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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 March 31, 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
(State or other jurisdiction of incorporation or organization)
    
    84-1433854
(I.R.S. Employer Identification No.)3186 Lionshead Avenue 
Carlsbad, California
(Address of principal executive offices)
    
    92010
(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 March 31, 2010 (unaudited)
and September 30, 2009
    
    
    1Condensed Consolidated Statements of Operations for the Three and Six Months
ended March 31, 2010 and 2009 (unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows
for the Six Months
ended March 31, 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 6. Exhibits
    
    
    16SIGNATURE PAGE
    
    
    17Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    Financial Statements
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    September 30,Rounded in thousands, except par value
    
    2010
    
    
    2009(unaudited)AssetsCurrent Assets:Cash
    
    $
    57,000
    
    
    $
    126,000Accounts receivable, net
    
    
    245,000
    
    
    
    1,634,000Inventories
    
    
    2,315,000
    
    
    
    2,069,000Other current assets
    
    
    184,000
    
    
    
    119,000Total Current Assets
    
    
    2,801,000
    
    
    
    3,948,000Equipment, furniture and fixtures at cost, less accumulated
depreciation of $174,000 and $148,000
    
    
    103,000
    
    
    
    130,000Goodwill
    
    
    375,000
    
    
    
    375,000Other assets
    
    
    122,000
    
    
    
    Total Assets
    
    $
    3,401,000
    
    
    $
    4,453,000Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    864,000
    
    
    $
    1,000,000Accrued expenses
    
    
    102,000
    
    
    
    157,000Accrued payroll and related taxes
    
    
    145,000
    
    
    
    156,000Accrued derivative liability
    
    
    
    
    
    
    199,000Total Current Liabilities
    
    
    1,111,000
    
    
    
    1,512,000Notes payable
    
    
    334,000
    
    
    
    292,000Total Liabilities
    
    
    1,445,000
    
    
    
    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 March 31, 2010 and
September 30, 2009; 21,322,000 shares issued as of March
31, 2010 and 20,571,000 as of September 30, 2009;
21,209,000 shares outstanding as of March 31, 2010 and
20,459,000 as of September 30, 2009
    
    
    21,000
    
    
    
    20,000Additional paid-in capital
    
    
    25,140,000
    
    
    
    24,478,000Accumulated deficit
    
    
    (22,899,000
    )
    
    
    (21,543,000
    )2,262,000
    
    
    
    2,955,000Less treasury shares, at cost, 113,000 shares as of March
31, 2010 and September 30, 2009
    
    
    (306,000
    )
    
    
    (306,000
    )Total Shareholders Equity
    
    
    1,956,000
    
    
    
    2,649,000Total Liabilities and Shareholders Equity
    
    $
    3,401,000
    
    
    $
    4,453,000
 See notes to unaudited condensed consolidated financial statements .
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended
    
    
    Six months endedMarch 31,
    
    
    March 31,Rounded in thousands, except per share amounts
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)Revenues
    
    $
    109,000
    
    
    $
    2,802,000
    
    
    $
    1,365,000
    
    
    $
    3,156,000Cost of goods sold
    
    
    69,000
    
    
    
    1,582,000
    
    
    
    740,000
    
    
    
    1,776,000Gross profit
    
    
    40,000
    
    
    
    1,220,000
    
    
    
    625,000
    
    
    
    1,380,000Selling, general and administrative
    
    
    696,000
    
    
    
    1,371,000
    
    
    
    1,490,000
    
    
    
    2,580,000Research and development
    
    
    257,000
    
    
    
    154,000
    
    
    
    453,000
    
    
    
    343,000Loss from operations
    
    
    (913,000
    )
    
    
    (305,000
    )
    
    
    (1,318,000
    )
    
    
    (1,543,000
    )Other income/(expense):Gain (loss) on derivative revaluation
    
    
    
    
    
    
    44,000
    
    
    
    38,000
    
    
    
    (19,000
    )Other income
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    4,000Interest income
    
    
    
    
    
    
    1,000
    
    
    
    2,000
    
    
    
    10,000Interest (expense)
    
    
    (38,000
    )
    
    
    (5,000
    )
    
    
    (76,000
    )
    
    
    (7,000
    )Loss before provision for income taxes
    
    
    (951,000
    )
    
    
    (261,000
    )
    
    
    (1,354,000
    )
    
    
    (1,555,000
    )Income tax provision
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    2,000Net loss
    
    $
    (951,000
    )
    
    $
    (261,000
    )
    
    $
    (1,356,000
    )
    
    $
    (1,557,000
    )Net loss per share:Basic and fully-diluted
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.06
    )
    
    $
    (0.08
    )Weighted average shares outstanding:Basic and fully-diluted
    
    
    21,189,000
    
    
    
    20,246,000
    
    
    
    20,998,000
    
    
    
    20,405,000
 See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months endedMarch 31,Rounded in thousands
    
    2010
    
    
    2009(unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    (1,356,000
    )
    
    $
    (1,557,000
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation
    
    
    26,000
    
    
    
    28,000Provision for bad debts
    
    
    (5,000
    )
    
    
    (6,000
    )Non-cash compensation to employees and directors
    
    
    35,000
    
    
    
    238,000Non-cash compensation for warrants issued
    
    
    85,000
    
    
    
    Non-cash compensation to consultants
    
    
    38,000
    
    
    
    79,000(Gain) loss on derivative revaluation
    
    
    (38,000
    )
    
    
    19,000Amortization of warrants for notes payable
    
    
    42,000
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    1,394,000
    
    
    
    169,000Inventories
    
    
    (246,000
    )
    
    
    (182,000
    )Other current assets
    
    
    15,000
    
    
    
    144,000Accounts payable
    
    
    (126,000
    )
    
    
    429,000Accrued expenses
    
    
    (55,000
    )
    
    
    (65,000
    )Accrued payroll and related taxes
    
    
    (11,000
    )
    
    
    3,000Accrued derivative liability
    
    
    (161,000
    )
    
    
    Net cash provided by (used in) operating activities
    
    
    (363,000
    )
    
    
    (701,000
    )Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    
    
    
    
    (30,000
    )Net cash (used in) investing activities
    
    
    
    
    
    
    (30,000
    )Cash flows from financing activities:Proceeds from sale of common stock
    
    
    288,000
    
    
    
    Proceeds from exercise of stock options
    
    
    6,000
    
    
    
    Proceeds from bank note payable
    
    
    
    
    
    
    1,000,000Net cash provided by financing activities
    
    
    294,000
    
    
    
    1,000,000Net increase (decrease) in cash
    
    
    (69,000
    )
    
    
    269,000Cash, beginning of period
    
    
    126,000
    
    
    
    325,000Cash, end of period
    
    $
    57,000
    
    
    $
    594,000Supplemental cash flow information:Cash paid during the period for income taxes
    
    $
    2,000
    
    
    $
    2,000Cash paid during the period for interest
    
    $
    34,000
    
    
    $
    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 for
cash of $6,000 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
    
    
    $
    
 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
  5




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Recently Issued:
 Transfers and Servicing
(Topic 860): Accounting for Transfers of Financial Assets.
 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
  March 31,
    
    
    September 30,2010
    
    
    2009(unaudited)Raw materials
    
    $
    1,526,000
    
    
    $
    1,338,000Work in process
    
    
    169,000
    
    
    
    218,000Finished goods
    
    
    620,000
    
    
    
    513,000$
    2,315,000
    
    
    $
    2,069,000
 5. USE OF ESTIMATES
  6. STOCK BASED COMPENSATION
 Stock Options
  7




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For the Six MonthsEnded March 31,2010
    
    
    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
    
    
    
    4.52Exercised
    
    
    (25,000
    )
    
    $
    0.65Forfeited, Expired or Cancelled
    
    
    (179,000
    )
    
    $
    3.32Outstanding at March 31, 2010
    
    
    2,074,000
    
    
    $
    1.17
    
    
    
    3.34
    
    
    $
    Exercisable at March 31, 2010
    
    
    1,224,000
    
    
    $
    1.50
    
    
    
    2.89
    
    
    $
    
    *
 
 *
    
    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
$0.64 at March 31, 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
    
    
    (25,000
    )
    
    $
    (0.46
    )Vested
    
    
    (70,000
    )
    
    $
    (0.53
    )Non-vested at March 31, 2010 31,202007
    
    
    850,000
    
    
    $
    0.45
      Stock warrants 
    9




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Common stock 
  7. INCOME TAXES
   8. FAIR VALUE OF FINANCIAL INSTRUMENTS
  9. COMMITMENTS AND CONTINGENCIES
 Litigation
  10




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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 March 31, 2010 compared to the three-months ended March 31, 2009
  Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
  12




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Research & Development:
 Other Income (Expense):
  Net Loss:
 Six months ended March 31, 2010 compared to the six months ended March 31, 2009
 Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Research & Development:
 Net Loss:
 Liquidity and Capital Resources
   13




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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 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
  16




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SIGNATURES
  XENONICS HOLDINGS, INC.Date:  May 17, 2010
    By:
    /s/ Alan P. MagermanAlan P. MagermanChairman of the Board
Chief Executive OfficerDate:  May 17, 2010
    By:
    /s/ Richard S. KayRichard S. KayChief Financial Officer  17