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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, 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 June 30, 2006 (unaudited)
and September 30, 2005
    
    
    1Condensed Consolidated Statements of Operations for the Three and Nine Months
ended June 30, 2006 and 2005 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months
ended June 30, 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 HoldersItem 5.
    

Other Information
    
    
    15Item 6.
    

Exhibits
    
    
    15SIGNATURE PAGE
    
    
    16EXHIBIT 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 30,2006
    
    2005in thousands, except per share amounts
    
    (unaudited)AssetsCurrent assets:Cash
    
    $
    494
    
    
    $
    890Accounts receivable, net of allowance for doubtful accounts of $0
    
    
    335
    
    
    
    213Inventories, net
    
    
    893
    
    
    
    1,206Other current assets
    
    
    94
    
    
    
    82Total Current Assets
    
    
    1,816
    
    
    
    2,391Equipment, furniture and fixtures at cost, less accumulated
depreciation of $80 and $70
    
    
    50
    
    
    
    50Other non-current assets
    
    
    25
    
    
    
    25Total Assets
    
    $
    1,891
    
    
    $
    2,466Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued expense
    
    $
    539
    
    
    $
    608Accrued consulting fees
    
    
    366
    
    
    
    Accrued payroll and related taxes
    
    
    124
    
    
    
    86Other current liabilities
    
    
    7
    
    
    
    6Total Current Liabilities
    
    
    1,036
    
    
    
    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 June
30, 2006 and September 30, 2005, respectively; 16,710 and 15,686 shares
issued as of June 30, 2006 and September 30, 2005,
respectively; 16,597 and 15,573 shares outstanding as of June 30,
2006 and September 30, 2005, respectively.
    
    
    17
    
    
    
    16Additional paid-in capital
    
    
    16,520
    
    
    
    14,541Accumulated deficit
    
    
    (14,726
    )
    
    
    (12,485
    )1,811
    
    
    
    2,072Less treasury stock, at cost, 113 shares as of June 30, 2006 and
September 30, 2005
    
    
    (306
    )
    
    
    (306
    )Less subscription receivable
    
    
    (650
    )
    
    
    Total Shareholders Equity
    
    
    855
    
    
    
    1,766Total Liabilities and Shareholders Equity
    
    $
    1,891
    
    
    $
    2,466
 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 30,2006
    
    2005
    
    2006
    
    2005in thousands, except per share amounts
    
    (unaudited)
    
    (unaudited)Revenues
    
    $
    855
    
    
    $
    3,075
    
    
    $
    2,493
    
    
    $
    3,905Cost of goods sold
    
    
    522
    
    
    
    1,712
    
    
    
    1,475
    
    
    
    2,198Gross profit
    
    
    333
    
    
    
    1,363
    
    
    
    1,018
    
    
    
    1,707Selling, general and administrative
    
    
    827
    
    
    
    1,277
    
    
    
    2,888
    
    
    
    3,248Engineering, research and development
    
    
    149
    
    
    
    111
    
    
    
    380
    
    
    
    335Loss from operations
    
    
    (643
    )
    
    
    (25
    )
    
    
    (2,250
    )
    
    
    (1,876
    )Other income/(expense), net:Interest income
    
    
    11
    
    
    
    3
    
    
    
    16
    
    
    
    16Interest expense
    
    
    (1
    )
    
    
    (7
    )
    
    
    (2
    )
    
    
    (8
    )Other expense
    
    
    
    
    
    
    2
    
    
    
    (3
    )
    
    
    3Loss before provision for income taxes
    
    
    (633
    )
    
    
    (27
    )
    
    
    (2,239
    )
    
    
    (1,865
    )Income tax provision / (benefit)
    
    
    
    
    
    
    (57
    )
    
    
    2
    
    
    
    (56
    )Net (loss) / income before minority interest
    
    
    (633
    )
    
    $
    30
    
    
    
    (2,241
    )
    
    $
    (1,809
    )Minority interest
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    (3
    )Net (loss) / income
    
    $
    (633
    )
    
    $
    23
    
    
    $
    (2,241
    )
    
    $
    (1,806
    )Net (loss) / income per share:Basic and diluted
    
    
    (.04
    )
    
    
    
    
    
    
    (.14
    )
    
    
    (.12
    )Weighted average shares outstandingBasic
    
    
    16,391
    
    
    
    15,191
    
    
    
    15,845
    
    
    
    14,742Diluted
    
    
    16,391
    
    
    
    17,706
    
    
    
    15,845
    
    
    
    14,742
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
 Nine months endedJune 30,2006
    
    2005in thousands
    
    (unaudited)Cash flows from operating activities:Net loss
    
    $
    (2,241
    )
    
    $
    (1,806
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    9
    
    
    
    8Compensation to employees and directors paid with stock
options
    
    
    425
    
    
    
    477Minority interest in net loss of subsidiary
    
    
    
    
    
    
    (3
    )Compensation to consultant  stock issuance subject to
performance
    
    
    366
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (122
    )
    
    
    (2,698
    )Inventories, net
    
    
    313
    
    
    
    (2,283
    )Other assets
    
    
    (12
    )
    
    
    (21
    )Accounts payable and accrued expense
    
    
    (69
    )
    
    
    369Accrued payroll and related taxes
    
    
    38
    
    
    
    12Other liabilities
    
    
    1
    
    
    
    10Net cash used in operating activities
    
    
    (1,292
    )
    
    
    (5,935
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    (9
    )
    
    
    (22
    )Net cash used in investing activities
    
    
    (9
    )
    
    
    (22
    )Cash flows from financing activities:Proceeds from short-term debt
    
    
    
    
    
    
    1,305Net proceeds from issuance of common stock net of expenses
    
    
    885
    
    
    
    2,180Proceeds in connection with the exercise of options and
warrants
    
    
    20
    
    
    
    335Proceeds in connection with the exercise of warrants in
subsidiary
    
    
    
    
    
    
    34Net cash provided by financing activities
    
    
    905
    
    
    
    3,854Net decrease in cash
    
    
    (396
    )
    
    
    (2,103
    )Cash, beginning of period
    
    
    890
    
    
    
    3,269Cash, end of period
    
    $
    494
    
    
    $
    1,166Supplemental cash flow information:Cash paid during the year for income taxes
    
    $
    2
    
    
    $
    (56
    )Cash paid during the year for interest
    
    $
    3
    
    
    $
    3Noncash transactions:Conversion of accrued royalties to common stock
    
    $
    
    
    
    $
    400Subscription receivable
    
    $
    650
    
    
    
    
 See notes to unaudited condensed consolidated financial statements.
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NOTES TO UNAUDITED 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
  June 30,
    
    September 30,2006
    
    2005(unaudited)Raw materials
    
    $
    106
    
    
    $
    107Work in process
    
    
    206
    
    
    
    247Finished goods
    
    
    2,548
    
    
    
    2,816Reserve for obsolescence
    
    
    (1,967
    )
    
    
    (1,964
    )$
    893
    
    
    $
    1,206
  5. NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
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6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  June 30,
    
    September 30,2006
    
    2005Accounts payable
    
    $
    341
    
    
    $
    409Accrued expenses
    
    
    198
    
    
    
    199$
    539
    
    
    $
    608
 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
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12. STOCK WARRANTS
  .
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13. MINORITY INTEREST
  14. CONTINGENCIES AND OTHER MATTERS
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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 June 30, 2006 compared to the three-months ended June 30, 2005
 Revenues:
    Cost of Goods and Gross Profit:
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Selling, General and Administrative:
 Engineering, Research & Development:
 Net
Income (Loss):
 Nine-months ended June 30, 2006 compared to the nine-months ended June 30, 2005
 Revenues:
      Cost of Goods and Gross Profit:
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Selling, General and Administrative:
 Engineering, Research & Development:
 Net
Loss:
 Liquidity and Capital Resources
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ITEM 3. CONTROLS AND PROCEDURES
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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
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SIGNATURES
  XENONICS HOLDINGS, INC.By:
    
    /s/ Richard J. NaughtonDate: August 18, 2006
    
    
    
    
    
    Richard J. NaughtonChief Executive OfficerBy:
    
    /s/ Donna G. LeeDate: August 18, 2006
    
    
    
    
    
    Donna G. LeeChief Financial Officer
 -16-