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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-QSB
 
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-50775
 XENONICS HOLDINGS, INC.
  
 Nevada
    
    84-1433854(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 2236 Rutherford Road, Suite 123Carlsbad, California
    
    92008-7297(Address of principal executive offices)
    
    (Zip Code)
 (760) 438-4004
 þ o
 o þ
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TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2007 (unaudited)
and September 30, 2006
    
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months
ended March 31, 2007 and 2006 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months
ended March 31, 2007 and 2006 (unaudited)
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    10Item 3. Controls and Procedures
    
    
    14PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    15Item 5. Other Information
    
    
    15Item 6. Exhibits
    
    
    15SIGNATURE PAGE
    
    
    16EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    September 30,2007
    
    2006in thousands, except per share amounts
    
    (unaudited)AssetsCurrent assets:Cash
    
    $
    3,369
    
    
    $
    99Accounts receivable, net of allowance for doubtful accounts of $0
    
    
    353
    
    
    
    2,194Inventories, net
    
    
    2,072
    
    
    
    605Other current assets
    
    
    311
    
    
    
    96Total Current Assets
    
    
    6,105
    
    
    
    2,994Equipment, furniture and fixtures at cost, less accumulated
depreciation of $81 and $83
    
    
    233
    
    
    
    46Other non-current assets
    
    
    25
    
    
    
    25Total Assets
    
    $
    6,363
    
    
    $
    3,065Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued expense
    
    $
    901
    
    
    $
    561Accrued payroll and related taxes
    
    
    117
    
    
    
    96Other current liabilities
    
    
    6
    
    
    
    8Total Current Liabilities
    
    
    1,024
    
    
    
    665Commitments and contingencies (Note 13)Shareholders equity:Preferred shares, $0.001 par value, 5,000 shares authorized, 0
shares issued and outstanding
    
    
    
    
    
    
    Common
shares, $0.001 par value, 50,000 shares authorized;
 18,627 and 16,904 shares
issued as of March 31, 2007 and September 30, 2006,
respectively; 18,514 and 16,791 shares outstanding as of March
31, 2007 and September 30, 2006, respectively
    
    
    18
    
    
    
    17Additional paid-in capital
    
    
    20,182
    
    
    
    17,312Accumulated deficit
    
    
    (14,555
    )
    
    
    (13,973
    )5,645
    
    
    
    3,356Less treasury stock, at cost, 113 shares as of March 31, 2007 and
September 30, 2006
    
    
    (306
    )
    
    
    (306
    )Less subscription receivable
    
    
    
    
    
    
    (650
    )Total Shareholders Equity
    
    
    5,339
    
    
    
    2,400Total Liabilities and Shareholders Equity
    
    $
    6,363
    
    
    $
    3,065
 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 31,2007
    
    2006
    
    2007
    
    2006in thousands, except per share amounts
    
    (unaudited)
    
    
    (unaudited)Revenues
    
    $
    1,646
    
    
    $
    718
    
    
    $
    2,562
    
    
    $
    1,638Cost of goods sold
    
    
    339
    
    
    
    408
    
    
    
    541
    
    
    
    953Gross profit
    
    
    1,307
    
    
    
    310
    
    
    
    2,021
    
    
    
    685Selling, general and administrative
    
    
    1,352
    
    
    
    915
    
    
    
    2,326
    
    
    
    2,060Engineering, research and development
    
    
    152
    
    
    
    72
    
    
    
    310
    
    
    
    231Loss from operations
    
    
    (197
    )
    
    
    (677
    )
    
    
    (615
    )
    
    
    (1,606
    )Other income/(expense), net:Interest income
    
    
    22
    
    
    
    2
    
    
    
    36
    
    
    
    5Interest expense
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )Other expense
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Loss before provision for income taxes
    
    
    (175
    )
    
    
    (680
    )
    
    
    (580
    )
    
    
    (1,606
    )Income tax provision
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Net loss before minority interest
    
    
    (177
    )
    
    
    (682
    )
    
    
    (582
    )
    
    
    (1,608
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (177
    )
    
    $
    (682
    )
    
    $
    (582
    )
    
    $
    (1,608
    )Net loss per share:Basic and diluted
    
    
    (.01
    )
    
    
    (.04
    )
    
    
    (.03
    )
    
    
    (.10
    )Weighted average shares outstandingBasic and diluted
    
    
    17,906
    
    
    
    15,573
    
    
    
    17,385
    
    
    
    15,573
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
 Six months endedMarch 31,2007
    
    2006in thousands
    
    (unaudited)Cash flows from operating activities:Net loss
    
    $
    (582
    )
    
    $
    (1,608
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    12
    
    
    
    7Compensation to employees and directors paid with stock
options
    
    
    408
    
    
    
    287Compensation to consultant paid with warrants
    
    
    41
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    1,841
    
    
    
    (3
    )Inventories, net
    
    
    (1,467
    )
    
    
    309Other current assets
    
    
    (215
    )
    
    
    2Accounts payable and accrued expense
    
    
    340
    
    
    
    1Accrued payroll and related taxes
    
    
    21
    
    
    
    16Other current liabilities
    
    
    (2
    )
    
    
    2Net cash provided by (used in) operating activities
    
    
    397
    
    
    
    (621
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    (199
    )
    
    
    (5
    )Net cash used in investing activities
    
    
    (199
    )
    
    
    (5
    )Cash flows from financing activities:Net proceeds from issuance of common stock net of expenses
    
    
    1,975
    
    
    
    Proceeds in connection with the exercise of warrants
    
    
    446
    
    
    
    Proceeds in connection with the stock subscription
    
    
    650
    
    
    
    Net cash provided by financing activities
    
    
    3,071
    
    
    
    Net increase (decrease) in cash
    
    
    3,270
    
    
    
    (626
    )Cash, beginning of period
    
    
    99
    
    
    
    890Cash, end of period
    
    $
    3,369
    
    
    $
    264Supplemental cash flow information:Cash paid during the year for income taxes
    
    $
    2
    
    
    $
    2Cash paid during the year for interest
    
    $
    1
    
    
    $
    1
 See notes to unaudited condensed consolidated financial statements.
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NOTES TO UNUADITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (in thousands, except for per share amounts)
 1.
    
    BASIS OF PRESENTATION
    2.
    
    REVENUE RECOGNITION
  3.
    
    LOSS PER SHARE
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4.
    
    INVENTORIES
  March 31,
    
    
    September 30,2007
    
    
    2006(unaudited)Raw materials
    
    $
    676
    
    
    $
    145Work in process
    
    
    445
    
    
    
    301Finished goods
    
    
    1,083
    
    
    
    1,330Supplies
    
    
    8
    
    
    
    Reserve for obsolescence
    
    
    (140
    )
    
    
    (1,171
    )$
    2,072
    
    
    $
    605
 5.
    
    ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  March 31,
    
    
    September 30,2007
    
    
    2006Accounts payable
    
    $
    768
    
    
    $
    436Accrued expenses
    
    
    133
    
    
    
    125$
    901
    
    
    $
    561
 6.
    
    SHAREHOLDERS EQUITY
  7.
    
    USE OF ESTIMATES
  8.
    
    STOCK BASED COMPENSATION
 Stock Options Accounting for Stock-Based Compensation,
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For the Six MonthsEnded March 31,2007
    
    
    2006Risk-free interest rate
    
    
    4.60%  4.77
    %
    
    
    4.37%  4.43
    %Expected life (in years)
    
    
    4
    
    
    
    3Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    99%  111
    %
    
    
    103
    %Weighted-average volatility
    
    
    101
    %
    
    
    103
    %
   WeightedWeighted
    
    
    Average
    
    
    TotalStock
    
    
    Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic ValueOutstanding at October 1, 2006
    
    
    1,726
    
    
    
    2.501
    
    
    
    4.17Granted
    
    
    125
    
    
    
    1.684
    
    
    
    4.63Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited or Expired
    
    
    (17
    )
    
    
    1.600
    
    
    
    Outstanding at March 31, 2007
    
    
    1,834
    
    
    
    2.454
    
    
    
    3.73
    
    
    
    896
*Exercisable at March 31, 2007
    
    
    1,215
    
    
    
    2.151
    
    
    
    4.03
    
    
    
    836
    *
 
 *
    
    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
$2.11 at March 31, 2007.   7




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Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNonvested at October 1, 2006
    
    
    744
    
    
    
    1.214Granted
    
    
    125
    
    
    
    1.204Forfeited or Expired
    
    
    (17
    )
    
    
    1.040Vested
    
    
    (233
    )
    
    
    1.403Nonvested at March 31, 2007
    
    
    619
    
    
    
    1.146
   Stock warrants 
   9.
    
    MINORITY INTEREST
  8




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10.
    
    CONTINGENCIES AND OTHER MATTERS
   11.
    
    SUBSEQUENT EVENTS
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  Results of Operations
 Three-months ended March 31, 2007 compared to the three-months ended March 31, 2006
 Revenues:
      10




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Cost of Goods and Gross Profit:
 Selling, General and Administrative:
 Engineering, Research & Development:
 Net Income (Loss):
 Six-months ended March 31, 2007 compared to the six-months ended March 31, 2006
 Revenues:
     11




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Cost of Goods and Gross Profit:
 Selling, General and Administrative:
 Engineering, Research & Development:
 Net Loss:
 Liquidity and Capital Resources
   12




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ITEM 3. CONTROLS AND PROCEDURES
 )  , - , .
  14




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
 ExhibitNumber
    
    Description31.1
    
    Certification of the 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
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
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SIGNATURES
  XENONICS HOLDINGS, INC.Date: May 15, 2007
    
    By:
    
    /s/ RICHARD J. NAUGHTONRichard J. NaughtonChief Executive OfficerDate: May 15, 2007
    
    By:
    
    /s/ DONNA G. LEEDonna G. LeeChief Financial Officer
 16