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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 June 30, 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
    
    92010Carlsbad, California
(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 June 30, 2009 (unaudited)
and September 30, 2008
    
    
    1Condensed Consolidated Statements of Operations for the Three and Nine Months
ended June 30, 2009 and 2008 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for
the Nine Months
ended June 30, 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
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4T. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 5. Other Information
    
    
    20Item 6. Exhibits
    
    
    20SIGNATURE PAGE
    
    
    21EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    September 30,Rounded in thousands, except par value
    
    2009
    
    
    2008(unaudited)AssetsCurrent Assets:Cash
    
    $
    514,000
    
    
    $
    325,000Accounts receivable, net
    
    
    1,228,000
    
    
    
    954,000Inventories
    
    
    1,971,000
    
    
    
    1,745,000Other current assets
    
    
    112,000
    
    
    
    375,000Total Current Assets
    
    
    3,825,000
    
    
    
    3,399,000Investments in marketable securities (Note 3)
    
    
    
    
    
    
    1,000,000Equipment, furniture and fixtures at cost, less accumulated
depreciation of $205,000 and $162,000
    
    
    154,000
    
    
    
    161,000Goodwill
    
    
    375,000
    
    
    
    Total Assets
    
    $
    4,354,000
    
    
    $
    4,560,000Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    1,350,000
    
    
    $
    539,000Accrued expenses
    
    
    344,000
    
    
    
    94,000Accrued payroll and related taxes
    
    
    208,000
    
    
    
    173,000Total Current Liabilities
    
    
    1,902,000
    
    
    
    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 June 30, 2009 and September 30,
2008; 20,572,000 shares issued as of June 30, 2009 and
20,296,000 as of September 30, 2008; 20,459,000 shares
outstanding as of June 30, 2009 and 20,184,000 as of
September 30, 2008
    
    
    20,000
    
    
    
    20,000Additional paid-in capital
    
    
    24,239,000
    
    
    
    23,744,000Accumulated deficit
    
    
    (21,501,000
    )
    
    
    (19,704,000
    )2,758,000
    
    
    
    4,060,000Less treasury stock, at cost, 113,000 shares as of June
30, 2009 and September 30, 2008
    
    
    (306,000
    )
    
    
    (306,000
    )Total Shareholders Equity
    
    
    2,452,000
    
    
    
    3,754,000Total Liabilities and Shareholders Equity
    
    $
    4,354,000
    
    
    $
    4,560,000
 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,Rounded in thousands, except per share amounts
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008(unaudited)
    
    
    (unaudited)Revenues
    
    $
    2,132,000
    
    
    $
    1,892,000
    
    
    $
    5,288,000
    
    
    $
    9,074,000Cost of goods sold
    
    
    1,142,000
    
    
    
    1,244,000
    
    
    
    2,918,000
    
    
    
    4,995,000Gross profit
    
    
    990,000
    
    
    
    648,000
    
    
    
    2,370,000
    
    
    
    4,079,000Selling, general and administrative
    
    
    1,049,000
    
    
    
    1,149,000
    
    
    
    3,629,000
    
    
    
    3,735,000Research and development
    
    
    158,000
    
    
    
    289,000
    
    
    
    501,000
    
    
    
    630,000Income (loss) from operations
    
    
    (217,000
    )
    
    
    (790,000
    )
    
    
    (1,760,000
    )
    
    
    (286,000
    )Other income/(expense):Gain (loss) on derivative revaluation
    
    
    (33,000
    )
    
    
    
    
    
    
    (52,000
    )
    
    
    Other income
    
    
    6,000
    
    
    
    
    
    
    
    10,000
    
    
    
    Interest income
    
    
    4,000
    
    
    
    7,000
    
    
    
    14,000
    
    
    
    39,000Interest (expense)
    
    
    
    
    
    
    
    
    
    
    (7,000
    )
    
    
    Income (loss) before provision for income taxes
    
    
    (240,000
    )
    
    
    (783,000
    )
    
    
    (1,795,000
    )
    
    
    (247,000
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    2,000Net income (loss)
    
    $
    (240,000
    )
    
    $
    (783,000
    )
    
    $
    (1,797,000
    )
    
    $
    (249,000
    )Net income (loss) per share:Basic
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    $
    (0.01
    )Fully-diluted
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    $
    (0.01
    )Weighted average shares outstanding:Basic
    
    
    20,459,000
    
    
    
    19,871,000
    
    
    
    20,387,000
    
    
    
    19,900,000Fully-diluted
    
    
    20,459,000
    
    
    
    19,871,000
    
    
    
    20,387,000
    
    
    
    19,900,000
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months endedJune 30,Rounded in thousands
    
    2009
    
    
    2008(unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    (1,797,000
    )
    
    $
    (249,000
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation
    
    
    43,000
    
    
    
    40,000Provision for bad debts
    
    
    (7,000
    )
    
    
    (42,000
    )Non-cash compensation to employees and directors
    
    
    251,000
    
    
    
    225,000Non-cash compensation to consultants
    
    
    30,000
    
    
    
    2,000Loss on derivative revaluation
    
    
    52,000
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (267,000
    )
    
    
    (931,000
    )Inventories
    
    
    (226,000
    )
    
    
    866,000Other current assets
    
    
    263,000
    
    
    
    (5,000
    )Accounts payable
    
    
    811,000
    
    
    
    (469,000
    )Accrued expenses
    
    
    37,000
    
    
    
    (100,000
    )Accrued payroll and related taxes
    
    
    35,000
    
    
    
    65,000Net cash (used in) operating activities
    
    
    (775,000
    )
    
    
    (598,000
    )Cash flows from investing activitiesPurchases of equipment, furniture and fixtures
    
    
    (36,000
    )
    
    
    Proceeds from and (purchases) of investments in marketable securities
    
    
    1,000,000
    
    
    
    (1,000,000
    )Net cash provided by (used in) investing activities
    
    
    964,000
    
    
    
    (1,000,000
    )Cash flows from financing activities:Proceeds from bank note payable
    
    
    1,000,000
    
    
    
    Repayment of bank note payable
    
    
    (1,000,000
    )
    
    
    Proceeds in connection with the exercise of warrants
    
    
    
    
    
    
    70,000Net cash provided by financing activities
    
    
    
    
    
    
    70,000Net increase (decrease) in cash
    
    
    189,000
    
    
    
    (1,528,000
    )Cash, beginning of period
    
    
    325,000
    
    
    
    2,388,000Cash, end of period
    
    $
    514,000
    
    
    $
    860,000Supplemental 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
    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
     9




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5. INVENTORIES
  June 30,
    
    
    September 30,2009
    
    
    2008(unaudited)Raw materials
    
    $
    1,182,000
    
    
    $
    1,371,000Work in process
    
    
    120,000
    
    
    
    149,000Finished goods
    
    
    669,000
    
    
    
    225,000$
    1,971,000
    
    
    $
    1,745,000
 6. USE OF ESTIMATES
  7. STOCK BASED COMPENSATION
 Stock Options  Accounting for Stock-Based Compensation,
    For the Nine Months EndedJune 30,2009
    
    2008Risk-free interest rate
    
    1.47%  2.37%
    
    3.02%  4.16%Expected life (in years)
    
    4
    
    4Dividend yield
    
    0.0%
    
    0.0%Expected volatility
    
    101%  103%
    
    100%  105%Weighted-average volatility
    
    103%
    
    102%
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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
    
    
    
    3.93Exercised
    
    
    
    
    
    
    Forfeited, Expired or Cancelled
    
    
    (700,000
    )
    
    $
    2.82Outstanding at June 30, 2009
    
    
    2,233,000
    
    
    $
    1.36
    
    
    
    3.70
    
    
    $
    -0-Exercisable at June 30, 2009
    
    
    1,333,000
    
    
    $
    1.82
    
    
    
    3.15
    
    
    $
    -0-
    *
 *
    
    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 $0.59
at June 30, 2009.  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
    
    
    (501,000
    )
    
    $
    0.51Non-vested at June 30, 2009
    
    
    900,000
    
    
    $
    0.46
     11




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Stock
warrants 
     8. INCOME TAXES
  Accounting for Income Taxes,
  12




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9. FAIR VALUE OF MEASUREMENTS
        Auction Rate SecuritiesThree Months Ended
    
    
    Nine Months EndedJune 30, 2009
    
    
    June 30, 2009Balance, beginning of period
    
    $
    
    
    
    $
    1,000,000Transfer into Level 1
    
    
    
    
    
    
    (1,000,000
    )Balance, June 30, 2009
    
    $
    
    
    
    $
    
   13




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10. COMMITMENTS AND CONTINGENCIES
 Litigation 
  11. GOODWILL
  12. DERIVATIVE LIABILITY
 Accounting for Derivative Instruments and Hedging Activities
  14




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13. SUBSEQUENT EVENTS
 Subsequent Events,
   15




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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 June 30, 2009 compared to the three-months ended June 30, 2008
  Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
  16




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Research & Development:
 Other Income (Expense):
 Net Income (Loss):
 Nine months ended June 30, 2009 compared to the nine months ended June 30, 2008
 Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Research & Development:
 Net Income (Loss):
  17




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Liquidity and Capital Resources
    18




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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4T. Controls and Procedures
    19




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  (1)
    
    The shareholders voted on a cumulative basis for 4 directors, each to serve
for a term of one year. Each nominee received the following votes:
 Name of Nominee
    
    Votes For
    
    
    Votes Against
    
    
    AbstainAlan Magerman
    
    
    15,541,619
    
    
    
    97,612
    
    
    
    599,367Jeffrey Kennedy
    
    
    15,609,916
    
    
    
    29,315
    
    
    
    599,367Robert Petersen
    
    
    15,313,665
    
    
    
    325,566
    
    
    
    599,367Robert Buie
    
    
    15,639,231
    
    
    
    0
    
    
    
    599,367
 (2)
    
    The shareholders voted for the ratification of the appointment of SingerLewak
LLP as our independent auditors for our fiscal year ending September 30, 2009. Votes
cast were as follows:
 Votes For
    
    
    15,827,828Votes Against
    
    
    78,814Abstain
    
    
    331,956
 
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
 Exhibit Number
    
    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
  20




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SIGNATURES
  XENONICS HOLDINGS, INC.Date:  August 13, 2009
    By:
    /s/ Alan P. MagermanAlan P. MagermanChairman of the Executive Committee
Chief Executive OfficerDate:  August 13, 2009
    By:
    /s/ Richard S. KayRichard S. KayChief Financial Officer  21




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EXHIBIT INDEX
 Exhibit Number
    
    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