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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 1934For the quarterly period ended December 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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
(Address of principal executive offices)
    
    92008-7297
(Zip Code)
 (760) 438-4004
 90 days. Yes
þ No
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, 2006 (unaudited) and September 30, 2006
    
    
    1Condensed Consolidated Statements of Operations for the Three Months
ended December 31, 2006 and 2005 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months
ended December 31, 2006 and 2005 (unaudited)
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Controls and Procedures
    
    
    11PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    12Item 5. Other Information
    
    
    12Item 6. Exhibits
    
    
    13SIGNATURE PAGE
    
    
    14EXHIBIT 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 30,2006
    
    
    2006in thousands, except per share amounts
    
    (unaudited)AssetsCurrent assets:Cash
    
    $
    1,877
    
    
    $
    99Accounts receivable, net of allowance for doubtful accounts of $0
    
    
    672
    
    
    
    2,194Inventories, net
    
    
    687
    
    
    
    605Other current assets
    
    
    362
    
    
    
    96Total Current Assets
    
    
    3,598
    
    
    
    2,994Equipment, furniture and fixtures at cost, less accumulated
depreciation of $73 and $83
    
    
    76
    
    
    
    46Other non-current assets
    
    
    25
    
    
    
    25Total Assets
    
    $
    3,699
    
    
    $
    3,065Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued expense
    
    $
    422
    
    
    $
    561Accrued payroll and related taxes
    
    
    149
    
    
    
    96Other current liabilities
    
    
    7
    
    
    
    8Total Current Liabilities
    
    
    578
    
    
    
    665Commitments and contingencies (Note 13)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, 2006 and September 30, 2006; 17,222 and 16,904 shares issued as of December 31, 2006 and September 30, 2006,
respectively; 17,109 and 16,791 shares outstanding as of
December 31, 2006 and September 30, 2006, respectively.
    
    
    17
    
    
    
    17Additional paid-in capital
    
    
    17,789
    
    
    
    17,312Accumulated deficit
    
    
    (14,379
    )
    
    
    (13,973
    )3,427
    
    
    
    3,356Less treasury stock, at cost, 113 shares as of December 31, 2006
and September 30, 2006
    
    
    (306
    )
    
    
    (306
    )Less subscription receivable
    
    
    
    
    
    
    (650
    )Total Shareholders Equity
    
    
    3,121
    
    
    
    2,400Total Liabilities and Shareholders Equity
    
    $
    3,699
    
    
    $
    3,065
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months endedDecember 31,2006
    
    
    2005in thousands, except per share amounts
    
    (unaudited)
    
    
    (unaudited)Revenues
    
    $
    916
    
    
    $
    920Cost of goods sold
    
    
    202
    
    
    
    544Gross profit
    
    
    714
    
    
    
    376Selling, general and administrative
    
    
    974
    
    
    
    1,145Engineering, research and development
    
    
    159
    
    
    
    159Loss from operations
    
    
    (419
    )
    
    
    (928
    )Other income/(expense) , net:Interest income
    
    
    14
    
    
    
    3Interest expense
    
    
    (1
    )
    
    
    (1
    )Other expense
    
    
    
    
    
    
    Loss before provision for income taxes
    
    
    (406
    )
    
    
    (926
    )Income tax provision
    
    
    
    
    
    
    Net loss
    
    $
    (406
    )
    
    $
    (926
    )Net loss per share:Basic and diluted
    
    
    (.02
    )
    
    
    (.06
    )Weighted average shares outstanding:Basic and diluted
    
    
    16,875
    
    
    
    15,573
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
 Three months endedDecember 31,2006
    
    
    2005in thousands
    
    (unaudited)
    
    
    (unaudited)Cash flows from operating activities:Net loss
    
    $
    (406
    )
    
    $
    (926
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    4
    
    
    
    3Compensation to employees and directors paid with
stock options
    
    
    248
    
    
    
    148Compensation to consultant paid with warrants
    
    
    33
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    1,522
    
    
    
    (144
    )Inventories, net
    
    
    (82
    )
    
    
    279Other current assets
    
    
    (266
    )
    
    
    (9
    )Accounts payable and accrued expense
    
    
    (139
    )
    
    
    Accrued consulting fees
    
    
    
    
    
    
    366Accrued payroll and related taxes
    
    
    53
    
    
    
    40Other current liabilities
    
    
    (1
    )
    
    
    1Net cash provided by (used in) operating activities
    
    
    966
    
    
    
    (242
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    (34
    )
    
    
    (1
    )Net cash used in investing activities
    
    
    (34
    )
    
    
    (1
    )Cash flows from financing activities:Proceeds in connection with the stock subscription
    
    
    650
    
    
    
    Proceeds in connection with the exercise of warrants
    
    
    196
    
    
    
    Net cash provided by financing activities
    
    
    846
    
    
    
    Net increase (decrease) in cash
    
    
    1,778
    
    
    
    (243
    )Cash, beginning of period
    
    
    99
    
    
    
    890Cash, end of period
    
    $
    1,877
    
    
    $
    647Supplemental cash flow information:Cash paid during the year for interest
    
    $
    1
    
    
    $
    
 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
  3. NET LOSS PER SHARE
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4. INVENTORIES
 December 31,
    
    
    September 30,Inventories were comprised of :
    
    2006
    
    
    2006Raw materials
    
    $
    174
    
    
    $
    145Work in process
    
    
    217
    
    
    
    301Finished goods
    
    
    1,105
    
    
    
    1,330Reserve for obsolescence
    
    
    (809
    )
    
    
    (1,171
    )$
    687
    
    
    $
    605
 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 December 31,
    
    
    September 30,The components of accounts payable and
accrued expenses consist of the following:
    
    2006
    
    
    2006Accounts payable
    
    $
    266
    
    
    $
    436Accrued expenses
    
    
    156
    
    
    
    125$
    422
    
    
    $
    561
 6. SHAREHOLDERS EQUITY
 ,
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7. USE OF ESTIMATES
  8. STOCK BASED COMPENSATION
 Stock
Options Accounting for Stock-Based Compensation,
   For the Three MonthsEnded December 31,2006
    
    
    2005Risk-free interest rate
    
    
    4.6
    %
    
    
    4.37-4.43
    %Expected life (in years)
    
    
    4
    
    
    
    3Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    99
    %
    
    
    103
    %Weighted-average volatility
    
    
    99
    %
    
    
    103
    %
  -6-




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WeightedWeighted
    
    
    AverageStock
    
    
    Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic ValueOutstanding at October 1, 2006
    
    
    1,726
    
    
    
    2.501
    
    
    
    4.17
    
    
    
    Granted
    
    
    100
    
    
    
    1.610
    
    
    
    4.80
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2006
    
    
    1,826
    
    
    
    2.453
    
    
    
    3.96
    
    
    
    Exercisable at December 31, 2006
    
    
    1,190
    
    
    
    2.155
    
    
    
    4.26
    
    
    
    0.225
    *
 
 *
    
    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 $2.38
at December 31, 2006.    Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNonvested at October 1, 2006
    
    
    744
    
    
    
    1.214Granted
    
    
    100
    
    
    
    1.130Vested
    
    
    (208
    )
    
    
    1.392Nonvested at December 31, 2006
    
    
    636
    
    
    
    1.143
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Stock
warrants 
   9. MINORITY INTEREST
  10. CONTINGENCIES AND OTHER MATTERS
   11. SUBSEQUENT EVENTS
    -8-




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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, 2006 compared to the three-months ended December 31, 2005
 Revenues:
     Cost of Goods Sold and Gross Profit:
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Selling, General and Administrative:
 Engineering, Research & Development:
 Net Loss:
 Liquidity and Capital Resources
     -10-




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ITEM 3. CONTROLS AND PROCEDURES
 )  , - , .
  -11-




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 5. Other Information
  -12-




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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 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: February 14, 2007
    By:
    /s/ Richard J. NaughtonRichard J. NaughtonChief Executive OfficerDate: February 14, 2007
    By:
    /s/ Donna G. LeeDonna G. LeeChief Financial Officer -14-