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UNITED STATESSECURITIES 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 March 31, 2008
 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: 001-32469
 XENONICS HOLDINGS, INC.
 (
 
 Nevada
    
    84-1433854(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)2236 Rutherford Road, Suite 123Carlsbad, California
    
    92008-7297(Address of principal executive offices)
    
    (Zip Code)
 (760) 448-9700
 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 March 31, 2008 (unaudited) and September 30, 2007
    
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months ended March 31, 2008 and 2007 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months ended March 31, 2008 and 2007 (unaudited)
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Controls and Procedures
    
    
    14PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    15Item 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
 March 31,
    
    September 30,2008
    
    2007rounded in thousands, except par value
    
    (unaudited)AssetsCurrent Assets:Cash
    
    $
    149,000
    
    
    $
    2,388,000Investments
    
    
    1,000,000
    
    
    
    Accounts receivable, net
    
    
    3,514,000
    
    
    
    305,000Inventories
    
    
    1,719,000
    
    
    
    2,635,000Other current assets
    
    
    353,000
    
    
    
    365,000Total Current Assets
    
    
    6,735,000
    
    
    
    5,693,000Equipment, furniture and fixtures at cost, less accumulated
depreciation of $135,000 and $108,000
    
    
    188,000
    
    
    
    215,000Total Assets
    
    $
    6,923,000
    
    
    $
    5,908,000Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    1,107,000
    
    
    $
    892,000Accrued expenses
    
    
    162,000
    
    
    
    123,000Accrued payroll and related taxes
    
    
    150,000
    
    
    
    151,000Total Current Liabilities
    
    
    1,419,000
    
    
    
    1,166,000Contingencies (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, 2008 and September
30, 2007; 20,052,000 shares issued as of March 31, 2008
and 19,952,000 issued as of September 30, 2007; 19,939,000
shares outstanding as of March 31, 2008 and 19,839,000
outstanding as of September 30, 2007
    
    
    20,000
    
    
    
    20,000Additional paid-in capital
    
    
    23,568,000
    
    
    
    23,341,000Accumulated deficit
    
    
    (17,778,000
    )
    
    
    (18,313,000
    )5,810,000
    
    
    
    5,048,000Less treasury stock, at cost, 113,000 shares as of March
31, 2008 and September 30, 2007
    
    
    (306,000
    )
    
    
    (306,000
    )Total Shareholders Equity
    
    
    5,504,000
    
    
    
    4,742,000Total Liabilities and Shareholders Equity
    
    $
    6,923,000
    
    
    $
    5,908,000
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 Three months ended
    
    Six months endedMarch 31,
    
    March 31,2008
    
    2007
    
    2008
    
    2007rounded in thousands, except per share amounts
    
    (unaudited)
    
    (unaudited)Revenues
    
    $
    3,622,000
    
    
    $
    1,646,000
    
    
    $
    7,182,000
    
    
    $
    2,562,000Cost of goods sold
    
    
    1,944,000
    
    
    
    339,000
    
    
    
    3,750,000
    
    
    
    541,000Gross profit
    
    
    1,678,000
    
    
    
    1,307,000
    
    
    
    3,432,000
    
    
    
    2,021,000Selling, general and administrative
    
    
    1,270,000
    
    
    
    1,352,000
    
    
    
    2,586,000
    
    
    
    2,326,000Engineering, research and development
    
    
    203,000
    
    
    
    152,000
    
    
    
    341,000
    
    
    
    310,000Income (loss) from operations
    
    
    205,000
    
    
    
    (197,000
    )
    
    
    505,000
    
    
    
    (615,000
    )Other income/(expense):Interest income
    
    
    18,000
    
    
    
    22,000
    
    
    
    31,000
    
    
    
    36,000Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Income (loss) before provision for income taxes
    
    
    223,000
    
    
    
    (175,000
    )
    
    
    536,000
    
    
    
    (580,000
    )Income tax provision
    
    
    1,000
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000Net income (loss)
    
    $
    222,000
    
    
    $
    (177,000
    )
    
    $
    534,000
    
    
    $
    (582,000
    )Net income (loss) per share:Basic
    
    $
    0.01
    
    
    
    ($0.01
    )
    
    $
    0.03
    
    
    
    ($0.03
    )Fully-diluted
    
    $
    0.01
    
    
    
    ($0.01
    )
    
    $
    0.03
    
    
    
    ($0.03
    )Weighted average shares outstanding:Basic
    
    
    19,869,000
    
    
    
    17,906,000
    
    
    
    19,896,000
    
    
    
    17,385,000Fully-diluted
    
    
    20,932,000
    
    
    
    17,906,000
    
    
    
    20,904,000
    
    
    
    17,385,000
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months endedMarch 31,2008
    
    2007Rounded in thousands
    
    (unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    534,000
    
    
    $
    (582,000
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    27,000
    
    
    
    12,000Provision for bad debts
    
    
    (21,000
    )
    
    
    Non-cash compensation to employees and directors
    
    
    166,000
    
    
    
    408,000Non-cash compensation to consultants
    
    
    2,000
    
    
    
    41,000Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,187,000
    )
    
    
    1,841,000Inventories
    
    
    916,000
    
    
    
    (1,467,000
    )Other current assets
    
    
    12,000
    
    
    
    (215,000
    )Accounts payable
    
    
    214,000
    
    
    
    340,000Accrued expenses
    
    
    11,000
    
    
    
    (2,000
    )Accrued payroll and related taxes
    
    
    27,000
    
    
    
    21,000Net cash provided by (used in) operating activities
    
    
    (1,299,000
    )
    
    
    397,000Cash flows from investing activities:Purchases of investments in marketable securities
    
    
    (1,000,000
    )
    
    
    Purchases of equipment, furniture and fixtures
    
    
    
    
    
    
    (199,000
    )Net cash used in investing activities
    
    
    (1,000,000
    )
    
    
    (199,000
    )Cash flows from financing activities:Net proceeds from issuance of common stock, net of expenses
    
    
    
    
    
    
    1,975,000Proceeds in connection with the exercise of warrants
    
    
    60,000
    
    
    
    446,000Proceeds in connection with stock subscription
    
    
    
    
    
    
    650,000Net cash provided by financing activities
    
    
    60,000
    
    
    
    3,071,000Net increase (decrease) in cash
    
    
    (2,239,000
    )
    
    
    3,270,000Cash, beginning of period
    
    
    2,388,000
    
    
    
    99,000Cash, end of period
    
    $
    149,000
    
    
    $
    3,369,000Supplemental cash flow information:Cash paid during the period for income taxes
    
    $
    2,000
    
    
    $
    2,000Cash paid during the period for interest
    
    $
    
    
    
    $
    1,000
 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,
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Recently Issued:
    3. ACCOUNTING POLICY FOR INVESTMENTS IN MARKETABLE SECURITIES
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4. REVENUE RECOGNITION
  5. EARNINGS PER SHARE
   Three Months Ended
    
    Six Months EndedMarch 31, 2008
    
    March 31, 2008Numerator: Net income
    
    $
    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
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6. INVENTORIES
  March 31,
    
    September 30,2008
    
    2007(unaudited)Raw materials
    
    $
    939,000
    
    
    $
    805,000Work in process
    
    
    241,000
    
    
    
    228,000Finished goods
    
    
    539,000
    
    
    
    1,602,000$
    1,719,000
    
    
    $
    2,635,000
 7. USE OF ESTIMATES
  8. STOCK BASED COMPENSATION
 Stock Options Accounting for Stock-Based Compensation,
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For the Six MonthsEnded March 31,2008
    
    
    2007Risk-free interest rate
    
    
    4.16
    %
    
    
    4.60% - 4.77
    %Expected life (in years)
    
    
    4
    
    
    
    4Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    105
    %
    
    
    99% - 111
    %Weighted-average volatility
    
    
    105
    %
    
    
    101
    %
   WeightedWeighted
    
    
    AverageStock
    
    
    Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic Value *Outstanding at October 1, 2007
    
    
    1,988,000
    
    
    $
    2.52
    
    
    
    3.75Granted
    
    
    25,000
    
    
    $
    2.02
    
    
    
    4.51Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited or Expired
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2008
    
    
    2,013,000
    
    
    $
    2.52
    
    
    
    3.26
    
    
    $
    508,000Exercisable at March 31, 2008
    
    
    1,352,000
    
    
    $
    2.48
    
    
    
    2.91
    
    
    $
    508,000
 
 *
    
    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 $1.64
at March 31, 2008.  Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNon-vested at October 1, 2007
    
    
    699,000
    
    
    $
    1.72Granted
    
    
    25,000
    
    
    $
    1.47Forfeited or Expired
    
    
    
    
    
    
    Vested
    
    
    (63,000
    )
    
    $
    1.60Non-vested at March 31, 2008
    
    
    661,000
    
    
    $
    1.73
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Stock warrants 
   9. INCOME TAXES
  Accounting for Income Taxes,
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10. CONTINGENCIES
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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, 2008 compared to the three months ended March 31, 2007
 Revenues:
  Cost of Goods and Gross Profit:
  Selling, General and Administrative:
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Engineering, Research & Development:
 Net Income (Loss):
 Six months ended March 31, 2008 compared to the six months ended March 31, 2007
  Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Engineering, Research & Development:
 Net Income (Loss):
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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.Date:  May 12, 2008
    By:
    /s/ Charles W. HunterCharles W. HunterChief Executive OfficerDate:  May 12, 2008
    By:
    /s/ Richard S. KayRichard S. KayChief Financial Officer 16