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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 December 31, 2005
 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) 438-4004
 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 December 31, 2005 (unaudited)
and September 30, 2005
    
    
    3Condensed Consolidated Statements of Operations for the Three Months
ended December 31, 2005 and 2004 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months
ended December 31, 2005 and 2004 (unaudited)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    11Item 3. Controls and Procedures
    
    
    13PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    14Item 5. Other Information
    
    
    14Item 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
 December 31,
    
    September 30,2005
    
    2005in thousands, except per share amounts
    
    (unaudited)AssetsCurrent assets:Cash
    
    $
    647
    
    
    $
    890Accounts receivable, net of allowance for doubtful accounts of $0
    
    
    357
    
    
    
    213Inventories, net
    
    
    927
    
    
    
    1,206Other current assets
    
    
    91
    
    
    
    82Total Current Assets
    
    
    2,022
    
    
    
    2,391Equipment, furniture and fixtures at cost, less accumulated
depreciation of $73 and $70
    
    
    48
    
    
    
    50Other non-current assets
    
    
    25
    
    
    
    25Total Assets
    
    $
    2,095
    
    
    $
    2,466Liabilities and Shareholders EquityCurrent liabilities:Accounts
payable and accrued expense
    
    $
    608
    
    
    $
    608Accrued
consulting fees
    
    
    366
    
    
    
    Accrued payroll and related taxes
    
    
    126
    
    
    
    86Other current liabilities
    
    
    7
    
    
    
    6Total Current Liabilities
    
    
    1,107
    
    
    
    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
December 31, 2005 and September 30, 2005, respectively; 15,686
shares issued and outstanding as of December 31, 2005 and September
30, 2005, respectively
    
    
    16
    
    
    
    16Less
treasury stock, at cost, 113 shares as of December 31, 2005
and September 30, 2005
    
    
    (306
    )
    
    
    (306
    )Additional paid-in capital
    
    
    14,689
    
    
    
    14,541Accumulated deficit
    
    
    (13,411
    )
    
    
    (12,485
    )Total Shareholders Equity
    
    
    988
    
    
    
    1,766Total Liabilities and Shareholders Equity
    
    $
    2,095
    
    
    $
    2,466
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months endedDecember 31,2005
    
    2004in thousands, except per share amounts
    
    (unaudited)Revenues
    
    $
    920
    
    
    $
    749Cost of goods sold
    
    
    544
    
    
    
    423Gross profit
    
    
    376
    
    
    
    326Selling, general and administrative
    
    
    1,145
    
    
    
    880Engineering, research and development
    
    
    159
    
    
    
    108(Loss) from operations
    
    
    (928
    )
    
    
    (662
    )Interest income
    
    
    2
    
    
    
    7Loss before
income tax benefit
    
    
    (926
    )
    
    
    (655
    )Income tax benefit
    
    
    
    
    
    
    (230
    )Net loss
    
    $
    (926
    )
    
    $
    (425
    )Net loss per share:Basic and
diluted
    
    
    (.06
    )
    
    
    (.03
    )Weighted average shares outstanding:Basic and
diluted
    
    
    15,573
    
    
    
    14,250
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
 Three months endedDecember 31,2005
    
    2004(unaudited)in thousandsCash flows from operating activities:Net (loss)
    
    $
    (926
    )
    
    $
    (425
    )Adjustments to reconcile net (loss) to net cash (used in) operating
activities:Depreciation and amortization
    
    
    3
    
    
    
    3Compensation to employees and directors paid with
stock options
    
    
    148
    
    
    
    76Tax benefit
    
    
    
    
    
    
    (230
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (144
    )
    
    
    (367
    )Inventories, net
    
    
    279
    
    
    
    (1,481
    )Deferred offering costs
    
    
    
    
    
    
    (55
    )Other assets
    
    
    (9
    )
    
    
    40Accounts
payable and accrued expense
    
    
    
    
    
    
    (162
    )Accrued
consulting fees
    
    
    366
    
    
    
    Accrued payroll and related taxes
    
    
    40
    
    
    
    11Other liabilities
    
    
    1
    
    
    
    4Net cash (used in) operating activities
    
    
    (242
    )
    
    
    (2,586
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    (1
    )
    
    
    (9
    )Net cash used in investing activities
    
    
    (1
    )
    
    
    (9
    )Cash flows from financing activities:Proceeds in connection with the exercise of options and warrants
    
    
    
    
    
    
    144Proceeds in connection with the exercise of warrants in subsidiary
    
    
    
    
    
    
    35Net cash provided by financing activities
    
    
    
    
    
    
    179Net (decrease) in cash
    
    
    (243
    )
    
    
    (2,416
    )Cash, beginning of period
    
    
    890
    
    
    
    3,269Cash, end of period
    
    $
    647
    
    
    $
    853Supplemental cash flow information:Noncash transactions:Conversion of accrued royalties to common stock
    
    $
    
    
    
    $
    400
 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
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3.
LOSS PER SHARE
  4. INVENTORIES
  December 31,
    
    September 30,2005
    
    2005(Unaudited)Raw materials
    
    $
    80
    
    
    $
    107Work in process
    
    
    78
    
    
    
    247Finished goods
    
    
    2,733
    
    
    
    2,816Reserve for obsolescence
    
    
    (1,964
    )
    
    
    (1,964
    )$
    927
    
    
    $
    1,206
  5. NEW ACCOUNTING PRONOUNCEMENTS
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6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  December 31,
    
    September 30,2005
    
    2005Accounts payable
    
    $
    496
    
    
    $
    409Accrued expenses
    
    
    112
    
    
    
    199$
    608
    
    
    $
    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
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12. STOCK WARRANTS
   13. MINORITY INTEREST
  14. CONTINGENCIES AND OTHER MATTERS
   15. SUBSEQUENT EVENT
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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 December 31, 2005 compared to the three-months ended December 31, 2004
 Revenues:
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Cost of Goods and Gross Profit:
 Selling,
General and Administrative:
 Engineering, Research & Development:
 Net Income (Loss):
 Liquidity and Capital Resources
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ITEM 3. CONTROLS AND PROCEDURES
    13




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
   
 ITEM 5. Other Information
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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 Executive 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:  February 17, 2006
    
    Richard J. NaughtonChief Executive OfficerBy:
    /s/ Donna G. LeeDate:  February 17, 2006
    
    Donna G. LeeChief Financial Officer 16