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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 December 31, 2010
 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
    
    84-1433854(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)3186 Lionshead AvenueCarlsbad, California
    
    92010(Address of principal executive offices)
    
    (Zip code)
 (760) 477-8900
 (Former name, former address and former fiscal year, if changed since last report)
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ
 Yes o No þ




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TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of December 31, 2010 (unaudited) and September 30, 2010
    
    
    1Condensed Consolidated Statements of Operations for the Three Months ended December 31, 2010 and 2009 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months ended December 31, 2010 and 2009 (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 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    September 30,2010
    
    
    2010Rounded in thousands, except par value
    
    (unaudited)AssetsCurrent Assets:Cash
    
    $
    2,139,000
    
    
    $
    705,000Accounts receivable, net
    
    
    603,000
    
    
    
    956,000Inventories, net
    
    
    1,493,000
    
    
    
    1,966,000Other current assets
    
    
    339,000
    
    
    
    166,000Total Current Assets
    
    
    4,574,000
    
    
    
    3,793,000Equipment, furniture and fixtures at cost, less accumulated
depreciation of $140,000 and $132,000
    
    
    61,000
    
    
    
    69,000Goodwill
    
    
    375,000
    
    
    
    375,000Other assets
    
    
    191,000
    
    
    
    216,000Total Assets
    
    $
    5,201,000
    
    
    $
    4,453,000Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    554,000
    
    
    $
    492,000Accrued expenses
    
    
    94,000
    
    
    
    126,000Accrued payroll and related taxes
    
    
    91,000
    
    
    
    110,000Accrued income taxes payable
    
    
    76,000Total Current Liabilities
    
    
    815,000
    
    
    
    728,000Notes payable
    
    
    397,000
    
    
    
    376,000Total Liabilities
    
    
    1,212,000
    
    
    
    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 December 31, 2010 and September 30, 2010;
25,088,000 shares issued as of December 31, 2010 and
25,622,000 as of September 30, 2010; 24,976,000 shares
outstanding as of December 31, 2010 and 25,509,000 as of
September 30, 2010
    
    
    25,000
    
    
    
    25,000Additional paid-in capital
    
    
    26,958,000
    
    
    
    26,954,000Accumulated deficit
    
    
    (22,688,000
    )
    
    
    (23,324,000
    )4,295,000
    
    
    
    3,655,000Less treasury shares, at cost, 113,000 shares as of
December 31, 2010 and September 30, 2010
    
    
    (306,000
    )
    
    
    (306,000
    )Total Shareholders Equity
    
    
    3.989,000
    
    
    
    3,349,000Total Liabilities and Shareholders Equity
    
    $
    5,201,000
    
    
    $
    4,453,000
 See notes to unaudited condensed consolidated financial statements .
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months endedDecember 31,2010
    
    
    2009Rounded in thousands, except per share amounts
    
    (unaudited)Revenues
    
    $
    3,548,000
    
    
    $
    1,255,000Cost of goods sold
    
    
    1,879,000
    
    
    
    671,000Gross profit
    
    
    1,669,000
    
    
    
    584,000Selling, general and administrative
    
    
    651,000
    
    
    
    794,000Research and development
    
    
    163,000
    
    
    
    195,000Income (loss) from operations
    
    
    855,000
    
    
    
    (405,000
    )Other income/(expense):Gain on derivative revaluation
    
    
    
    
    
    
    38,000Interest income
    
    
    1,000
    
    
    
    2,000Interest (expense)
    
    
    (38,000
    )
    
    
    (38,000
    )Income (loss) before provision for income taxes
    
    
    818,000
    
    
    
    (403,000
    )Income tax provision
    
    
    76,000
    
    
    
    2,000Net income (loss)
    
    $
    742,000
    
    
    $
    (405,000
    )Net income (loss) per share:Basic and fully-diluted
    
    $
    0.03
    
    
    $
    (0.02
    )Weighted average shares outstanding:Basic and fully-diluted
    
    
    25,365,000
    
    
    
    20,816,000
 See notes to unaudited condensed consolidated financial statements .
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedDecember 31,2010
    
    
    2009Rounded in thousands
    
    (unaudited)Cash flows from operating activities:Net income(loss)
    
    $
    742,000
    
    
    $
    (405,000
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation
    
    
    8,000
    
    
    
    13,000Provision for bad debts
    
    
    
    
    
    
    (5,000
    )Non-cash compensation to employees and directors
    
    
    
    
    
    
    32,000Non-cash compensation for warrants issued
    
    
    4,000
    
    
    
    72,000Non-cash compensation to consultants
    
    
    25,000
    
    
    
    18,000(Gain) on derivative revaluation
    
    
    
    
    
    
    (38,000
    )Amortization of debt discount
    
    
    21,000
    
    
    
    21,000Changes in operating assets and liabilities:Accounts receivable
    
    
    353,000
    
    
    
    1,023,000Inventories
    
    
    473,000
    
    
    
    (209,000
    )Other current assets
    
    
    (173,000
    )
    
    
    36,000Accounts payable
    
    
    62,000
    
    
    
    (204,000
    )Accrued expenses
    
    
    (32,000
    )
    
    
    (61,000
    )Accrued payroll and related taxes
    
    
    (19,000
    )
    
    
    (41,000
    )Accrued income taxes
    
    
    76,000
    
    
    
    Net cash provided by operating activities
    
    
    1,540,000
    
    
    
    252,000Cash flows from financing activities:Proceeds from sale of common stock
    
    
    
    
    
    
    288,000Purchase of common stock
    
    
    (106,000
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (106,000
    )
    
    
    288,000Net increase in cash
    
    
    1,434,000
    
    
    
    540,000Cash, beginning of period
    
    
    705,000
    
    
    
    126,000Cash, end of period
    
    $
    2,139,000
    
    
    $
    666,000Supplemental cash flow information:Cash paid during the period for income taxes
    
    $
    
    
    
    $
    Cash paid during the period for interest
    
    $
    17,000
    
    
    $
    17,000Supplemental schedule of non-cash financing activities:The 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
 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
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3. EARNINGS (LOSS) PER SHARE
   4. INVENTORIES
  December 31,
    
    
    September 30,2010
    
    
    2010(unaudited)Raw materials
    
    $
    1,100,000
    
    
    $
    1,285,000Work in process
    
    
    250,000
    
    
    
    250,000Finished goods
    
    
    143,000
    
    
    
    431,000$
    1,493,000
    
    
    $
    1,966,000
 5. USE OF ESTIMATES
  6. STOCK BASED COMPENSATION
 Stock Options
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For the Three MonthsEnded December 31,2010
    
    
    2009Risk-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
    
    
    (28,000
    )
    
    $
    1.83Outstanding at December 31, 2010
    
    
    1,785,000
    
    
    $
    0.74
    
    
    
    3.86
    
    
    $
    Exercisable at December 31, 2010
    
    
    885,000
    
    
    $
    0.83
    
    
    
    3.04
    
    
    $
    
    *
 
 *
    
    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 $0.44 at December 31, 2010.
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Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNon-vested at October 1, 2010
    
    
    900,000
    
    
    $
    0.20Granted
    
    
    
    
    
    
    Forfeited or Expired
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Non-vested at December 31, 2010
    
    
    900,000
    
    
    $
    0.20
   Stock warrants 
   Common stock 
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7. INCOME TAXES
    8. FAIR VALUE OF FINANCIAL INSTRUMENTS
  9. COMMITMENTS AND CONTINGENCIES
 Litigation
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10. GOODWILL
  11. DERIVATIVE LIABILITY
  12. SUBSEQUENT EVENTS
  nd
 
 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 December 31, 2010 compared to the three-months ended December 31, 2009
  Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Research & Development:
 Other Income (Expense):
  Net Income (Loss):
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Liquidity and Capital Resources
     12




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ITEM 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4.
    
    Controls and Procedures
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PART II. OTHER INFORMATION
 
 ITEM 6.
    
    Exhibits
 ExhibitNumber
    
    Description10.1
    
    
    Amendment to Employment Agreement, dated December 16, 2010,
between Alan Magerman and Xenonics Holdings, Inc.10.2
    
    
    Amendment to Employment Agreement, dated December 16, 2010,
between Jeffrey Kennedy and Xenonics Holdings, Inc.31.1
    
    
    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:  February 9, 2011
    By:
    /s/ Alan P. MagermanAlan P. MagermanChairman of the Board
Chief Executive OfficerDate:  February 9, 2011
    By:
    /s/ Richard S. KayRichard S. KayChief Financial Officer  15