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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, 2009
 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
    
    92010(Address of principal executive offices)
    
    (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
 Yes o No þ




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TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2009 (unaudited) and September 30, 2008
    
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months ended March 31, 2009 and 2008 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months ended March 31, 2009 and 2008 (unaudited)
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4T. Controls and Procedures
    
    
    15PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    16Item 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    16SIGNATURE PAGE
    
    
    17Exhibit 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,Rounded in thousands, except par value
    
    2009
    
    
    2008(unaudited)AssetsCurrent Assets:Cash
    
    $
    594,000
    
    
    $
    325,000Accounts receivable, net
    
    
    791,000
    
    
    
    954,000Inventories
    
    
    1,927,000
    
    
    
    1,745,000Other current assets
    
    
    230,000
    
    
    
    375,000Investments in marketable securities (Note 3)
    
    
    1,000,000
    
    
    
    Total Current Assets
    
    
    4,542,000
    
    
    
    3,399,000Investments in marketable securities (Note 3)
    
    
    
    
    
    
    1,000,000Equipment, furniture and fixtures at cost, less accumulated
depreciation of $190,000 and $162,000
    
    
    164,000
    
    
    
    161,000Goodwill
    
    
    375,000
    
    
    
    Total Assets
    
    $
    5,081,000
    
    
    $
    4,560,000Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    968,000
    
    
    $
    539,000Accrued expenses
    
    
    209,000
    
    
    
    94,000Accrued payroll and related taxes
    
    
    176,000
    
    
    
    173,000Bank note payable (Note 3)
    
    
    1,000,000
    
    
    
    Total Current Liabilities
    
    
    2,353,000
    
    
    
    806,000Commitments and contingencies (Note 10)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, 2009 and
September 30, 2008; 20,572,000 shares issued as of March 31, 2009 and 20,296,000 as of September
30, 2008; 20,459,000 shares outstanding as of March 31, 2009 and 20,184,000 as of September 30,
2008
    
    
    20,000
    
    
    
    20,000Additional paid-in capital
    
    
    24,275,000
    
    
    
    23,744,000Accumulated deficit
    
    
    (21,261,000
    )
    
    
    (19,704,000
    )3,034,000
    
    
    
    4,060,000Less treasury stock, at cost, 113,000 shares as of March 31, 2009 and September 30, 2008
    
    
    (306,000
    )
    
    
    (306,000
    )Total Shareholders Equity
    
    
    2,728,000
    
    
    
    3,754,000Total Liabilities and Shareholders Equity
    
    $
    5,081,000
    
    
    $
    4,560,000
 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,Rounded in thousands, except per share amounts
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited)
    
    
    (unaudited)Revenues
    
    $
    2,802,000
    
    
    $
    3,622,000
    
    
    $
    3,156,000
    
    
    $
    7,182,000Cost of goods sold
    
    
    1,582,000
    
    
    
    1,944,000
    
    
    
    1,776,000
    
    
    
    3,750,000Gross profit
    
    
    1,220,000
    
    
    
    1,678,000
    
    
    
    1,380,000
    
    
    
    3,432,000Selling, general and administrative
    
    
    1,371,000
    
    
    
    1,270,000
    
    
    
    2,580,000
    
    
    
    2,586,000Research and development
    
    
    154,000
    
    
    
    203,000
    
    
    
    343,000
    
    
    
    341,000Income (loss) from operations
    
    
    (305,000
    )
    
    
    205,000
    
    
    
    (1,543,000
    )
    
    
    505,000Other
income/(expense):Gain (loss) on derivative revaluation
    
    
    44,000
    
    
    
    
    
    
    
    (19,000
    )
    
    
    Other income
    
    
    4,000
    
    
    
    
    
    
    
    4,000
    
    
    
    Interest income
    
    
    1,000
    
    
    
    18,000
    
    
    
    10,000
    
    
    
    31,000Interest (expense)
    
    
    (5,000
    )
    
    
    
    
    
    
    (7,000
    )
    
    
    Income (loss) before provision for income taxes
    
    
    (261,000
    )
    
    
    223,000
    
    
    
    (1,555,000
    )
    
    
    536,000Income tax provision
    
    
    
    
    
    
    1,000
    
    
    
    2,000
    
    
    
    2,000Net income (loss)
    
    $
    (261,000
    )
    
    $
    222,000
    
    
    $
    (1,557,000
    )
    
    $
    534,000Net income (loss) per share:Basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    0.03Fully-diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    0.03Weighted average shares outstanding:Basic
    
    
    20,246,000
    
    
    
    19,869,000
    
    
    
    20,405,000
    
    
    
    19,896,000Fully-diluted
    
    
    20,246,000
    
    
    
    20,932,000
    
    
    
    20,405,000
    
    
    
    20,904,000
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months endedMarch 31,Rounded in thousands
    
    2009
    
    
    2008(unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    (1,557,000
    )
    
    $
    534,000Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    28,000
    
    
    
    27,000Provision for bad debts
    
    
    (6,000
    )
    
    
    (21,000
    )Non-cash compensation to employees and directors
    
    
    238,000
    
    
    
    166,000Non-cash compensation to consultants
    
    
    79,000
    
    
    
    2,000Loss on derivative revaluation
    
    
    19,000
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    169,000
    
    
    
    (3,187,000
    )Inventories
    
    
    (182,000
    )
    
    
    916,000Other current assets
    
    
    144,000
    
    
    
    12,000Accounts payable
    
    
    429,000
    
    
    
    214,000Accrued expenses
    
    
    (65,000
    )
    
    
    11,000Accrued payroll and related taxes
    
    
    3,000
    
    
    
    27,000Net cash (used in) operating activities
    
    
    (701,000
    )
    
    
    (1,299,000
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    (30,000
    )
    
    
    Purchases of investments in marketable securities
    
    
    
    
    
    
    (1,000,000
    )Net cash (used in) investing activities
    
    
    (30,000
    )
    
    
    (1,000,000
    )Cash flows from financing activities:Proceeds from bank note payable
    
    
    1,000,000
    
    
    
    Proceeds in connection with the exercise of warrants
    
    
    
    
    
    
    60,000Net cash provided by financing activities
    
    
    1,000,000
    
    
    
    60,000Net increase (decrease) in cash
    
    
    269,000
    
    
    
    (2,239,000
    )Cash, beginning of period
    
    
    325,000
    
    
    
    2,388,000Cash, end of period
    
    $
    594,000
    
    
    $
    149,000Supplemental cash flow information:Cash paid during the period for income taxes
    
    $
    2,000
    
    
    $
    2,000Cash paid during the period for interest
    
    $
    7,000
    
    
    $
    Supplemental schedule of non-cash financing activities:The Company repurchased 125,000 shares of the
non-controlling interest in a subsidiary through the issuance of 275,000 shares
of common stock worth $214,000 and recording an initial accrual of $161,000
(Note 10)
    
    $
    375,000
    
    
    $
    
 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:
 Fair Value Measurements
  The Fair Value Option for Financial Assets and
Financial Assets and Liabilities including an Amendment of FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities,
  4




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Recently Issued:
      5




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3. ACCOUNTING POLICY FOR INVESTMENTS IN MARKETABLE SECURITIES
  Investments in marketable
securities Investments in marketable securities
  4. EARNINGS (LOSS) PER SHARE
   6




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Three Months Ended
    
    
    Six Months EndedMarch 31, 2008
    
    
    March 31, 2008Numerator: Net income (loss)
    
    $
    222,000
    
    
    $
    534,000Denominator:Denominator for basic
earnings per share -
weighted average shares
    
    
    19,869,000
    
    
    
    19,896,000Effect of dilutive securities:Employee stock options
    
    
    1,063,000
    
    
    
    1,008,000Denominator for diluted
earnings per share  adjusted
weighted average shares and
assumed conversion
    
    
    20,932,000
    
    
    
    20,904,000Basic earnings per share
    
    $
    0.01
    
    
    $
    0.03Diluted earnings per share
    
    $
    0.01
    
    
    $
    0.03
 5. INVENTORIES
  March 31,
    
    
    September 30,2009
    
    
    2008(unaudited)Raw materials
    
    $
    1,357,000
    
    
    $
    1,371,000Work in process
    
    
    137,000
    
    
    
    149,000Finished goods
    
    
    433,000
    
    
    
    225,000$
    1,927,000
    
    
    $
    1,745,000
 6. USE OF ESTIMATES
  7. STOCK BASED COMPENSATION
 Stock Options Accounting for
Stock-Based Compensation,
  7




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For the Six MonthsEnded March 31,2009
    
    2008Risk-free interest rate
    
    1.47 %  2.37%
    
    4.16%Expected life (in years)
    
    4
    
    4Dividend yield
    
    0.0%
    
    0.0%Expected volatility
    
    101%  103%
    
    105%Weighted-average volatility
    
    103%
    
    105%
   WeightedWeighted
    
    
    AverageStock
    
    
    Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term (Years)
    
    
    Intrinsic Value *Outstanding at October 1, 2008
    
    
    1,443,000
    
    
    $
    2.77
    
    
    
    2.74Granted
    
    
    1,490,000
    
    
    $
    0.68
    
    
    
    4.18Exercised
    
    
    
    
    
    
    Forfeited, Expired or Cancelled
    
    
    (700,000
    )
    
    $
    2.82Outstanding at March 31, 2009
    
    
    2,233,000
    
    
    $
    1.36
    
    
    
    3.95
    
    
    $
    55,000Exercisable at March 31, 2009
    
    
    1,308,000
    
    
    $
    1.82
    
    
    
    3.39
    
    
    $
    28,000
    *
 
 *
    
    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 $0.71
at March 31, 2009.  8




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Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNon-vested at October 1, 2008
    
    
    45,000
    
    
    $
    1.27Granted
    
    
    1,490,000
    
    
    $
    0.42Forfeited or Expired
    
    
    (134,000
    )
    
    $
    1.76Vested
    
    
    (476,000
    )
    
    $
    0.48Non-vested at March 31, 2009
    
    
    925,000
    
    
    $
    0.47
     Stock warrants 
      9




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8. INCOME TAXES
  Accounting for Income Taxes,
 9. FAIR VALUE OF MEASUREMENTS
        10




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March 31, 2009 (unaudited)Portion ofCarrying ValueMeasured at FairItems measured at fair value on a recurring basis
    
    Value
    
    
    Level 1Cash equivalents: Money Market funds
    
    $
    594,000
    
    
    $
    594,000Investment: Auction Rate Securities (Note 3)
    
    
    1,000,000
    
    
    
    1,000,000$
    1,594,000
    
    
    $
    1,594,000
 10. COMMITMENTS AND CONTINGENCIES
 Litigation
  11. GOODWILL
   11




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12. DERIVATIVE LIABILITY
 Accounting for Derivative Instruments and Hedging Activities
  12




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ITEM 2.
    Managements Discussion and Analysis of Financial Condition and Results of
Operations (rounded in thousands)
  Forward-Looking Statements
  Results of Operations
 Three-months ended March 31, 2009 compared to the three-months ended March 31, 2008
  Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
  13




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Research & Development:
 Other Income (Expense):
 Net Income (Loss):
 Six months ended March 31, 2009 compared to the six months ended March 31, 2008
 Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Research & Development:
 Net Income (Loss):
  14




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Liquidity and Capital Resources
   
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4T. Controls and Procedures
    15




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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
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act32.2
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act
  16




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SIGNATURES
  XENONICS HOLDINGS, INC.Date: May 13, 2009
    
    By:
    
    /s/ Alan P. Magerman

Alan P. MagermanChairman of the Executive CommitteeChief Executive OfficerDate: May 13, 2009
    
    By:
    
    /s/ Richard S. Kay

Richard S. KayChief Financial Officer
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EXHIBIT INDEX
 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
    
    
    Certification pursuant to Section 906
of the Sarbanes-Oxley Act32.2
    
    
    Certification pursuant to Section 906 of the
Sarbanes-Oxley Act