance agreements are deferred and recognized as revenues on a pro rata basis over the term of the service agreements. The Company evaluates multiple-element revenue arrangements for separate units of accounting pursuant to EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”, and follows appropriate revenue recognition policies for each separate unit. Elements are considered separate units of accounting provided that (i) the delivered item has stand-alone value to the customer, (ii) there is objective and reliable evidence of the fair value of the undelivered item, and (iii) if a general right of return exists relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially within the control of the Company. As applied to the Company, under arrangements involving the sale of product and the provision of services, product sales are recognized as revenue when the products are sold and title is passed to the customer, and service revenue is recognized as services are performed. For products that include more than incidental software, and for separate licenses of the Company’s software products, the Company recognizes revenue in accordance with the provisions of Statement of Position 97-2, “Software Revenue Recognition”, as amended.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in product quality programs and processes, including monitoring and evaluating the quality of its component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from its estimates, revisions to the estimated warranty liability may be required.

The Company writes down its inventory for estimated obsolescence and slow moving inventory equal to the difference between the cost of inventory and the estimated net realizable market value based upon assumptions about future demand and market conditions. Technology changes and market conditions may render some of the Company's products obsolete and additional inventory write-downs may be required. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

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

The Company’s ability to recover the reported amounts of deferred income tax assets is dependent upon its ability to generate sufficient taxable income during the periods over which net temporary tax differences become deductible.

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

Recent Accounting Pronouncements

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

Statements in this Report on Form 10-Q and other statements made by the Company or its representatives that are not strictly historical facts including, without limitation, statements included herein under the captions "Results of Operations", "Liquidity and Capital Resources" and “Critical Accounting Policies” are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 that should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. The forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results, performance and/or achievements of the Company to differ materially from any future results, performance or achievements, express or implied, by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, and that in light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The Company also assumes no obligation to update its forward-looking statements or to advise of changes in the assumptions and factors on which they are based.

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. The Company has a policy that prohibits the use of currency derivatives or other financial instruments for trading or speculative purposes.

The Company enters into forward exchange contracts to hedge certain foreign currency exposures and minimize the effect of such fluctuations on reported earnings and cash flow (see Note 6 “Derivative Instruments” to the accompanying condensed consolidated financial statements). The Company’s ongoing foreign currency exchange risks include intercompany sales of product and services between subsidiary companies operating in differing functional currencies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. Management evaluates the effectiveness of the Company's internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of March 31, 2009 and concluded that it is effective.

Changes in Internal Controls

There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation referred to above that occurred during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

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Limitations on the Effectiveness of Controls

The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within a Company have been detected. The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company's Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective at the "reasonable assurance" level.

PART II – OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

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ITEM 1A – RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008.

ITEM 2 – UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS

In May 2008, the Company’s Board of Directors authorized the purchase of up to $1 million worth of shares of the Company’s outstanding common stock. In December 2008, the Board of Directors authorized the purchase of an additional $1 million worth of shares of the Company’s outstanding common stock. The following table summarizes the Company’s purchases of common stock in open market transactions or otherwise for the three month period ended March 31, 2009:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs

01/01/09-01/31/09		37,424	$	5.41	$	1,084,514
02/01/09-02/28/09		7,000	$	5.62	$	1,045,168
03/01/09-03/31/09		11,449	$	5.00	$	987,950
Total		55,873	$	5.35

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5 - OTHER INFORMATION

None

ITEM 6 – EXHIBITS

Exhibit

Number Description

31.1 Certification of Chief Executive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to

18 U.S.C. Section 1350, as adopted pursuant to Section 906

of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to

18 U.S.C. Section 1350, as adopted pursuant to Section 906

of the Sarbanes-Oxley Act of 2002.

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Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

VICON INDUSTRIES, INC.

May 14, 2009

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

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