UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC 20549
                                      
                                 FORM 10-KSB
                                      
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
                 For the fiscal year ended December 31, 1998
                                      
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
                                      
                       Commission file number 0-11057
                                      
                          VICON FIBER OPTICS CORP.
               (Name of Small Business Issuer in its Charter)
                                      
                  Delaware                      13-2615925
        (State of Incorporation)   (IRS Employer Identification No.)

              90 Secor Lane, Pelham Manor, New York       10803
            (Address of Principal Executive Offices)   (Zip Code)

Issuer's telephone number (914) 738-5006

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                        Common Stock, $.01 par value
                                      
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.   Yes [X]   No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B which is not contained in this form, and no disclosure will
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-
KSB or any amendment to this Form 10-KSB. [ ]

Issuer's revenues for the year ended December 31, 1998:   $3,348,149.

Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of December 31, 1998:  $5,966,860.

Number of common shares outstanding on December 31, 1998: 8,679,069

                                      
                             Page 1 of 41 Pages
                                      
                      Exhibit Index appears at Page 39
<PAGE>


                                   PART I
                                      
                                      
Item 1.    Description of Business

General

Vicon Fiber Optics Corp. (the "Company") was incorporated in 1969 and
currently derives the majority of its revenue from the manufacture and sale
of fiber optic illuminating systems and components for use in conjunction
with dental equipment and instruments utilizing fiber optic elements.

Fiber optics are glass fibers through which light is transmitted.  Each fiber
is composed of an inner glass core with one index of refraction, covered by
an outer glass cladding or coating with a higher index of refraction.  The
difference in the index of refraction between the core glass and the outside
coating glass that forms the optical fiber substantially reduces the
dissipation of the light energy from the filament.  Optical fibers may be
bundled or employed singly, depending on their intended use.

There are two basic types of fiber optic bundles: unoriented fiber bundles
and oriented or coherent fiber bundles.  Unoriented fiber bundles are used
for the transmission of light for illumination; oriented bundles are used for
the transmission of images ("Image Bundles").

Unoriented fiber optic illuminating systems and components have been and
currently are the type manufactured and utilized by the Company in its dental
products.  Unoriented fiber optic components consist of a bundle or cable of
thousands of unoriented glass fibers to conduct, optically, light from a
source (the "illuminator") specific area to be illuminated regardless of the
curvature or other normal distortion of the fiber cable needed to avoid such
obstacles.  The use of the fiber optic cable permits the transmission of
electricity and without any significant transmission of heat.  Accordingly,
fiber optic illuminating systems are suitable for providing illumination
under circumstances where the absence of heat and electricity is desirable
and where the area to be illuminated is relatively inaccessible to
conventional means of illumination, such as in dentistry.

An Image bundle is a bundle in which each individual filament in the bundle
has the same spatial relationship to all the other fibers in the bundle at
one end of the bundle as it has at the other end.  This allows the
transmission of an image from one end of the Image Bundle to the other
without substantial distortion.  Image Bundles are used to transmit images in
industrial and medical inspection scopes.


                                      
                                      
                                      
                                      
                                      
                                      
                                      
                             Page 2 of 41 Pages
<PAGE>


Company's History in the Dental Field

The fiber optics first applied to dental instrumentation were external
attachments to standard instruments used by dentists, such as the mirror,
handpiece (commonly known to the dental patient as the "drill") and
evacuator.  This type of system was introduced into the dental market
simultaneously by four manufacturers, among them the Company.  All the
systems provide much needed light, however, the external attachments and the
multiplicity of cables made them awkward and difficult to use.

To remedy this problem, the Company developed two products:  (i) handpiece
tubing incorporating a fiber optic bundle, thereby eliminating the need for a
separate fiber optic cable for the handpiece, and (ii) coiled fiber optic
tubing, which reduced substantially the excess play found in conventional
fiber optic tubing previously used with diagnostic instruments.  Design
patents have been granted to the Company on both developments.

After many years of work with original equipment manufacturers of dental
instruments, the Company also developed a suitable design incorporating the
Company's fiber optic elements directly into the handpiece, with an ability
to be coupled to the remaining components of the Company's system.

Prior to 1981 the Company marketed, under its own name and label, its
illumination system consisting of an illuminator, fiber optic handpiece
tubing and various illuminating instruments such as the mirror, cheek
retractor and transilluminator nationally through distributors of dental
products.  From 1981 to the present, the Company has marketed its
illumination systems and fiber optic elements to manufacturers and
distributors of dental equipment on a private label, joint venture and
original equipment (OEM) basis.

Company's Current Fiber Optic Dental Products

Currently, the Company manufactures two dental illuminators, one that is
mounted away from the dental work area.  The second consists of two modules
with a small light module under a utility tray in the dental work area and a
power module mounted away from the work area.  The light in both illuminators
is air activated when the handpiece or instrument is removed from its console
hanger.

Both illuminators are composed of a cooling fan, a rheostat and a high
intensity halogen projection lamp that focuses the light onto three fiber
optic cables.  The light is transmitted through the fiber optic cables in the
handpiece tubing that interfaces with the fiber optic element in the
handpiece.

Instruments and attachments are illuminated with one fiber optic cable
(primary probe) which is interchangeable with a transilluminator (used for
the back illumination of teeth), an illuminating mirror, a cheek retractor
providing general illumination, and an evacuator clip for illuminating a
suction tip.

                             Page 3 of 41 Pages
                                      
<PAGE>



Decorative Fiber Optics Products

The Company manufactures a line of decorative fiber optic lamps under the
tradename "Fantasia Products."  The Company commenced production and national
sales of the lamps in 1995 and now has expanded its capacity with the
engagement of two excellent manufacturing facilities in southern China.

Joint Venture Agreement

In 1992, the Company entered into a Joint Venture Agreement with a
Corporation from Anshan, China.  The Joint Venture Company, Anshan Vicon
Fiber Optic Products Ltd., a Chinese corporation, will manufacture certain of
the Company's products.  The manufacturing of these products in China will
significantly reduce the cost of these products to Vicon.  During 1993, Vicon
effected a technology transfer to the joint venture Company in China.  The
manufacturing facility in China is presently in the development stage.

Raw Materials

All components of the Company's fiber optic illuminating systems other than
the fiber optic cables, which the Company manufactures with its own
equipment, are manufactured for the Company by others and assembled by the
Company at its plant.  Many of these components (such as the light source and
control module) are items inventoried by their manufacturers, and such items
or their equivalent are available from several sources.  Their respective
manufacturers make other components, such as the housing and certain of the
instrumentation for these systems, to the Company's plans and specifications.
In most cases, essential tooling for these components is owned by the
Company.  The Company uses only one source for each of these components, but
believes that alternative or supplementary sources can readily be obtained.
None of the Company's suppliers is affiliated with the Company and the
Company has no contractual relationship with any of them except for purchase
orders issued from time to time.  The Company believes that an adequate and
reliable supply of raw materials is and will continue to be available for the
manufacture its products.

Patents

The Company owns ten patents in the United States and corresponding rights
abroad related to the dental product aspect of its business.  The Company
believes that patent protection is useful, but is not a crucial factor in its
business.  The Company's patents have not yet been tested judicially and,
accordingly, there can be no assurance as to either the validity or scope of
its patent protection.  Furthermore, new technological discoveries by others
may reduce the utility of the Company's patents.







                             Page 4 of 41 Pages
<PAGE>



Distribution and Sales

During 1998 one customer purchased approximately 30% of the Company's
products, another customer purchased 14% and another customer purchased 12%.
The loss of any one or more of these three largest customers by the Company
would have a material adverse effect on the Company's business.  In 1998,
2% of the Company's sales were to foreign customers.

As of December 31, 1997, the Company had a sales backlog of approximately
$490,000.  The Company believes that the backlog represents firm orders as of
that date.  As of December 31, 1997 the Company had a backlog of
approximately $450,000.  The Company believes that the increased backlog is
due primarily to the timing of orders from customers.

Competition

The Company believes it is one of the leading domestic manufacturers of fiber
optic components and illuminating systems for use in the dental industry and
of decorative fiber optic lamps.  While the Company has little direct
competition for its products, there are a few other domestic manufacturers
that produce similar products for the same markets as the Company.  The
Company depends on its proprietary manufacturing techniques and abilities to
design and manufacture products for the specific needs of its customers at
competitive prices with a high degree of quality and service to enable the
Company to maintain market share.

Employees

The Company has 25 full-time employees, of whom three are executives, two are
engineers, and two are administrative, with the balance consisting of
production employees.  A pool of workers adequate to accommodate projected
sales volume is available locally.  The Company considers its relations with
its employees good.

Investment

On July 2, 1998, the Company acquired 250,000 shares of common stock
(approximately  9%) of American Entertainment Group, Inc. ("AEG"), doing
business as "Another Universe.com.", at $2.00 per share, for a total of
$500,000.00 in cash.  The investment in AEG was acquired with funds from
working capital. Another Universe.com is a leading internet retailer and
direct response marketer of entertainment-themed collectibles, licensed
products and gifts. Another Universe.com has incorporated Vicon's Fantasia
product line of decorative fiber optic lamps into its marketing programs.







                             Page 5 of 41 Pages
                                      
<PAGE>
Item 2.  Description of Property

The Company's offices and plant are located at 90 Secor Lane, Pelham Manor,
New York, where the Company leases approximately 10,500 square feet, but has
made modifications to the facility that provide a total of approximately
17,500 square feet of working area.  The Company has approximately two and
one-half year remaining on a three-year lease of space.  The building is a
two story, modern, fireproof concrete block structure.  The aggregate annual
rental paid by the Company in 1998 was approximately $90,863.

The Company believes that the facilities currently in use are suitable and
adequate for its business.

Item 3.  Legal Proceedings

The Company or its property is not a party or subject to any pending material
legal proceeding.

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

None.

                                   PART II
                                      
Item 5.  Market for the Registrant's Common Equity and
         Related Stockholder Matters

         (a)  Price Range of Common Stock
         
Set forth below in tabular form for the quarterly periods indicated are the
high and low bid prices of Vicon Common Stock in the over-the-counter market
as quoted by the National Quotation Bureau, Inc., or by market makers.

<TABLE>
<S>                  <C>            <C>
                              Bid Prices
                               Low           High
1997 First Quarter           13/16          1 1/4
Second Quarter               11/16          2 5/8
Third Quarter                23/32         1 3/16
Fourth Quarter               29/32         1 1/16
                                                 
1998 First Quarter             7/8          1 1/8
Second Quarter                   1          1 1/2
Third Quarter                  5/8          1 7/8
Fourth Quarter                 1/2          25/32
</TABLE>






                             Page 6 of 41 Pages
                                      
                                      
<PAGE>



Such over-the-counter market quotations reflect inter-dealer prices without
retail mark up, mark down or commission and may not necessarily represent
actual transactions.

         (b)  Approximate Number of Equity Security Holders
         
                                         Approximate Number of Record
         Title of Class                     Holders as of December 31, 1998

         Common Stock, $.01 par value                      1600

         (c)  Dividend Policy

Holders of Common Stock of the Company are entitled to a pro rata share of my
dividends when, as and if declared by the Board of Directors and to share pro
rata in any such distributions available for holders of Common Stock upon
liquidation of the Company.  There have been no cash dividends paid since the
inception of the Company and the Company's anticipated capital requirements
are such that it intends to follow a policy of retaining earnings in order to
finance growth of the business.

Item 6.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations

Financial Condition of Vicon

Vicon gauges its liquidity and financial stability by the measurements as
shown in the following table:

<TABLE>
<S>                               <C>            <C>
                                 1998           1997
Working Capital            $1,958,348     $2,457,828
Current Ratio               3.59 to 1      4.58 to 1
Shareholders' Equity       $3,108,641     $2,965,507
Net Income                   $115,009       $418,935
</TABLE>

The decrease in working capital during 1998 was due to net income for the
year, less expenditures for capital equipment, investments and long-term debt
becoming due within one year.

The increase in shareholders' equity during 1998 was due to net income for
the year plus the issuance of common stock.







                             Page 7 of 41 Pages
                                      
                                      
<PAGE>



Results of Operations

Year ended December 31, 1998 Compared to Year Ended December 31, 1997

Net sales for the year ended December 31, 1998 as compared to 1997 decreased
by 17%.  Management attributes this primarily to late deliveries of new and
existing models of the Fantasia decorative lamps by the Company's Chinese
vendors.  These delays were due to shortages of shipping containers from the
Pacific rim and other related economic factors in China.

Cost of sales percentage decreased to 60.7% for 1998 compared to 62.3% in
1997.  Management attributes this to increased efficiencies in manufacturing
and purchasing of manufactured products.

Selling, general and administrative expenses increased to $1,037,890 in 1998
as compared to $783,476 in 1997, an increase of $254,414.  Management
attributes approximately $160,000 of this increase to the Company's U.C.C.
obligation of the settlement and costs of defense of a patent infringement
action filed against a customer of the Company.  The balance of the increase
is attributed to a general rise in the costs of marketing and administrative
expenses.

YEAR 2000 ISSUE

The Year 2000 issue is the result of computer programs having been written
using two digits, rather then four, to define the applicable year. Software
programs and hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000.  This
could result in a major system failure or miscalculations causing disruptions
of operations, including a temporary inability to engage in normal business
activities.

Based on recent assessments, the Company has determined that its critical
software (primarily widely-used software packages) and all of its critical
business systems, including manufacturing instrumentation, are already year
2000 compliant and no material expenditures are required.  Nevertheless,
throughout 1999, assessment, testing and remediation, if necessary, will
continue.

The Company has initiated communications with third parties with whom the
Company has material business relationships to determine the extent of their
remediation of the year 2000 issue.  However, there can be no guarantee that
the non-compliance of other companies will not have an adverse effect on the
Company's operations.

Although no assurance can be given that there will be no interruption of
operations in the year 2000, the Company believes that it has reasonably
assessed all of its systems in order to ensure that the Company will not
suffer any material adverse effect from the year 2000 issue.

Item 7.  Financial Statements

                             Page 8 of 41 Pages

 <PAGE>

                           VICON FIBER OPTICS CORP.


                             FINANCIAL STATEMENTS
                              FORM 10-KSB ITEM 7  


                         YEAR ENDED DECEMBER 31, 1998





                        Page 9 of 41 Pages
<PAGE>



                     VICON FIBER OPTICS CORP.

                  INDEX TO FINANCIAL STATEMENTS










                                                          PAGE


Independent Auditors' Report                               F-3

Financial Statements:
  Balance Sheet - December 31, 1998                        F-4 - F-5

Financial Statements for each of the two years in the
  period ended December 31, 1998:
   Statements of Income                                    F-6
   Statements of Shareholders' Equity                      F-7 
   Statements of Cash Flows                                F-8

Notes to Financial Statements                              F-9 - F-26






                               F-2
                       Page 10 of 41 Pages
<PAGE>





                   INDEPENDENT AUDITORS' REPORT


To the Shareholders and Board of Directors
Vicon Fiber Optics Corp.
Pelham Manor, New York

       We have audited the Balance Sheet of Vicon Fiber Optics Corp. as of
December 31, 1998 and the related Statements of Income, Shareholders' Equity
and Cash Flows for each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements 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 ob-
tain 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 esti-
mates 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 financial statements referred to above present
fairly, in all material respects, the financial position of Vicon Fiber
Optics Corp. as of December 31, 1998 and the results of its operations
and its cash flows for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.




                                         Sheft Kahn & Company LLP 
                                         CERTIFIED PUBLIC ACCOUNTANTS


March 6, 1999
Jericho, New York
                             F-3
                      Page 11 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                         BALANCE SHEET
<TABLE>                                
                       DECEMBER 31, 1998
                                
                             ASSETS
<CAPTION>

<S>                                                         <C>
CURRENT ASSETS:
      Cash and cash equivalents (Note 1)                     $ 254,580
      Accounts receivable - Net of allowance for
       uncollectible accounts of $15,000                       776,538
      Inventories (Note 3)                                   1,625,200
      Prepaid expenses and other current assets                 25,017
      Deferred income taxes (Note 6)                            31,821

         Total Current Assets                                2,713,156

PROPERTY, PLANT AND EQUIPMENT - Net of
      accumulated depreciation and
      amortization (Note 4)                                    425,262

OTHER ASSETS:
      Excess of cost over net assets of
       businesses acquired                                     272,687
      Deposits                                                   4,487
      Investment in joint venture (Note 9)                      26,515
      Cash surrender value of life insurance contract           77,435
      Investment (Note 13)                                     500,000

         Total Other Assets                                    881,124
      
         TOTAL ASSETS                                       $4,019,542
</TABLE>





See accompanying Notes to Financial Statements.
                            F-4
                     Page 12 of 41 Pages
<PAGE>
                      VICON FIBER OPTICS CORP.
<TABLE>
                          BALANCE SHEET

                        DECEMBER 31, 1998



               LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
<S>                                                    <C> 
CURRENT LIABILITIES:
      Current portion of long-term debt (Note 5)        $      85,374 
      Accounts payable and accrued expenses                   566,011 
      Income taxes payable (Note 6)                           103,423 

         Total Current Liabilities                            754,808 

LONG-TERM DEBT (Note 5)                                        99,098 

Deferred income taxes payable (Note 6)                         56,995 
 
         Total Liabilities                                    910,901 

COMMITMENTS AND CONTINGENCIES (Note 7)

SHAREHOLDERS' EQUITY:
      Common stock - authorized 20,000,000 shares,
       $.01 par value, issued and outstanding
       8,679,069 shares                                        86,790 
      Additional paid-in capital                            6,139,288 
      Deficit                                            (  2,976,812)
      Deferred stock incentive (Note 8)                  (    140,625)

         Total Shareholders' Equity                         3,108,641 
          
         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $4,019,542 
</TABLE>      




See accompanying Notes to Financial Statements.

                               F-5
                     Page 13 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.
<TABLE>
                       STATEMENTS OF INCOME

                 FOR THE YEARS ENDED DECEMBER 31,




<CAPTION>
                                                    1998         1997
<S>                                              <C>         <C>
                

SALES                                             $3,348,149  $4,026,258   

COST OF GOODS SOLD                                 2,030,914   2,506,905 

       GROSS MARGIN                                1,317,235   1,519,353 

OTHER COSTS (INCOME) AND EXPENSES:
      Selling, general and administrative expenses
       (Note 12)                                   1,037,890     783,476 
      Research and development                        56,136      67,512 
      Interest expense                                38,872      55,443 
      Interest income                            (    20,585)  (  41,593)

       TOTAL OTHER COSTS (INCOME) AND 
         EXPENSES                                  1,112,313     864,838 

       INCOME BEFORE PROVISION FOR INCOME
         TAXES                                       204,922     654,515 

PROVISION FOR INCOME TAXES (Note 6)                   89,913     235,580 

       NET INCOME                                 $  115,009  $  418,935 

INCOME PER COMMON SHARE:
       BASIC AND DILUTED                          $      .01  $      .05 
      

AVERAGE NUMBER OF SHARES USED
      IN COMPUTATION:
       BASIC                                       8,600,476   8,516,147 
       DILUTED                                     8,891,488   8,642,661 
</TABLE>      



See accompanying Notes to Financial Statements.







                               F-6
                       Page 14 of 41 Pages
<PAGE>
                             VICON FIBER OPTICS CORP.
<TABLE>
                       STATEMENTS OF SHAREHOLDERS' EQUITY

                   FOR THE TWO YEARS ENDED DECEMBER 31, 1998


<CAPTION>

                                                              TOTAL   
                                     ADDITIONAL              DEFERRED    SHARE-
                             COMMON    PAID-IN                STOCK     HOLDERS'
                              STOCK    CAPITAL    DEFICIT    INCENTIVE  EQUITY 
<S>                       <C>       <C>         <C>          <C>      <C>

Balance - January 1, 1997 $  85,156  $5,960,921 ($3,510,756) $   -     $2,535,321

Net Income                     -           -        418,935      -        418,935

Issuance of Common Stock        134      11,117        -         -         11,251

Balance - December 31, 1997  85,290   5,972,038  (3,091,821)     -      2,965,507
 
Net Income                     -           -        115,009      -        115,009
                                                           
Issuance of Common Stock      1,500     167,250         -    (140,625)     28,125

Balance - December 31, 1998$ 86,790  $6,139,288 ($2,976,812) $140,625  $3,108,641
</TABLE>


See accompanying Notes to Financial Statements.






                                  F-7
                          Page 15 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.
<TABLE>
                     STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31,
<CAPTION>                                     
                                                     1998         1997    
<S>                                              <C>          <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                       $ 115,009  $   418,935 
    Adjustments to reconcile net income to 
    net cash provided by operating activities:
      Depreciation and amortization                   77,005       73,652 
      (Increase) decrease in accounts receivable     203,545   (  568,456)
      (Increase) in inventory                      ( 348,676)  (  293,430)
      (Increase) decrease in prepaid expenses 
       and other current assets                    (   5,983)  (    4,575)
      (Increase) decrease in deferred income taxes    12,081   (    1,214)
      (Decrease) increase in accounts payable and
       accrued expenses                              203,916      243,243 
      Increase (decrease) in income taxes payable  ( 147,168)      97,949 
  
       Total Adjustments                           (   5,280)  (  452,831)
  
       Net Cash Provided by (Used in) Operating
         Activities                                  109,729   (   33,896)
  
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment        (  77,221)  (   75,537)
  (Increase) in cash surrender value of life insurance
    contract                                       (  16,671)  (   14,478)
  Investment in American Entertainment             ( 500,000)        -       
   
       Net Cash (Used in) Investing Activities     ( 593,892)  (   90,015)
  
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of long-term debt                      ( 123,551)  (  102,357)
  Investment in common stock                         168,750       11,251 
  Increase in deferred stock incentive             ( 140,625)        -       
 
       Net Cash (Used in) Financing Activities     (  95,426)  (   91,106)
  
NET (DECREASE) IN CASH 
  AND CASH EQUIVALENTS                             ( 579,589)  (  215,017)
   
CASH AND CASH EQUIVALENTS - Beginning                834,169    1,049,186 
   
CASH AND CASH EQUIVALENTS - End                    $ 254,580   $  834,169 
  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
  Cash paid during the years for:
    Interest                                       $  38,872   $   55,433 
    Income taxes                                   $ 225,000   $  125,000 
</TABLE>
See accompanying Notes to Financial Statements.
                                F-8
                        Page 16 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

         Vicon Fiber Optics Corp. (the "Company") was incorporated in 1969 and
         derives the majority of its revenues from the manufacture and sale of
         fiber optic illuminating systems and components for use in conjunction
         with dental equipment and instruments utilizing fiber optic elements.
       
         A summary of the significant accounting policies followed by the
         Company in the preparation of the accompanying financial statements
         is set forth below:

         a)Cash and Cash Equivalents:

           For the purpose of the statement of cash flows, the Company
           considers cash and cash equivalents to include cash on hand, amounts
           due from banks, and any other highly liquid debt instruments
           purchased with a maturity of three months or less.

         b)Inventories:

           Inventories are valued at the lower of cost (on a first-in, first-
           out basis) or market.

         c)Property, Plant and Equipment:

           Property, plant and equipment is stated at cost.

           Depreciation of property, plant and equipment is computed on the
           straight-line basis for financial reporting purposes and on an
           accelerated basis for income tax purposes over the estimated useful
           lives  of the related assets.  Cost and the related accumulated
           depreciation are deducted from the accounts on retirement or dis-
           posal and any resulting gain or loss is reflected in income.
           Betterments and major renewals or replacements are capitalized.

         d)Excess of Cost Over Net Assets of Businesses Acquired:

           Represents the excess of cost over net assets of acquired companies.
           These amounts are being amortized over forty years.

                                 F-9
                         Page 17 of 41 Pages
<PAGE>
                    VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 1 -   SUMMARY OF ACCOUNTING POLICIES (Continued)

         e)Revenue Recognition:

           Revenue is recognized on sales of products, generally at the time of
           shipment.

         f)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 disclosures 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.

         g)Financial Instruments:

           The carrying values of all assets and liabilities deemed to be
           financial instruments in accordance with SFAS No. 107 approximate
           their respective fair values.  Current market rates were used,
           together with credit worthiness and collateral, where applicable.

         h)Earnings Per Common Share:
      
           The Company adopted Statement of Financial Accounting Standards
           ("SFAS" No. 128, "Earnings Per Share" in 1998.  Basic earnings per
           share is calculated using the average number of shares of common
           stock outstanding during the year.  Diluted earnings per share is
           computed on the basis of the average number of common shares
           outstanding plus the effect of outstanding stock options using the
           "treasury stock method" and convertible debentures using the "if-
           converted" method.  Common stock equivalents consist of stock
           options.

         i)Accounting for Investments:
         
           Investments in which the Company has less than a 20% interest are
           carried at cost.  Dividends received are included in other income.




                               F-10
                       Page 18 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 2 - MATTERS OF ECONOMIC INFLUENCE

         Major customers of the Company, expressed as a percentage of sales,
         are summarized as follows:

                                           Year Ended December 31, 
          Customer                          1998           1997
                 
            A                               29.63%        14.39%
            B                               14.18         11.94   
            C                               11.69           *       
            D                                7.60         15.44   
            E                                7.50         14.39   
       
                                            70.60%        56.16%
         
         * - Less than 10 percent of sales.

         Export sales (excluding North America), expressed as a percentage
         of sales are summarized as follows:

                                          Year Ended December 31,
         Geographic Area                    1998        1997  
           Europe                           1.3%         4.9%
           Brazil                            .5           .1   
                                            1.8%         5.0%

         Suppliers

         The Company uses only one source for some of its components, but
         believes that alternative or supplementary sources can readily be
         obtained. None of the Company's suppliers are affiliated with the
         Company and the Company has no contractual relationship with any of
         them except for purchase orders issued from time to time.  The Company
         believes that an adequate and reliable supply of raw materials is and
         will continue to be available for the manufacture it products. 

NOTE 3 - INVENTORIES

         The composition of inventories at December 31, 1998 is as follows:


      
         Raw materials                 $1,065,611    $   868,648          
         Work-in-process                   91,890         54,930
         Finished goods                   467,699        352,946
                                       $1,625,200     $1,276,524


                               F-11
                       Page 19 of 41 Pages
<PAGE>

                    VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment at December 31, 1998 is summarized as
         follows:
                                                         Estimated
                                                           Useful 
                                                            Life    

         Machinery and equipmen             $473,929     3-10 years
         Furniture, fixtures and
           office equipment                  134,023     2-10 years
         Leasehold improvements              362,292     Useful Life or Lease 
                                             970,244     term, whichever is   
                                                          shorter

          Accumulated depreciation
           and amortization                  544,982
                                            $425,262

         Depreciation and amortization expense for the years ended December 31,
         1998 and 1997 amounted to $64,925 and $61,572, respectively.

NOTE 5 - LONG-TERM DEBT

         Long-term debt at December 31, 1998 consists of the following:

         Amounts due to the former Chairman 
           of the Board and President of Saxton (a)   $184,472
         Less:  Current portion                         85,374
                                                      $ 99,098








                               F-12
                      Pages 20 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 5 - LONG-TERM DEBT (Continued)

         (a) In December 1989, pursuant to a stipulation of compromise and
             settlement, Vicon agreed to pay a total of $950,000 as follows:

             i)  $100,000 to the former President of Saxton on January 1, 1990 
       
             ii)  Commencing January 1, 1990 and monthly thereafter until
                  December 1, 1997, $5,500 per month to the former Chairman
                  of the Board of Saxton

             iii) Commencing January 1, 1998 and monthly thereafter until
                  December 1, 2000, $8,944 per month to the former Chairman
                  of the Board of Saxton

             In December 1989, the Company recorded a liability of $489,590
             representing the present value of such payments discounted for
             interest imputed at 15 percent per annum.

         Aggregate annual maturities applicable to long-term debt are as
         follows:

         Year Ending
         December 31,                          Amount

            1999                             $  85,374
            2000                                99,098
                                              $184,772

         In December 1994 the Company established a credit facility with Marine
         Midland Bank.  Effective September 1998, the Credit Facility was
         increased to $2,000,000, the line of credit will maintain a sublimit
         of $1,000,000 to be used for direct debt drawdowns and $300,000 sub-
         limit to be used for standby Letters of Credit.  The credit facility
         requires monthly payments of interest, computed at the bank's prime
         rate.  The credit lines are secured by an investment account main-
         tained with the bank.  At December 31, 1998, the Company had
         $2,000,000 unused lines of credit to be drawn as needed.


                               F-13
                       Page 21 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS
            


NOTE 6 - INCOME TAXES

         Under the provisions of SFAS 109 the Company recognizes deferred tax
         assets and liabilities for future tax consequences of events that have
         been previously recognized in the financial statements  or income tax
         returns. The measurement of deferred tax assets and liabilities is
         based on provisions of the enacted tax laws, and the effects of future
         changes in tax laws or rates are not anticipated.  The net difference
         between the provision for income taxes and income taxes currently pay-
         able is reflected in the balance sheet as deferred income taxes.
         Deferred tax assets and liabilities are classified as current and non-
         current based on the classification of the related asset or liability
         for financial reporting purposes or based on the expected reversal
         date for deferred income taxes not related to an asset or liability.

         Deferred income taxes consist of the following at December 31, 1998:
      
         Temporary differences arising from the following:

       
                                                              Classified As    
                                                           Short -    Long - 
                                            Deferred        Term       Term
         Type                    Amount        Tax         Assets   (Liability)
      
         Depreciation          ($152,244)    ($56,995)   $   -        ($56,995)
         Reserve for bad debts    15,000        5,615       5,615         -
         Section 263A costs       70,000       26,206      26,206         -
                               ($ 67,244)    ($25,174)    $31,821     ($56,995)








                               F-14
                       Page 22 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 6 - INCOME TAXES (Continued)

         The provision for income taxes for the years ended December 31, 1998
         and 1997 consisted of the following: 
       
                                             1998        1997    
            Current - Federal              $ 74,418    $218,497 
            Current - State                  12,992      35,716 
            Over accrual adjustment        (  9,578)   ( 26,147)
                 Total Current               77,832     228,066 
      
                 Total Deferred              12,081       7,514 

                   Total                   $ 89,913    $235,580 

         A reconciliation of income tax expense computed at statutory rates to
         above amounts at effective rates is as follows:

                                             1998         1997
         Income tax expense at
           statutory rates                $ 63,170     $222,535 
         State and local, net of
           federal benefit                   7,121       24,269 
         Non-deductible expenses
           and over-under accrual            7,541     ( 18,738)
                                               
         Current Income tax expense at
           effective rates                $ 77,832     $228,066 
      
NOTE 7 - COMMITMENTS AND CONTINGENCIES
         
         Leases

         On July 31, 1998, the Company renegotiated its lease and is now  
         obligated under the terms of a new lease, expiring on July 31, 2001,
         which calls for annual rent of $89,040. The total rent expense under
         operating leases charged to operations for the years ended
         December 31, 1998 and 1997 was $87,730 and $73,655, respectively.
  
         The Company also has three leases totaling $1,378 per month through
         January 2001.  


                               F-15
                       Page 23 of 41 Pages
<PAGE>
                    VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         As at December 31, 1998, the future lease expenditures are as follows:
            1999              $105,576
            2000               101,984
            2001                52,849
            2002                     -                   
                              $260,449
         Letters of Credit

         As at December 31, 1998, the Company had outstanding letters of credit
         of $-0-.
         
         Employment Agreement

         The Company has entered into an employment contract with its
         President/Chief Executive Officer through 2003, providing for base
         salary equal to his current base salary with annual cost of living
         adjustments.

         Consulting Agreement

         The Company has entered into a consulting agreement with a Company
         through 2001 with an annual cost of $120,000.  The consultants will
         assist the Company with new product development and establishing new
         distribution channels.

NOTE 8 - STOCK OPTION PLAN

         Effective May 11, 1984, the 1984 Stock Option Plan for Incentive Stock
         Options and Non Qualified Options (the "Plan") was adopted.

         The Plan provided for granting to key employees, and others who were 
         not employees but had made or were expected to make contributions to
         the success of the Company, the option to purchase Company common
         stock.  Options for an aggregate of up to 400,000 shares of common
         stock may have been granted under the plan.

         At a Special Board of Directors meeting held on March 20, 1996, the
         Board of Directors adopted the 1996 Incentive Stock Option Plan for
         Key Employees (the "1996 Plan"), which was ratified by the stock-
         holders on May 30, 1996.  Subject to adjustment as provided below,
         1,000,000 shares of Common Stock (the "Shares") will be available for
         issuance under the 1996 Plan.  No awards under the Plan ("Awards") may
         be granted after March 20, 2006.  Awards may be (1) incentive stock
         options ("ISOs") within the meaning of Section 422 of the Internal
         Revenue Service of 1986, as amended (the "Code"), (2) non-qualified
         stock options, or (3) shares subject to certain restrictions ("re-
         stricted stock").  

                               F-16
                       Page 24 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 8 - STOCK OPTION PLAN (CONTINUED)

         The purchase price of Shares covered by an Award ("Options") will be
         100% of the fair market value of the Common Stock on the date of the
         grant.  The fair market value of a share of Common Stock will be the
         simple average of the high and low sales prices on the date of grant.
         The term of each Option will be determined by the Committee, but can-
         not be more than 10 years from the date of the grant.  If the original
         term is less than ten years from the date of grant, the term may be
         extended prior to expiration, with the approval of the employee, but
         not beyond 10 years from the date of original grant.  The vesting
         period and all other terms and conditions of each Option will be
         determined by the Committee; provided that, except as described below,
         no Option may be exercised prior to the completion of at least six (6)
         months of continuous employment from the date of grant.  The Committee
         may impose restrictions, including a holding period, on Shares
         received upon the exercise of Options.

         Restricted Stock - Awards of restricted stock are subject to such
         restrictions as the Committee determines, including, but not limited
         to: a vesting schedule based upon the recipient's continuous employ-
         ment and conditions based on performance requirements.  Except as
         described below, no restricted stock Award may vest in whole or in
         part prior to the completion of the number of years of continuous
         employment after the date of grant established by the Committee, and
         restricted stock Awards shall be forfeited to the extent any restric-
         tion is not met.  Until all conditions associated with restricted
         stock are met, restricted stock may not be sold, pledged, or other-
         wise disposed of.  Except for these limitations, recipients of re-
         stricted stock are entitled to all rights of a Stockholder, in-
         cluding the right to vote and receive dividends or other distribu-
         tions on such restricted stock.

         If the employment of a recipient of a restricted stock Award termi-
         nates by reason of death, total and permanent disability, retirement,
         or discharge other than for cause before all applicable restrictions
         have been met, the Committee may remove the restrictions.

         During 1998, the Company issued an aggregate of 150,000 shares of
         common stock to five key employees.  The Company accounted for the
         issuance of restricted stock with an estimated fair value of $169,000
         by recording as current compensation of $27,375 and deferred compensa-
         tion of $140,625 to be recognized over the three year restriction on
         the stock.

                               F-17
                       Page 25 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 8 - STOCK OPTION PLAN (CONTINUED)

         The 1996 Plan terminates on March 20, 2006.  The Board of Directors
         may at any time terminate, amend or modify the 1996 Plan.  However,
         stockholder approval is required for amendments which materially in-
         crease the benefits to Award recipients, increase the aggregate number
         of Shares which may be issued under the 1996 Plan, or materially
         modify eligibility requirements.

         The Committee may at any time amend the terms of any Award, including
         accelerating the date of exercise of any Option, terminating stock
         restrictions, or converting the Option into a non-qualified Option;
         but no such amendment may materially adversely affect a recipient's
         rights without his consent.

         Awards may provide for the adjustment of the number and class of
         Shares covered by the Award, Options prices, and the number of Shares
         as to which Options are exercisable in the event of stock dividends,
         stock splits, recapitalization, reorganizations, or other changes in
         the capitalization of the Corporation. The number and class of Shares
         available under the 1996 Plan may also be adjusted in the event of any
         such change in capitalization.

         Certain Federal Income Tax Consequences

         An employee to whom an ISO is granted will not recognize income at the
         time of grant or exercise of the ISO (except that the alternative
         minimum tax may apply), and no federal income tax deduction will be
         allowable to the Corporation upon the grant or exercise of the ISO.
         When the employee sells shares received upon the exercise of an ISO
         more than one year after the date of exercise and more than two years
         after the date of grant of the ISO, the employee will normally recog-
         nize a long-term capital gain or loss equal to the difference, if any,
         between the sale price of such Shares and the option exercise price.
         If the employee does not hold such Shares for these periods, when the
         employee sells such Shares the employee will recognize ordinary compen-
         sation income and possibly capital gain or loss in such amounts as are
         prescribed by the Code and the regulations thereunder.  Subject to
         applicable provisions of the Code and the regulations thereunder, in
         the event of a disposition prior to the end of the statutory holding
         periods noted above, the Corporation will generally be entitled to a
         federal income tax deduction in the amount of such ordinary compensa-
         tion income.
                               F-18
                       Page 26 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 8 - STOCK OPTION PLAN (CONTINUED)

         An employee to whom a non-qualified stock option (which is treated as
         an option for federal income tax purposes) is granted will not recog-
         nize income at the time of grant of such option.  When the employee
         exercises such option, the employee will recognize ordinary compensa-
         tion income equal to the difference, if any, between the option price
         paid and the fair market value, as of the date of exercise, of the
         Shares received by the employee.  The tax basis of such Shares to such
         employee will be equal to the fair market value on the date of exer-
         cise, and the employee's holding period for such Shares will commence
         on the date on which the employee recognized taxable income in respect
         of such shares.  Subject to applicable provisions of the Code and the
         regulations thereunder, the Corporation will generally be entitled to
         a federal income tax deduction in respect of non-qualified stock
         options in an amount equal to the ordinary compensation income recog-
         nized by the employee.  Any compensation includable in the gross
         income of an employee in respect of a non-qualified option will be
         subject to appropriate federal income and employment taxes.

         At the Special Board of Directors meeting held on March 20, 1996, the
         Board granted 50,000 stock options with an exercise price $.96 to
         Leonard Scrivo and 165,000 stock options with an exercise price of
         $.87 to various other employees.  At the March 20, 1996 meeting, the
         Board of Directors, as part of a consulting agreement, also granted
         non-qualified options to Stanley A. Youdelman to purchase 20,000
         Shares at $.87 per share.  On June 28, 1996 the Company granted
         options to purchase 125,000 shares at $.875 and on July 5, 1996 the
         Company sold options to purchase 175,000 shares for $1,750.
              
         As of April 1, 1998, five year warrants to purchase 100,000 shares of
         common stock of the Company at $1.00 per share were issued to Messrs.
         Allan Borkowski, Robert Figliozzi, Michael Funke, Thomas Furey, Jr.,
         Mike Scrivo and Kenneth Zimmerman upon their election as directors of
         the Company.

         In April 1998, five year warrants to purchase 100,000 shares of common
         stock of the Company at $1.00 per share were issued to Messrs. Allan
         Borkowski, Robert Figliozzi, James Leonard, and Dr. Stanley Youdelman,
         in consideration for entering into consulting agreements by each of
         the above individuals.

         In April 1998, five year warrants to purchase an aggregate of 435,000
         common shares of the Company at prices of $1.00 to $1.10 were issued
         to three officers and two former employees.


                               F-19
                       Page 27 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS


NOTE 8 - STOCK OPTION PLAN (CONTINUED)
      
  The following summarizes the stock options outstanding under these plans
  as of December 31, 1998:

                         Number          Per Share
                           Of              Option  
   Date Granted          Shares             Price          Expiration

   March 1996           185,000             .87                2001
   March 1996            50,000             .96                2001
   June 1996            300,000            .875                2001
   April 1998         1,285,000            1.00                2003
   April 1998           150,000            1.10                2003
 
                      1,970,000
   
   The following summarizes the activity of shares under option for the two
   years ended December 31, 1998:

                                        Number       Per Share
                                         Of            Option
                                        Shares         Price         Value
   
   Balance - January 1,
      1997                               535,000    $ .87 - $ .96  $   471,450 
     Granted                                -             -              -   
     Exercised                              -             -              -
     Expired                                -             -              -
     Cancelled                              -             -              -
   Balance - December 31,                        
      1997                               535,000      .87 -   .96      471,450 
     Granted                           1,435,000     1.00 -  1.10    1,450,000 
     Exercised                              -             -              -   
     Expired                                -             -              -  
     Cancelled                              -             -              -   
   Balance - December 31,
     1998                              1,970,000     $.87 - $1.10   $1,921,450 



                               F-20
                       Page 28 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

                                                             
NOTE 8 -  STOCK OPTION PLAN (CONTINUED)

   Pro Forma Disclosure

   The Company has adopted the disclosure-only provisions of Statement of
   Financial Accounting Standards No. 123, "Accounting for Stock Based
   Compensation", issued in October 1995.  Accordingly, compensation cost
   has been recorded based on the intrinsic value of the option only.  The
   Company recognized $28,125 and $-0- compensation cost in 1998 and
   1997, respectively, for stock-based employee compensation awards.  The
   pro forma compensation cost, net of income taxes, for stock-based
   employee compensation awards was $641,794 and $252,360 in 1998
   and 1997, respectively.  If the Company had elected to recognize
   compensation cost based on the fair value of the options granted at grant
   date as prescribed by SFAS No. 123, net income and earnings per share
   would have been changed to the pro forma amounts indicated in the table
   below:

                                     1998                       1997

                         As Reported     Pro Forma   As Reported  Pro Forma
   Net income            $115,009        ($526,785)   $418,935     $166,575

   Diluted earnings
     per share               $.01            ($.06)       $.05         $.02

   The above pro forma amounts, for purposes of SFAS No. 123, reflect the
   portion of the estimated fair value of awards earned in 1998 and 1997. 
   For purposes of pro forma disclosures, the estimated fair value of the
   options is amortized over the options' vesting period (for stock options). 
   The effects on pro forma disclosures of applying SFAS 123 are not likely
   to be representative of the effects on pro forma disclosures of future
   years.  Because SFAS 123 is applicable only to options granted
   subsequent to August 31, 1995, the effect will not be fully reflected until
   2000.





                               F-21
                       Page 29 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

                                                               
NOTE 8 - STOCK OPTION PLAN (CONTINUED)

   The Company used the Black-Scholes model to value stock options for pro
   forma presentation.  The assumptions used to estimate the value of the
   options included in the pro forma amounts and the weighted average
   estimated fair value of options granted are as follows:
  
                                          Stock Option Plan Shares
                                              1998       1997  

   Average expected life (years)              3.30       3.67   
   Expected volatility                      143.89%    132.65%
   Risk-free interest rate
     (zero coupon U.S. Treasury
     note)                                     5.6%       6.2%
   Weighted average fair value
     at grant - Exercise price
     equal to market price                    $.49       $.74   
 
   The Black-Scholes option valuation model was developed for use in
   estimating the fair value of traded options which have no vesting
   restrictions and are fully transferable.  In addition, the Black-Scholes
   model requires the input of highly subjective assumptions, including the
   expected stock price volatility and option life.  Because the Company's
   stock options granted to employees have characteristics significantly
   different from those of traded options, and because changes in the subjec-
   tive input assumptions can materially affect the fair value estimate, in
   management's opinion, existing models do not necessarily provide a reliable
   measure of the fair value of its stock options granted to employees.  For
   purposes of this model, no dividends have been assumed.









                               F-22
                       Page 30 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

 
NOTE 9 - JOINT VENTURE AGREEMENT

   On March 17, 1992, the Company entered into a joint venture agreement
   with China Anshan Television Broadcasting Equipment Group Company,
   in accordance with the Foreign Joint Venture Enterprise Ordinance of the
   People's Republic of China and other related statutes.  The Company has
   a 25% interest in the joint venture. The joint venture company, Anshan
   Vicon Fiber Optic Products, Ltd., a Chinese corporation located at Anshan,
   Liao Ning Province, People's Republic of China, will manufacture certain
   of the Company's products.  The manufacturing of these products in China
   should significantly reduce the cost of these products to Vicon. During
   1993, Vicon effected a technology transfer to the joint venture company
   in China.  The manufacturing facility in China is presently in the
   development stage.
   
   The Company has accounted for its investment using the equity method
   of accounting.  During 1993 the Company sold certain manufacturing
   equipment to the joint venture.  The Company reduced the resultant gain
   from such sale by 25%, with a corresponding reduction in their
   investment, based on their ownership percentage.

NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS

   Disclosure of fair value information about certain financial instruments,
   whether or not recognized in the balance sheet for which it is practicable
   to estimate that value, is required by Statement of Financial Accounting
   Standards (SFAS) 107, Disclosure About Fair Value of Financial
   Instruments.  The following methods and assumptions were used in
   estimating fair values:

   Cash and cash equivalents: The carrying amount reported in the balance
   sheet approximates fair value.






                               F-23
                       Page 31 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS
  
NOTE 10 - FAIR VALUES OF FINANCIAL INSTRUMENTS  (CONTINUED)

   Short and long-term debt:  The carrying amounts of the Company's
   borrowings under its revolving credit agreements, as well as all short-term
   borrowings, approximate their fair values.  The fair values of the
   Company's long-term debt were estimated using discounted cash flow
   analysis, based on the Company's current incremental borrowing rates for
   similar arrangements.

   The carrying amounts and fair values of the Company's financial
   instruments at December 31, 1998 are as follows:

                                            Carrying  
                                            Amounts  Fair Value

   Cash and cash equivalents                $254,580   $254,580           
   Short and long-term debt                  910,901    910,901

NOTE 11 - CONCENTRATION OF CREDIT RISK

   The Company invests its excess cash in deposits with Marine Midland
   Bank.  The investment generally matures within six months and therefore
   is subject to little risk.  The Company has not incurred losses related to
   this investment.  As at December 31, 1998 $94,201 was invested at an
   interest rate which varies daily.  Deposits with Marine Midland Bank are
   insured under the FDIC for up to $500,000.

NOTE 12 - UCC OBLIGATION

   During 1998, an action was commenced against a customer of the
   Company for selling the Company's manufactured products, allegedly
   infringing on Plaintiff's patents covering "illuminator or dental hand-
   piece".  According to Counsel for the Company, in accordance with the
   Uniform Commercial Code, the Company, as the manufacturer, was obligated to
   indemnify and hold the customer harmless from any damages and
   settlement amounts incident to the litigation.  Subsequent to December
   31, 1998, the Company settled its obligation for approximately $90,000
   and incurred legal fees of $70,000 and is recorded as a charge to general
   and administrative expenses.

                               F-24
                       Page 32 of 41 Pages
<PAGE>

                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS

NOTE 13 - INVESTMENT IN AMERICAN ENTERTAINMENT GROUP, INC.

   On July 2, 1998, the Company acquired 250,000 shares of common stock
   (approximately 9%) of American Entertainment Group, Inc., doing business
   as "Another Universe.com", at $2.00 per share, for a total of $500,000 in
   cash.  Another Universe.com is a leading internet retailer and direct
   response marketer of entertainment-themed collectibles, licensed products
   and gifts.  Another Universe.com has incorporated Vicon's Fantasia product
   line of decorative fiber optic lamps into its marketing programs.
   
NOTE 14 - IMPACT OF YEAR 2000

   Year 2000 issue is the result of computer programs being written using
   two digits rather than four to define the applicable year.  Any of the
   Company's computer programs that have time-sensitive software may
   recognize a date using "00" as the year 1900 rather than the year 2000. 
   This could result in a system failure or miscalculations causing disruptions
   of operations, including, among other things, a temporary inability to
   process transactions, send invoices, or engage in similar normal business
   activities.

   Based on recent assessments, the Company has determined that its critical
   software (primarily widely-used software packages) and all of its critical
   business systems, including manufacturing instrumentation, are already
   year 2000 compliant and no material expenditures are required. 
   Nevertheless, throughout 1999, assessment, testing and remediation, if
   necessary, will continue.
   
   The Company has initiated communications with all of its significant
   service providers and suppliers, including its clearing broker, to determine
   the extent to which the Company's interface systems are vulnerable to
   those third parties' failure to remediate their own Year 2000 issues.  The
   Company's estimate to complete includes the estimated time associated
   with the impact of third party's Year 2000 Issues based on presently
   available information.  However, there can be no guarantee that the
   systems of other companies on which the Company's systems rely will be
   timely converted and would not have an adverse effect on the Company's
   systems.

   The Company does not believe that the Year 2000 issue will have a
   material effect on any of the embedded technology in its manufacturing,
   warehousing or distribution equipment.

   The Company will utilize internal resources to reprogram, or replace, and
   test the software for Year 2000 modifications.
                               F-25
                       Page 33 of 41 Pages
<PAGE>
                     VICON FIBER OPTICS CORP.

                  NOTES TO FINANCIAL STATEMENTS


NOTE 14 - IMPACT OF YEAR 2000 (CONTINUED)

   The Company believes it will complete the Year 2000 evaluation in a
   timely fashion based on management's best estimate, which was derived
   utilizing numerous assumptions of future events, including the continued
   availability of certain resources, third party modification plans and other
   factors.  However, there can be no guarantee that this estimate will be
   achieved and actual results could differ materially from those anticipated. 
   Specific factors that might cause such material differences include, but are
   not limited to, the availability and cost of personnel trained in this area,
   the ability to locate and correct (if necessary) all relevant computer
   codes, and similar uncertainties.      

   The cost of addressing the Company's Year 2000 issues is expected to be
   negligible.  The cost should not have a material adverse effect on the
   Company's cash flow or financial position.  The Company is executing its
   Year 2000 plan through its own employees. The Year 2000 testing and
   reprogramming is being done in conjunction with other ongoing
   maintenance and reprogramming efforts.

   The Company has a contingency plan in place in the event their Year 2000
   issue is not resolved timely.



















                               F-26
                       Page 34 of 41 Pages
<PAGE>
Item 8.  Disagreements with Accountants on Accounting and Financial
Disclosure

None.


                                  PART III
                                      
                                      
Item 9.  Directors and Executive Officers

                                      
Leonard Scrivo, Age 61: Director, President, Chief Executive Officer and
Treasurer of the Company.  Director and Officer since 1969.

Les Wasser, Age 55: Director, Secretary and Controller of the Company.
Certified Public Accountant.  Director since June 1990.

Michael Scrivo, Age 33: Director, Vice-President Operations. Director since
April 23, 1998.  Employed by the Company since 1988.  Son of Leonard Scrivo.

Allan Borkowski, Age 58: Director since April 23, 1998.  Business and
financial consultant for more than the past five years.  Principal
stockholder and President of ASB Consultants, Inc. a privately held business
consulting firm.  Since June, 1982 he has been Chairman and Chief Executive
Officer of Optivest Technologies Corp., a privately held business development
company.  Formerly, Chairman of the Board of Selvac Corp. through June 1996
and Director of Mehl/Biophile International Corp. until February 1997.

Robert J. Figliozzi, Age 61: Director since April 23, 1998. Executive Vice
President of Mehl/ Biophile International Corp. from April 1997 to July 1998.
From August 1994 to April 1997, Vice President of World Fuel Corporation, an
aviation and fueling services corporation listed on the New York Stock
Exchange. Prior thereto, he was Senior Managing Director and Director of
Research of Stamford Securities Corporation, a brokerage firm and member of
the New York Stock Exchange

Michael J. Funke, Age 55: Director since April 23, 1998.  Editor/Publisher of
the MJF/Ruta Financial Newsletter.  Private investment consultant and
financial advisor since 1992.  Consultant to the Company since July 1996.
Employed 1967-1992 by IBM in numerous management and consulting positions.
MBA from The Wharton School.

Thomas E. Furey, Jr. Age 58: Director since April 23, 1998.  Employed by IBM
since 1963.  Presently worldwide general manager for technology development,
architecture and implementation for the Olympic Games.  Prior to this
position he was general manager of IBM's Worldwide Network Computing
Solutions Unit and has been a leader in the development of IBM's most
advanced hardware and software systems.





                             Page 35 of 41 Pages

<PAGE>


Kenneth Zimmerman, Age 47: Director since April 23, 1998.  Founder and Chief
Executive Officer, President and sole stockholder of Kenar Enterprises, Ltd.,
a privately held women's apparel manufacturer and retailer for the past
twenty-one years, which has declared bankruptcy.  Director of Chic by H.I.S.,
Inc. listed on the New York Stock Exchange.

Zachary Liebman, Age 39: Director.  Elected to the Board at a special meeting
of the Board of Directors on December 15, 1998.  Mr. Liebman is a Managing
Director in Crestwood Capital Group Corp., which is a consulting firm in
assisting emerging growth companies in raising capital, management placements
and marketing strategies.  Mr. Liebman is a partner in Arthur Miller's Talent
Management, Inc., an agency dealing with casting for industrial films and
movies.

Barry Hawk.  Elected to the Board at a special meeting of the Board of
Directors on December 15, 1998.  Mr. Hawk is presently the Vice President of
Corporate Development for Ferro Foods, Corp., a large specialty food and
restaurant supplier serving the Northeast and Mid-Atlantic region.  Mr. Hawk
is a Founder and Managing Director of Crestwood Capital Group, Corp.  In that
capacity, he advises companies on investment banking, strategic planning,
corporate finance, mergers and acquisitions.  Mr. Hawk has developed an
expertise in innovative financing techniques and structures for both public
and private companies.  Prior to that, Mr. Hawk served as President of Win
Capital Corp., an N.A.S.D. member Broker/Dealer with three offices
nationwide.  Mr. Hawk graduated from Yeshiva University with Honors with a
BA. in Political Science and Economics and from the University of Maryland
School of Law.


Item 10.  Executive Compensation

A.  The following summary compensation table sets forth information
concerning the annual and long-term compensation for the years ended December
31, 1998, 1997 and 1996, of those persons who were, (i) serving as the chief
executive officer of the Company or acting in a similar capacity during the
year ended December 31, 1998 and (ii) the other most highly compensated
executive officers of the Company, whose annual base salary and bonus
compensation was in excess of $100,000 (the named executive officers):

<TABLE>
<S>                             <C>           <C>                      <C>
                                           Annual   Long-Term Incentive
                                     Compensation          Plans
                                                      Restricted Stock
Name and Principal Position    Year   Total $ (1)   Shares(#)  Options(#)
Leonard Scrivo                 1998      $116,192      75,000      150,000
President, CEO                 1997       101,481           0            0
Chairman of the Board          1996        92,944      50,000       50,000
                                                                          
                                                                          
                                                                          
</TABLE>


                             Page 36 of 41 Pages
<PAGE>


A.   Option grants in last fiscal year for named executive officers:

                     Number of           % of Total                  
               Securities Underlying  Options Granted    Exercise
Name            Options Granted (#)     To Employees   Price($/Sh)
Leonard Scrivo        150,000               38%           $1.10


B.   Options exercised during the last fiscal year:  None.

C.   Fiscal year end option values for named executive officers:
<TABLE>
<S>                                     <C> <C>
                                Unexercised Value of Unexcercised in-
Name                            Options (#) the-money Options ($)
Leonard Scrivo                      200,000           $-0-
                                                                     
</TABLE>

Directors' Compensation

No director receives any compensation for attending Board meetings.

Employment Contracts of Named Executive Officers

     An employment agreement was entered into as of April 3, 1998 between the
     Corporation and Leonard Scrivo for a term of five years, with a
     provision after a change in control, providing for the payment to Mr.
     Scrivo of base salary equal to his current base salary, with annual
     minimum adjustments of 5% plus a percentage equal to increase in the
     CPI.
     


Item 11.  Security Ownership and Certain Beneficial Owners and Management

The following table sets forth as of December 31, 1998 the shares of Common
Stock of the Company owned by each director of the Company, the officers and
directors of the Company as a group and each person known to the Company to
own 5% or more of the outstanding shares of Common Stock of the Company:













                             Page 37 of 41 Pages
<PAGE>


<TABLE>
<S>                                 <C>                     <C>
Name                        Number of       Approximate % of
                          Shares Owned     Outstanding Shares
                          
                                       
Leonard Scrivo                967,978                     11.2%
                                                               
Les Wasser                    115,000                      1.3%
                                                               
Michael Scrivo (1)            120,000                      1.4%
                                                               
Allan Borkowski (2)(3)        241,000                      2.8%
Robert Figliozzi (2)                0                        0%
Michael J. Funke (4)                                           
                               30,100                         *
                                                               
Thomas E. Furey, Jr. (1)       20,000                         *
                                                               
Kenneth Zimmerman (1)               0                        0%
                                                               
Zachary Liebman (5)                 0                        0%
                                                               
Barry Hawk (5)                      0                        0%
                                                               
Directors and Executive     1,494,078                     17.2%
Officers as a group
(1)(2)(3)(4)(5)
                                                               
Donald J. Unger (6)           980,000                     11.3%
                                                               
Joseph Cooper                 557,478                      6.4%

*    less than 1%

(1)  Does not include warrants currently exercisable to purchase 100,000
     shares of common stock.

(2)  Does not include warrants exercisable to purchase 200,000 shares of
     common stock at $1.00 per share.

(3)  Includes 80,000 shares owned by members of his family in which Mr.
     Borkowski disclaims any beneficial interest.

(4)  As of February 1, 1999, owns warrants exercisable in 1998 to purchase
     275,000 shares of common stock.

(5)  Does not include options which are exercisable to purchase 125,000
     shares of Common Stock at $1.00 per share.

(6)  Includes 200,000 shares owned by members of his family in which Mr.
Unger disclaims any beneficial interest.



                             Page 38 of 41 Pages

<PAGE>

Item 12.  Certain Relationships and Related Transactions

     In connection with electing Zachary Liebman and Barry Hawk as directors
of Vicon, the Company agreed to pay to Crestwood Capital Group Corp.
("Crestwood"), a management consulting firm the principals of which are
Messrs. Liebman and Hawk, a joint consulting fee of $10,000 per month,
commencing January 15, 1999 and for a period of two years thereafter, as
compensation for assisting Vicon with new product development and
establishing new distribution channels for Vicon's products.


                                   PART IV
                                      
                                      
Item 13.  Exhibits and Reports on Form 8-K
     None.

(a)(1)  Financial Statements

    The following statements of Vicon Fiber Optics Corp. are included in Part
II, Item 7:

</TABLE>
<TABLE>
<S>                                                <C>
                                                  Page
Audit Report of Sheft Kahn & Company                11
Financial Statements:                                 
Balance Sheet - December 31, 1998                12-13
Statements of Operations - Years ended                
December 31, 1998 and 1997                          14
Statements of Shareholders Equity -                   
Years ended December 31, 1998 and 1997              15
Statements of Cash Flows - Years ended                
December 31, 1998 and 1997                          16
Notes to Financial Statements                    17-34
</TABLE>

(a)  Form 8-K filed July 17, 1998 incorporated herein by reference.

(b)  Exhibits















                             Page 39 of 41 Pages
<PAGE>


<TABLE>
<S>          <C>
3.1          Articles of Incorporation, as amended
             (filed as Exhibit 3.1 to Form 10, Registration No. 0-11057,
             filed on June 13, 1983, and incorporated herein by
             reference).
3.2          By-laws (filed as Exhibit 3.2 to Form 10, Registration No.
             0-11057, incorporated herein by reference).
4.1          Certificate for Common Stock, $.10 par value (filed as
             Exhibit 4.1 to Form 10, Registration No. 0-11057,
             incorporated herein by reference).
4.2          Certificate for Convertible Subordinated Notes, due
             December 31, 1986, and Agreement (filed as Exhibit 4.2 to
             Form 10, Registration No. 0-11057, incorporated herein by
             reference).
4.3          Warrant to Purchase Common Stock, $.10 par value (expiring
             December 31, 1986) (filed as Exhibit 4.3 to Form 10,
             Registration No. 0-11057, incorporated herein by
             reference).
4.4          Form of 12% Convertible Subordinated Note (filed as Exhibit
             4.4 to Company's Annual Report on Form 10-K for the year
             ended December 31, 1986 (the "1986 10-K"), incorporated
             herein by reference).
4.6          Certificate of Amendment of Certificate of Incorporation to
             increase the authorized capital stock of the Company to
             twenty million shares and to change the par value to $.01
             per share.  (Filed as Exhibit 4.6 to the 1992 Form 10-KSB).
</TABLE>
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                             Page 40 of 41 Pages
                                      
<PAGE>


                                 SIGNATURES


In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                                     VICON FIBER OPTICS CORP.
                                                                             
                                                                             
                                                                             
                                                                             
                                                    By /s/Leonard Scrivo_____
                                                    Leonard Scrivo, President


                            Date  March 31, 1999
                                      
                                      
                                      
In accordance with Exchange Act, this report has been signed below by the
following persons on behalf of registrant and in the capacities and on the
dates indicated.

Signature                Title                    Date
                                                  
/s/Leonard Scrivo        President (Chief         March 31, 1999
LEONARD SCRIVO           Executive Officer),
                         Treasurer and Director
                                                  
/s/Les Wasser            Director                 March 31, 1999
LES WASSER               Secretary, Controller
                                                  
/s/Michael Scrivo        Director, Vice-          March 31, 1999
MICHAEL SCRIVO           President Operations
                                                  
/s/Allan Borkowski       Director                 March 31, 1999
ALLAN BORKOWSKI
                                                  
/s/ Robert J. Figliozzi  Director                 March 31, 1999
ROBERT J. FIGLIOZZI      
                                                  
/s/ Michael J. Funke     Director                 March 31, 1999
MICHAEL J. FUNKE


                             Page 41 of 41 Pages