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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, 2006
 For the quarterly period ended March 31, 2006
 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
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)2236 Rutherford Road, Suite 123
Carlsbad, 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, 2006 (unaudited)
and September 30, 2005
    
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months
ended March 31, 2006 and 2005 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months
ended March 31, 2006 and 2005 (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 4. Submission of Matters to a Vote of Security Holders
    
    
    15Item 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    16SIGNATURE PAGE
    
    
    17Exhibit 31.1Exhibit 31.2Exhibit 32.1
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PART
I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    September 30,2006
    
    2005in thousands, except per share amounts
    
    (unaudited)AssetsCurrent assets:Cash
    
    $
    264
    
    
    $
    890Accounts receivable, net of allowance for doubtful accounts of $0
    
    
    216
    
    
    
    213Inventories, net
    
    
    897
    
    
    
    1,206Other current assets
    
    
    80
    
    
    
    82Total Current Assets
    
    
    1,457
    
    
    
    2,391Equipment, furniture and fixtures at cost, less accumulated
depreciation of $77 and $70
    
    
    48
    
    
    
    50Other non-current assets
    
    
    25
    
    
    
    25Total Assets
    
    $
    1,530
    
    
    $
    2,466Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued expense
    
    $
    609
    
    
    $
    608Accrued consulting fees
    
    
    366
    
    
    
    Accrued payroll and related taxes
    
    
    102
    
    
    
    86Other current liabilities
    
    
    8
    
    
    
    6Total Current Liabilities
    
    
    1,085
    
    
    
    700Commitments and contingencies (Note 14)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 as of
March 31, 2006 and September 30, 2005, respectively; 15,686
shares issued and 15,573 outstanding as of March 31, 2006 and
September 30, 2005, respectively
    
    
    16
    
    
    
    16Additional paid-in capital
    
    
    14,828
    
    
    
    14,541Accumulated deficit
    
    
    (14,093
    )
    
    
    (12,485
    )751
    
    
    
    2,072Less treasury stock, at cost, 113 shares as of March 31, 2006 and
September 30, 2005
    
    
    (306
    )
    
    
    (306
    )Total Shareholders Equity
    
    
    445
    
    
    
    1,766Total Liabilities and Shareholders Equity
    
    $
    1,530
    
    
    $
    2,466
 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 31,2006
    
    2005
    
    2006
    
    2005in thousands, except per share amounts
    
    (unaudited)
    
    (unaudited)Revenues
    
    $
    718
    
    
    $
    80
    
    
    $
    1,638
    
    
    $
    830Cost of goods sold
    
    
    408
    
    
    
    61
    
    
    
    953
    
    
    
    486Gross profit
    
    
    310
    
    
    
    19
    
    
    
    685
    
    
    
    344Selling, general and administrative
    
    
    915
    
    
    
    1,091
    
    
    
    2,060
    
    
    
    1,972Engineering, research and development
    
    
    72
    
    
    
    118
    
    
    
    231
    
    
    
    224Loss from operations
    
    
    (677
    )
    
    
    (1,190
    )
    
    
    (1,606
    )
    
    
    (1,852
    )Other income/(expense), net:Interest income
    
    
    2
    
    
    
    6
    
    
    
    5
    
    
    
    13Interest expense
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )Other expense
    
    
    (3
    )
    
    
    1
    
    
    
    (3
    )
    
    
    1Loss before provision for income taxes
    
    
    (680
    )
    
    
    (1,184
    )
    
    
    (1,606
    )
    
    
    (1,839
    )Income tax provision
    
    
    2
    
    
    
    230
    
    
    
    2
    
    
    
    Net loss before minority interest
    
    
    (682
    )
    
    $
    (1,414
    )
    
    
    (1,608
    )
    
    $
    (1,839
    )Minority interest
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Net loss
    
    $
    (682
    )
    
    $
    (1,404
    )
    
    $
    (1,608
    )
    
    $
    (1,829
    )Net loss per share:Basic and diluted
    
    
    (.04
    )
    
    
    (.10
    )
    
    
    (.10
    )
    
    
    (.13
    )Weighted average shares outstandingBasic and diluted
    
    
    15,573
    
    
    
    14,793
    
    
    
    15,573
    
    
    
    14,519
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
 Six months endedMarch 31,2006
    
    2005in thousands
    
    (unaudited)Cash flows from operating activities:Net loss
    
    $
    (1,608
    )
    
    $
    (1,829
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    7
    
    
    
    6Compensation to employees and directors paid with stock
options
    
    
    287
    
    
    
    162Minority interest in net loss of subsidiary
    
    
    
    
    
    
    (10
    )Compensation
to consultant  stock issuance subject to
performance
    
    
    366
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (3
    )
    
    
    247Inventories, net
    
    
    309
    
    
    
    (3,126
    )Other assets
    
    
    2
    
    
    
    45Accounts payable and accrued expense
    
    
    1
    
    
    
    555Accrued payroll and related taxes
    
    
    16
    
    
    
    24Other liabilities
    
    
    2
    
    
    
    4Net cash used in operating activities
    
    
    (621
    )
    
    
    (3,922
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    (5
    )
    
    
    (16
    )Net cash used in investing activities
    
    
    (5
    )
    
    
    (16
    )Cash flows from financing activities:Net proceeds from issuance of common stock net of expenses
    
    
    
    
    
    
    2,179Proceeds in connection with the exercise of options and
warrants
    
    
    
    
    
    
    144Proceeds in connection with the exercise of warrants in
subsidiary
    
    
    
    
    
    
    34Net cash provided by financing activities
    
    
    
    
    
    
    2,357Net decrease in cash
    
    
    (626
    )
    
    
    (1,581
    )Cash, beginning of period
    
    
    890
    
    
    
    3,269Cash, end of period
    
    $
    264
    
    
    $
    1,688Supplemental cash flow information:Cash paid during the year for income taxes
    
    $
    2
    
    
    $
    Cash paid during the year for interest
    
    $
    1
    
    
    $
    1Noncash transactions:Conversion of accrued royalties to common stock
    
    $
    
    
    
    $
    400
 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,Inventories were comprised of :
    
    2006
    
    2005(unaudited)Raw materials
    
    $
    54
    
    
    $
    107Work in process
    
    
    75
    
    
    
    247Finished goods
    
    
    2,733
    
    
    
    2,816Reserve for obsolescence
    
    
    (1,965
    )
    
    
    (1,964
    )$
    897
    
    
    $
    1,206
  5. NEW ACCOUNTING PRONOUNCEMENTS
   6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 The components of accounts payable and accrued expenses
    
    March 31,
    
    September 30,consist of the following:
    
    2006
    
    2005Accounts payable
    
    $
    438
    
    
    $
    409Accrued expenses
    
    
    171
    
    
    
    199$
    609
    
    
    $
    608
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7. ACCRUED ROYALTIES
   8. SHAREHOLDERS EQUITY
   9. ACCRUED CONSULTING FEES
     .
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10. USE OF ESTIMATES
  11. STOCK BASED COMPENSATION
 Stock Options Accounting for Stock-Based
Compensation
       12. STOCK WARRANTS
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13. MINORITY INTEREST
  14. CONTINGENCIES AND OTHER MATTERS
      15. 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, 2006 compared to the three-months ended March 31, 2005
 Revenues:
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Cost of Goods and Gross Profit:
 Selling, General and Administrative:
 Engineering, Research & Development:
 Net
Loss:
 Six-months ended March 31, 2006 compared to the six-months ended March 31, 2005
 Revenues:
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Cost of Goods and Gross Profit:
 Selling, General and Administrative:
 Engineering, Research & Development:
 Net
Loss:
 Liquidity and Capital Resources
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ITEM 3. CONTROLS AND PROCEDURES
    14




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
    
 ITEM 4. Submission of Matters to a Vote of Security Holders
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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 Executive 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.By:
    
    /s/ Richard J. NaughtonDate: May 11, 2006
    
    
    
    Richard J. NaughtonChief Executive OfficerBy:
    
    /s/ Donna G. LeeDate: May 11, 2006
    
    
    
    Donna G. LeeChief Financial Officer
 17