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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, 2010
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
    
    84-1433854(State or other jurisdiction of incorporation or organization)
    
    (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 June 30, 2010 (unaudited)
and September 30, 2009
    
    
    1Condensed Consolidated Statements of Operations for the Three and Nine Months
ended June 30, 2010 and 2009 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months
ended June 30, 2010 and 2009 (unaudited)
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    16Item 6. Exhibits
    
    
    22SIGNATURE PAGE
    
    
    23Exhibit 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 30,2010
    
    
    2009Rounded in thousands, except par value
    
    (unaudited)AssetsCurrent Assets:Cash
    
    $
    502,000
    
    
    $
    126,000Accounts receivable, net
    
    
    1,277,000
    
    
    
    1,634,000Inventories, net
    
    
    2,022,000
    
    
    
    2,069,000Other current assets
    
    
    216,000
    
    
    
    119,000Total Current Assets
    
    
    4,017,000
    
    
    
    3,948,000Equipment, furniture and fixtures at cost, less accumulated
depreciation of $188,000 and $148,000
    
    
    90,000
    
    
    
    130,000Goodwill
    
    
    375,000
    
    
    
    375,000Other assets
    
    
    199,000
    
    
    
    Total Assets
    
    $
    4,681,000
    
    
    $
    4,453,000Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    537,000
    
    
    $
    1,000,000Accrued expenses
    
    
    77,000
    
    
    
    157,000Accrued payroll and related taxes
    
    
    138,000
    
    
    
    156,000Accrued derivative liability
    
    
    
    
    
    
    199,000Total Current Liabilities
    
    
    752,000
    
    
    
    1,512,000Notes payable
    
    
    355,000
    
    
    
    292,000Total Liabilities
    
    
    1,107,000
    
    
    
    1,804,000Commitments and contingencies (Note 9)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, 2010 and
September 30, 2009; 25,622,000 shares issued as of June
30, 2010 and 20,571,000 as of September 30, 2009;
25,509,000 shares outstanding as of June 30, 2010 and
20,459,000 as of September 30, 2009
    
    
    26,000
    
    
    
    20,000Additional paid-in capital
    
    
    26,941,000
    
    
    
    24,478,000Accumulated deficit
    
    
    (23,087,000
    )
    
    
    (21,543,000
    )3,880,000
    
    
    
    2,955,000Less treasury shares, at cost, 113,000 shares as of June
30, 2010 and

September 30, 2009
    
    
    (306,000
    )
    
    
    (306,000
    )Total Shareholders Equity
    
    
    3,574,000
    
    
    
    2,649,000Total Liabilities and Shareholders Equity
    
    $
    4,681,000
    
    
    $
    4,453,000
 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 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Rounded in thousands, except per share amounts
    
    (unaudited)
    
    
    (unaudited)Revenues
    
    $
    1,421,000
    
    
    $
    2,132,000
    
    
    $
    2,786,000
    
    
    $
    5,288,000Cost of goods sold
    
    
    692,000
    
    
    
    1,142,000
    
    
    
    1,433,000
    
    
    
    2,918,000Gross profit
    
    
    729,000
    
    
    
    990,000
    
    
    
    1,353,000
    
    
    
    2,370,000Selling, general and administrative
    
    
    709,000
    
    
    
    1,049,000
    
    
    
    2,198,000
    
    
    
    3,629,000Research and development
    
    
    171,000
    
    
    
    158,000
    
    
    
    625,000
    
    
    
    501,000Loss from operations
    
    
    (151,000
    )
    
    
    (217,000
    )
    
    
    (1,470,000
    )
    
    
    (1,760,000
    )Other income/(expense):Gain (loss) on derivative revaluation
    
    
    
    
    
    
    (33,000
    )
    
    
    38,000
    
    
    
    (52,000
    )Other income
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    10,000Interest income
    
    
    1,000
    
    
    
    4,000
    
    
    
    3,000
    
    
    
    14,000Interest (expense)
    
    
    (38,000
    )
    
    
    
    
    
    
    (113,000
    )
    
    
    (7,000
    )Loss before provision for income taxes
    
    
    (188,000
    )
    
    
    (240,000
    )
    
    
    (1,542,000
    )
    
    
    (1,795,000
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    2,000Net loss
    
    $
    (188,000
    )
    
    $
    (240,000
    )
    
    $
    (1,544,000
    )
    
    $
    (1,797,000
    )Net loss per share:Basic and fully-diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.07
    )
    
    $
    (0.09
    )Weighted average shares outstanding:Basic and fully-diluted
    
    
    24,719,000
    
    
    
    20,459,000
    
    
    
    22,247,000
    
    
    
    20,387,000
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months endedJune 30,2010
    
    
    2009Rounded in thousands
    

    (unaudited)Cash flows from operating activities:Net (loss)
    
    $
    (1,544,000
    )
    
    $
    (1,797,000
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation
    
    
    40,000
    
    
    
    43,000Provision for bad debts
    
    
    (80,000
    )
    
    
    (7,000
    )Non-cash compensation to employees and directors
    
    
    35,000
    
    
    
    251,000Non-cash compensation for warrants issued
    
    
    103,000
    
    
    
    Non-cash compensation to consultants
    
    
    65,000
    
    
    
    30,000(Gain) loss on derivative revaluation
    
    
    (38,000
    )
    
    
    52,000Amortization of warrants for notes payable
    
    
    63,000
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    437,000
    
    
    
    (267,000
    )Inventories
    
    
    47,000
    
    
    
    (226,000
    )Other current assets
    
    
    26,000
    
    
    
    263,000Accounts payable
    
    
    (453,000
    )
    
    
    811,000Accrued expenses
    
    
    (80,000
    )
    
    
    37,000Accrued payroll and related taxes
    
    
    (18,000
    )
    
    
    35,000Accrued derivative liability
    
    
    (161,000
    )
    
    
    Net cash provided by (used in) operating activities
    
    
    (1,558,000
    )
    
    
    (775,000
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    
    
    
    
    (36,000
    )Proceeds from and (purchases) of investments in marketable securities
    
    
    
    
    
    
    1,000,000Net cash provided by (used in) investing activities
    
    
    
    
    
    
    964,000Cash flows from financing activities:Proceeds from sales of common stock, net
    
    
    1,928,000
    
    
    
    Proceeds from exercise of stock options
    
    
    6,000
    
    
    
    Proceeds from bank note payable
    
    
    
    
    
    
    1,000,000Repayment of bank note payable
    
    
    
    
    
    
    (1,000,000
    )Net cash provided by (used in) financing activities
    
    
    1,934,000
    
    
    
    Net increase in cash
    
    
    376,000
    
    
    
    189,000Cash, beginning of period
    
    
    126,000
    
    
    
    325,000Cash, end of period
    
    $
    502,000
    
    
    $
    514,000Supplemental cash flow information:Cash paid during the period for income taxes
    
    $
    2,000
    
    
    $
    2,000Cash paid during the period for interest
    
    $
    51,000
    
    
    $
    7,000Supplemental 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 9)
    
    $
    
    
    
    $
    375,000The Company issued 25,000 shares of common stock for the exercise of stock options and
received $6,000 in cash plus consulting services
    
    $
    10,000
    
    
    $
    The Company issued 300,000 shares of common stock for a three-year financial advisory
service agreement at $0.80 per share
    
    $
    240,000
    
    
    $
    The Company issued 300,000 shares of common stock for a one-year extension of the
financial advisory service agreement at $0.49 per share
    
    $
    147,000
    
    
    $
    
 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:
    4




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Consolidation (Topic 810): Accounting and Reporting for Decreases in
Ownership of a Subsidiary  a Scope Clarification
  Fair Value Measurements and
Disclosures (Topic 820)Measuring Liabilities at Fair Value
 Recently Issued:
 Transfers and Servicing
(Topic 860): Accounting for Transfers of Financial Assets.
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Consolidation (Topic 810): Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities.
 Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangementsa consensus of the FASB Emerging Issues Task Force
 Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures About Fair Value Measurements
  6




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3. EARNINGS (LOSS) PER SHARE
   4. INVENTORIES
  June 30,
    
    
    September 30,2010
    
    
    2009(unaudited)Raw materials
    
    $
    1,264,000
    
    
    $
    1,338,000Work in process
    
    
    183,000
    
    
    
    218,000Finished goods
    
    
    575,000
    
    
    
    513,000$
    2,022,000
    
    
    $
    2,069,000
 5. USE OF ESTIMATES
  6. STOCK BASED COMPENSATION
 Stock Options
  7




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For the Nine MonthsEnded June 30,2010
    
    
    2009Risk-free interest rate
    
    
    1.76
    %
    
    
    1.47% - 2.37
    %Expected life (in years)
    
    
    4
    
    
    
    4Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    103
    %
    
    
    101% - 103
    %Weighted-average volatility
    
    
    103
    %
    
    
    103
    %
   WeightedWeighted
    
    
    AverageStock
    
    
    Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term (Years)
    
    
    Intrinsic Value *Outstanding at October 1, 2009
    
    
    2,233,000
    
    
    $
    1.34
    
    
    
    3.57Granted
    
    
    45,000
    
    
    $
    0.80
    
    
    
    4.27Exercised
    
    
    (25,000
    )
    
    $
    0.65Forfeited, Expired or Cancelled
    
    
    (610,000
    )
    
    $
    2.83Outstanding at June 30, 2010
    
    
    1,643,000
    
    
    $
    0.78
    
    
    
    3.59
    
    
    $
    Exercisable at June 30, 2010
    
    
    918,000
    
    
    $
    0.86
    
    
    
    3.42
    
    
    $
    
    *
 
 *
    
    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 $0.35
at June 30, 2010.  8




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Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNon-vested at October 1, 2009
    
    
    900,000
    
    
    $
    0.45Granted
    
    
    45,000
    
    
    $
    0.57Forfeited or Expired
    
    
    (150,000
    )
    
    $
    (0.45
    )Vested
    
    
    (70,000
    )
    
    $
    (0.53
    )Non-vested at June 30, 2010
    
    
    725,000
    
    
    $
    0.44
      Stock warrants
    9




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Common stock
     7. INCOME TAXES
   8. FAIR VALUE OF FINANCIAL INSTRUMENTS
   10




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9. COMMITMENTS AND CONTINGENCIES
 Litigation
  10. GOODWILL
  11. DERIVATIVE LIABILITY
  12. SUBSEQUENT EVENTS
    11




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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, 2010 compared to the three-months ended June 30, 2009
  Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
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Research & Development:
 Other Income (Expense):
  Net Loss:
 Nine months ended June 30, 2010 compared to the nine months ended June 30, 2009
 Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Research & Development:
 Net Loss:
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Liquidity and Capital Resources
      14




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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  
 ITEM 4. Controls and Procedures
    15




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PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors.
  Risks Related to Our Business
 We have a recent history of losses and cannot assure you that we will ever become or remain
profitable.
   The loss of contracts with U.S. government agencies would adversely affect our revenue.
  Potential customers may prefer our competitors technology and products.
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Because we have a new marketing and sales team, we may be unable to compete successfully against
other companies that have a history and track record in the high-intensity lighting and night
vision marketplaces.
   The loss of any of our key personnel could adversely affect our business.
  We are subject to government regulations that may require us to obtain additional licenses and
could limit our ability to sell our products outside the United States.
  We may experience production delays if suppliers fail to deliver materials to us, which could
reduce our revenue.
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Our operations involve evolving products and technological change, which could make our products
obsolete.
  We may not have adequate protection of our intellectual property, which could result in a reduction
in our revenue if our competitors are able to use our intellectual property.
   Because we currently have only a single line of products, any delay in our ability to market, sell
or ship these existing products would adversely affect our revenue.
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Because we depend on a single manufacturer to make our NightHunter products, any failure by the
manufacturer to honor its obligations to us will impair our ability to deliver our products to
customers.
  The current global economic downturn may materially and adversely affect our business, financial
condition and results of operations.
  Risks Related to Our Common Stock
 The market price of our common stock may be volatile.
  
    
    actual or anticipated fluctuations in our operating results;
    
    changes in stock market analyst recommendations regarding our common stock, the
common stock of our competitors or our industry generally;
    
    operating and stock price performance of other companies that investors deem
comparable to us;
    
    changes in government regulations;
    
    litigation or threats of litigation;
    
    reports or speculation in the press, industry publications or internet
communities;
    
    short selling of our common stock or our issuance of common stock for less than
the then-current market price of our common stock;
    
    new accounting standards;
    
    general economic, political and market conditions; and
    
    the occurrence of any of the other risks described in our filings with the
Securities and Exchange Commission.
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Low trading volume of our common stock may adversely affect the market price of our common stock.
  If securities or industry analysts do not publish research reports about our business or if they
downgrade our common stock, the price of our common stock could decline.
  We do not plan to pay any cash dividends on our common stock.
  The exercise of outstanding stock options and warrants would dilute the ownership interests of our
stockholders, and sales of the common stock acquired upon the exercise of these stock options and
warrants could cause our stock price to decline.
  Our ability to raise capital in the future may be limited, and the interests of our stockholders
may be adversely affected if we incur indebtedness or issue additional equity securities to finance
our business operations.
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Our common stock may be delisted from the NYSE Amex, which could result in a decline in the market
price of our common stock.
      21




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You may have difficulty selling our common stock if it is deemed a penny stock.
  ITEM 6. Exhibits
 ExhibitNumber
    
    Description31.1
    
    
    Certification of the Chairman of the Board and 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
  22




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SIGNATURES
  XENONICS HOLDINGS, INC.Date:  August 16, 2010
    By:
    /s/ Alan P. MagermanAlan P. MagermanChairman of the Board
Chief Executive OfficerDate:  August 16, 2010
    By:
    /s/ Richard S. KayRichard S. KayChief Financial Officer  23