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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 or
 o
    
    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: 001-32469
 XENONICS HOLDINGS, INC.
  Nevada
(State or other jurisdiction of incorporation or organization)
    
    84-1433854
(I.R.S. Employer Identification No.)3186 Lionshead Avenue 
Carlsbad, California
(Address of principal executive offices)
    
    92010
(Zip code)
 (760) 477-8900
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ
 o þ




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TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2011 (unaudited)
and September 30, 2010
    
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months
ended March 31, 2011 and 2010 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows
for the Six Months
ended March 31, 2011 and 2010 (unaudited)
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    13Item 4. Controls and Procedures
    
    
    13PART II. OTHER INFORMATIONItem 6. Exhibits
    
    
    14SIGNATURES
    
    
    15Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    September 30,2011
    
    
    2010Rounded in thousands, except par value
    
    (unaudited)AssetsCurrent Assets:Cash
    
    $
    2,419,000
    
    
    $
    705,000Accounts receivable, net
    
    
    95,000
    
    
    
    956,000Inventories, net
    
    
    1,850,000
    
    
    
    1,966,000Other current assets
    
    
    282,000
    
    
    
    166,000Total Current Assets
    
    
    4,646,000
    
    
    
    3,793,000Equipment, furniture and fixtures at cost, less accumulated
depreciation of $149,000 and $132,000
    
    
    52,000
    
    
    
    69,000Goodwill
    
    
    375,000
    
    
    
    375,000Other assets
    
    
    165,000
    
    
    
    216,000Total Assets
    
    $
    5,238,000
    
    
    $
    4,453,000Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    433,000
    
    
    $
    492,000Accrued expenses
    
    
    66,000
    
    
    
    126,000Accrued payroll and related taxes
    
    
    102,000
    
    
    
    110,000Total Current Liabilities
    
    
    601,000
    
    
    
    728,000Notes payable
    
    
    417,000
    
    
    
    376,000Total Liabilities
    
    
    1,018,000
    
    
    
    1,104,000Commitments and contingencies (Note 9)Shareholders Equity:Preferred shares, $0.001 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding
    
    
    
    
    
    
    Common shares, $0.001 par value, 50,000,000 shares
authorized as of March 31, 2011
and September 30, 2010; 24,976,000 shares issued and
outstanding as of March 31, 2011 and 25,622,000 issued as
of September 30, 2010; 25,509,000 shares outstanding as of
September 30, 2010
    
    
    25,000
    
    
    
    25,000Additional paid-in capital
    
    
    26,652,000
    
    
    
    26,954,000Accumulated deficit
    
    
    (22,457,000
    )
    
    
    (23,324,000
    )4,220,000
    
    
    
    3,655,000Less treasury shares, at cost, 0 shares as of March 31,
2011 and 113,000 shares as of September 30, 2010
    
    
    
    
    
    
    (306,000
    )Total Shareholders Equity
    
    
    4,220,000
    
    
    
    3,349,000Total Liabilities and Shareholders Equity
    
    $
    5,238,000
    
    
    $
    4,453,000
 See notes to unaudited condensed consolidated financial statements .
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended
    
    
    Six months endedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Rounded in thousands, except per share amounts
    
    (unaudited)
    
    
    (unaudited)Revenues
    
    $
    2,000,000
    
    
    $
    109,000
    
    
    $
    5,548,000
    
    
    $
    1,365,000Cost of goods sold
    
    
    1,046,000
    
    
    
    69,000
    
    
    
    2,926,000
    
    
    
    740,000Gross profit
    
    
    954,000
    
    
    
    40,000
    
    
    
    2,622,000
    
    
    
    625,000Selling, general and administrative
    
    
    627,000
    
    
    
    696,000
    
    
    
    1,277,000
    
    
    
    1,490,000Research and development
    
    
    134,000
    
    
    
    257,000
    
    
    
    297,000
    
    
    
    453,000Income (loss) from operations
    
    
    193,000
    
    
    
    (913,000
    )
    
    
    1,048,000
    
    
    
    (1,318,000
    )Other income/(expense):Gain on derivative revaluation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,000Interest income
    
    
    2,000
    
    
    
    
    
    
    
    3,000
    
    
    
    2,000Interest (expense)
    
    
    (38,000
    )
    
    
    (38,000
    )
    
    
    (76,000
    )
    
    
    (76,000
    )Income (loss) before provision for (benefits from) income taxes
    
    
    157,000
    
    
    
    (951,000
    )
    
    
    975,000
    
    
    
    (1,354,000
    )Income tax provision (benefit)
    
    
    (74,000
    )
    
    
    
    
    
    
    2,000
    
    
    
    2,000Net income (loss)
    
    $
    231,000
    
    
    $
    (951,000
    )
    
    $
    973,000
    
    
    $
    (1,356,000
    )Net income (loss) per share:Basic
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    0.04
    
    
    $
    (0.06
    )Fully-diluted
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    0.04
    
    
    $
    (0.06
    )Weighted average shares outstanding:Basic
    
    
    25,088,000
    
    
    
    21,189,000
    
    
    
    25,172,000
    
    
    
    20,998,000Fully diluted
    
    
    25,090,000
    
    
    
    21,189,000
    
    
    
    25,175,000
    
    
    
    20,998,000
 See notes to unaudited condensed consolidated financial statements
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months endedMarch 31,2011
    
    
    2010Rounded in thousands
    
    (unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    973,000
    
    
    $
    (1,356,000
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation
    
    
    17,000
    
    
    
    26,000Provision for bad debts
    
    
    (36,000
    )
    
    
    (5,000
    )Non-cash compensation to employees and directors
    
    
    
    
    
    
    35,000Non-cash compensation for warrants issued
    
    
    4,000
    
    
    
    85,000Non-cash compensation to consultants
    
    
    50,000
    
    
    
    38,000(Gain) loss on derivative revaluation
    
    
    
    
    
    
    (38,000
    )Amortization of warrants for notes payable
    
    
    41,000
    
    
    
    42,000Changes in operating assets and liabilities:Accounts receivable
    
    
    897,000
    
    
    
    1,394,000Inventories
    
    
    116,000
    
    
    
    (246,000
    )Other current assets
    
    
    (116,000
    )
    
    
    15,000Accounts payable
    
    
    (58,000
    )
    
    
    (126,000
    )Accrued expenses
    
    
    (60,000
    )
    
    
    (55,000
    )Accrued payroll and related taxes
    
    
    (8,000
    )
    
    
    (11,000
    )Accrued derivative liability
    
    
    
    
    
    
    (161,000
    )Net cash provided by (used in) operating activities
    
    
    1,820,000
    
    
    
    (363,000
    )Cash flows from financing activities:Proceeds from sale of common stock
    
    
    
    
    
    
    288,000Proceeds from exercise of stock options
    
    
    
    
    
    
    6,000Purchase of common stock
    
    
    (106,000
    )
    
    
    Net cash provided by financing activities
    
    
    (106,000
    )
    
    
    294,000Net increase (decrease) in cash
    
    
    1,714,000
    
    
    
    (69,000
    )Cash, beginning of period
    
    
    705,000
    
    
    
    126,000Cash, end of period
    
    $
    2,419,000
    
    
    $
    57,000Supplemental cash flow information:Cash paid during the period for income taxes
    
    $
    2,000
    
    
    $
    2,000Cash paid during the period for interest
    
    $
    34,000
    
    
    $
    34,000Supplemental schedule of non-cash financing activities:The Company issued 25,000 shares of common stock for the exercise of stock
options for cash of $6,000 plus consulting services
    
    $
    
    
    
    $
    10,000The Company issued 300,000 shares of common stock for a three-year financial
advisory service agreement at $0.80 per share
    
    $
    
    
    
    $
    240,000
 See notes to unaudited condensed consolidated financial statements .
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Rounded in thousands)
 1. BASIS OF PRESENTATION
   2. RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS
 Recently Adopted:
 Transfers and Servicing
(Topic 860): Accounting for Transfers of Financial Assets.
 Consolidation (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
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Revenue Recognition (Topic 605): Multiple-Element Arrangements
 Recently Issued:
 Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures About Fair Value Measurements
 Business Combinations (Topic 805):
Disclosure of Supplementary Pro Forma Information for Business Combinations
 3. EARNINGS (LOSS) PER SHARE
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4. INVENTORIES
  March 31,
    
    
    September 30,2011
    
    
    2010(unaudited)Raw materials
    
    $
    1,463,000
    
    
    $
    1,285,000Work in process
    
    
    224,000
    
    
    
    250,000Finished goods
    
    
    163,000
    
    
    
    431,000$
    1,850,000
    
    
    $
    1,966,000
 5. USE OF ESTIMATES
  6. STOCK BASED COMPENSATION
 Stock Options
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For the Six MonthsEnded March 31,2011
    
    
    2010Risk-free interest rate
    
    
    
    
    
    
    1.76
    %Expected life (in years)
    
    
    
    
    
    
    4Dividend yield
    
    
    
    
    
    
    0.0
    %Expected volatility
    
    
    
    
    
    
    103
    %Weighted-average volatility
    
    
    
    
    
    
    103
    %
   WeightedWeighted
    
    
    AverageStock
    
    
    Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term (Years)
    
    
    Intrinsic Value *Outstanding at October 1, 2010
    
    
    1,813,000
    
    
    $
    0.76
    
    
    
    4.05Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited, Expired or Cancelled
    
    
    (108,000
    )
    
    $
    1.79Outstanding at March 31, 2011
    
    
    1,705,000
    
    
    $
    0.69
    
    
    
    3.66
    
    
    $
    Exercisable at March 31, 2011
    
    
    805,000
    
    
    $
    0.73
    
    
    
    2.80
    
    
    $
    
    *
 
 *
    
    The aggregate intrinsic value of a stock option is the amount by which the market value of
the underlying stock exceeds the exercise price of the option. The market value of our stock was
$0.48 at March 31, 2011.  Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNon-vested at October 1, 2010
    
    
    900,000
    
    
    $
    0.20Granted
    
    
    
    
    
    
    Forfeited or Expired
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Non-vested at March 31, 2011
    
    
    900,000
    
    
    $
    0.20
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Stock warrants 
   Common stock 
   7. INCOME TAXES
   8




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8. FAIR VALUE OF FINANCIAL INSTRUMENTS
  9. COMMITMENTS AND CONTINGENCIES
 Litigation
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10. GOODWILL
  11. DERIVATIVE LIABILITY
  12. SUBSEQUENT EVENTS
  
 ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations (rounded in thousands)
  Forward-Looking Statements
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Results of Operations
 Three-months ended March 31, 2011 compared to the three-months ended March 31, 2010
  Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Research & Development:
 Other Income (Expense):
 Income Tax Provision (Benefit):
 Net Income (Loss):
 Six months ended March 31, 2011 compared to the six months ended March 31, 2010
 Revenues:
 Cost of Goods and Gross Profit:
  11




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Selling, General and Administrative:
 Research & Development:
 Net Income (Loss):
  Liquidity and Capital Resources
     12




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ITEM 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4.
    
    Controls and Procedures
    13




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PART II. OTHER INFORMATION
 
 ITEM 6.
    
    Exhibits
 ExhibitNumber
    
    Description31.1
    
    
    Certification of the Chairman of the Board and Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act31.2
    
    
    Certification of the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act32.1
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act32.2
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act
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SIGNATURES
  XENONICS HOLDINGS, INC.Date:  May 11, 2011
    By:
    /s/ Alan P. MagermanAlan P. MagermanChairman of the Board

Chief Executive OfficerDate:  May 11, 2011
    By:
    /s/ Richard S. KayRichard S. KayChief Financial Officer  15