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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 June 30, 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
(State or other jurisdiction of 
incorporation or organization)
    
    84-1433854
(I.R.S. Employer
Identification Number)2236 Rutherford Road, Suite 123
Carlsbad, California
(Address of principal executive offices)
    
    92008-7297
(Zip Code)
 (760) 448-9700
 þ o
 o þ
  o þ




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TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2007 (unaudited)
and September 30, 2006
    
    
    1Condensed Consolidated Statements of Operations for the Three and Nine Months
ended June 30, 2007 and 2006 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months
ended June 30, 2007 and 2006 (unaudited)
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Controls and Procedures
    
    
    12PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    13Item 5. Other Information
    
    
    13Item 6. Exhibits
    
    
    13SIGNATURE PAGE
    
    
    14EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    September 30,2007
    
    2006in thousands, except par value
    
    (unaudited)AssetsCurrent Assets:Cash
    
    $
    1,217
    
    
    $
    99Accounts receivable
    
    
    776
    
    
    
    2,194Inventories, net
    
    
    2,937
    
    
    
    605Other current assets
    
    
    506
    
    
    
    96Total Current Assets
    
    
    5,436
    
    
    
    2,994Equipment, furniture and fixtures at cost, less accumulated
depreciation of $95 and $83
    
    
    229
    
    
    
    46Other non-current assets
    
    
    9
    
    
    
    25Total Assets
    
    $
    5,674
    
    
    $
    3,065Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable and accrued expense
    
    $
    1,504
    
    
    $
    561Accrued payroll and related taxes
    
    
    154
    
    
    
    96Other current liabilities
    
    
    6
    
    
    
    8Total Current Liabilities
    
    
    1,664
    
    
    
    665Commitments and contingencies (Note 9)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 June
30, 2007 and September 30, 2006; 18,660 and 16,904 shares issued as
of June 30, 2007 and September 30, 2006, respectively; 18,547 and
16,791 shares outstanding as of June 30, 2007 and September 30, 2006,
respectively
    
    
    19
    
    
    
    17Additional paid-in capital
    
    
    21,110
    
    
    
    17,618Accumulated deficit
    
    
    (16,813
    )
    
    
    (14,279
    )4,316
    
    
    
    3,356Less treasury stock, at cost, 113 shares as of June 30, 2007 and
September 30, 2006
    
    
    (306
    )
    
    
    (306
    )Less subscription receivable
    
    
    
    
    
    
    (650
    )Total Shareholders Equity
    
    
    4,010
    
    
    
    2,400Total Liabilities and Shareholders Equity
    
    $
    5,674
    
    
    $
    3,065
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended
    
    Nine months endedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006in thousands, except per share amounts
    
    (unaudited)
    
    (unaudited)Revenues
    
    $
    1,023
    
    
    $
    855
    
    
    $
    3,585
    
    
    $
    2,493Cost of goods sold
    
    
    668
    
    
    
    522
    
    
    
    1,209
    
    
    
    1,475Gross profit
    
    
    355
    
    
    
    333
    
    
    
    2,376
    
    
    
    1,018Selling, general and administrative
    
    
    2,158
    
    
    
    827
    
    
    
    4,483
    
    
    
    2,888Engineering, research and development
    
    
    175
    
    
    
    149
    
    
    
    486
    
    
    
    380Loss from operations
    
    
    (1,978
    )
    
    
    (643
    )
    
    
    (2,593
    )
    
    
    (2,250
    )Other income/(expense), net:Interest income
    
    
    26
    
    
    
    11
    
    
    
    62
    
    
    
    16Interest expense
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Other expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Loss before provision for income taxes
    
    
    (1,952
    )
    
    
    (633
    )
    
    
    (2,532
    )
    
    
    (2,239
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Net loss
    
    $
    (1,952
    )
    
    $
    (633
    )
    
    $
    (2,534
    )
    
    $
    (2,241
    )Net loss per share:Basic and diluted
    
    $
    (.11
    )
    
    $
    (.04
    )
    
    $
    (.14
    )
    
    $
    (.14
    )Weighted average shares outstanding:Basic and diluted
    
    
    18,434
    
    
    
    16,391
    
    
    
    17,734
    
    
    
    15,845
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months endedJune 30,2007
    
    2006in thousands
    
    (unaudited)Cash flows from operating activities:Net loss
    
    $
    (2,534
    )
    
    $
    (2,241
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    25
    
    
    
    9Non-cash compensation to employees and directors
    
    
    972
    
    
    
    425Non-cash compensation to consultants
    
    
    48
    
    
    
    366Inventory reserves
    
    
    (1,158
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    1,418
    
    
    
    (122
    )Inventories
    
    
    (1,174
    )
    
    
    313Other current and non-current assets
    
    
    (394
    )
    
    
    (12
    )Accounts payable and accrued expense
    
    
    943
    
    
    
    (69
    )Accrued payroll and related taxes
    
    
    58
    
    
    
    38Other current liabilities
    
    
    (2
    )
    
    
    1Net cash used in operating activities
    
    
    (1,798
    )
    
    
    (1,292
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    (208
    )
    
    
    (9
    )Net cash used in investing activities
    
    
    (208
    )
    
    
    (9
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    1,975
    
    
    
    885Proceeds in connection with the exercise of options and warrants
    
    
    499
    
    
    
    20Proceeds in connection with stock subscription
    
    
    650
    
    
    
    Net cash provided by financing activities
    
    
    3,124
    
    
    
    905Net increase (decrease) in cash
    
    
    1,118
    
    
    
    (396
    )Cash, beginning of period
    
    
    99
    
    
    
    890Cash, end of period
    
    $
    1,217
    
    
    $
    494Supplemental cash flow information:Cash paid during the period for income taxes
    
    $
    2
    
    
    $
    2Cash paid during the period for interest
    
    $
    1
    
    
    $
    3Noncash transactions: Subscription receivable
    
    
    
    
    
    $
    650
 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
  4




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4. INVENTORIES
  June 30,
    
    September 30,2007
    
    2006(unaudited)Raw materials
    
    $
    816
    
    
    $
    145Work in process
    
    
    502
    
    
    
    301Finished goods
    
    
    1,632
    
    
    
    1,330Reserve for obsolescence
    
    
    (13
    )
    
    
    (1,171
    )$
    2,937
    
    
    $
    605
 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  June 30,
    
    September 30,2007
    
    2006(unaudited)Accounts payable
    
    $
    1,405
    
    
    $
    436Accrued expenses
    
    
    99
    
    
    
    125$
    1,504
    
    
    $
    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 Nine MonthsEnded June 30,2007
    
    2006Risk-free interest rate
    
    
    4.60% - 4.87%
    
    
    
    4.37% - 4.43%Expected life (in years)
    
    
    4
    
    
    
    3Dividend yield
    
    
    0.0%
    
    
    
    0.0%Expected volatility
    
    
    98% - 111%
    
    
    
    103%Weighted-average volatility
    
    
    104%
    
    
    
    103%
   WeightedWeighted
    
    
    AverageStock
    
    
    Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic Value *Outstanding at October 1, 2006
    
    
    1,726
    
    
    $
    2.50
    
    
    
    4.17Granted
    
    
    250
    
    
    $
    2.11
    
    
    
    4.64Exercised
    
    
    (33
    )
    
    $
    1.60
    
    
    
    Forfeited or Expired
    
    
    (249
    )
    
    $
    1.94
    
    
    
    Outstanding at June 30, 2007
    
    
    1,694
    
    
    $
    2.54
    
    
    
    3.64
    
    
    $
    1,227Exercisable at June 30, 2007
    
    
    1,437
    
    
    $
    2.41
    
    
    
    3.71
    
    
    $
    1,200
 
 *
    
    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
$2.65 at June 30, 2007. 6




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Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNon-vested at October
1, 2006
    
    
    744
    
    
    $
    1.21Granted
    
    
    250
    
    
    $
    1.55Forfeited or Expired
    
    
    (248
    )
    
    $
    0.22Vested
    
    
    (489
    )
    
    $
    1.62Non-vested at June 30, 2007
    
    
    257
    
    
    $
    1.72
    Stock warrants 
    7




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9. CONTINGENCIES AND OTHER MATTERS
  8




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ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations (in thousands)
  Forward-Looking Statements
  Results of Operations
 Three-months ended June 30, 2007 compared to the three-months ended June 30, 2006
 Revenues:
  Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 9




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Engineering, Research & Development:
 Net (Loss):
 Nine-months ended June 30, 2007 compared to the nine-months ended June 30, 2006
 Revenues:
  Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 10




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Engineering, Research & Development:
 Net Loss:
 Liquidity and Capital Resources
    11




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ITEM 3. CONTROLS AND PROCEDURES
 )  , - , .
  12




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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
 13




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SIGNATURES
  XENONICS HOLDINGS, INC.Date:  August 13, 2007
    By:
    /s/ Charles W. HunterCharles W. HunterChief Executive OfficerDate:  August 13, 2007
    By:
    /s/ Richard S. KayRichard S. KayChief Financial Officer 14