##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2010
 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
    
    84-1433854(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)3186 Lionshead AvenueCarlsbad, California
    
    92010-4701(Address of principal executive offices)
    
    (Zip code)
 (760) 477-8900
   o þ
 o Yes þ No
 þ o
 § o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



TABLE OF CONTENTS
 PART IITEM 1. BUSINESS
    
    
    4ITEM 1A. RISK FACTORS
    
    
    8ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    11ITEM 2. PROPERTIES
    
    
    11ITEM 3. LEGAL PROCEEDINGS
    
    
    11ITEM 4. REMOVED AND RESERVED
    
    
    11PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    12ITEM 6. SELECTED FINANCIAL DATA
    
    
    13ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    13ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    17ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    18ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    37ITEM 9A. CONTROLS AND PROCEDURES
    
    
    37ITEM 9B. OTHER INFORMATION
    
    
    38PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    39ITEM 11. EXECUTIVE COMPENSATION
    
    
    39ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    39ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    39ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    39PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    40Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Introductory Comment
  Forward-Looking Statements
   3




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PART I
 
 Item 1.
    
    Business
 Overview
     Our Products
    4




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NightHunter One
 NightHunter ext
 NightHunter 3
 SuperVision
 SuperVision Video Out
 SuperVision Tactical Package
 SuperVision Long Range Surveillance System
 The Markets
  Military Forces, of the United States and Foreign Allies
     5




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U.S. Department of Homeland Security
  Law Enforcement and Fire, Search & Rescue
  Commercial Markets
  Sales & Marketing
  Manufacturing
     6




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Competition
    Regulation
  Intellectual Property
    Research and Development
    7




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Employees
  
 Item 1A.
    
    Risk Factors
 RISK FACTORS
 An investment in our common stock is subject to a high degree of risk. The risks described
below should be carefully considered, as well as the other information contained in this annual
report. If any of the following risks actually occurs, our business, financial condition, results
of operations and business prospects could be materially and adversely affected. In such event, the
trading price of our common stock would likely decline.
 Risks Related to Our Business
 Fluctuations in our quarterly and annual operating results make it difficult to assure future
positive cash flows from operations.
  The loss of contracts with U.S. government agencies would adversely affect our revenue.
  Potential customers may prefer our competitors technology and products.
   8




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The loss of any of our key personnel could adversely affect our business.
  The interests of our current shareholders will be diluted if we seek additional equity financing in
the future, and any debt financing that we seek in the future will expose us to the risk of default
and insolvency.
 .
 We may experience production delays if suppliers fail to deliver materials to us, which could
reduce our revenue.
  Our operations involve evolving products and technological change, which could make our products
obsolete.
  Any delay in our ability to market, sell or ship our existing products would adversely affect our
revenue.
    9




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Because we depend on a single manufacturer to make our NightHunter 3 products, any failure by the
manufacturer to honor its obligations to us will impair our ability to deliver our products to
customers.
  Risks Related to Our Common Stock
 You may be unable to sell your shares at an adequate price or at all
  If securities or industry analysts do not publish research reports about our business or if they
downgrade our stock, the price of our common stock could decline.
  Anti-takeover provisions in our articles of incorporation could adversely affect the value of our
common stock.
  The future issuance of additional common and preferred stock could dilute existing shareholders.
   
    
    exercising voting, redemption and conversion rights to the detriment of the holders of common stock;
    
    receiving preferences over the holders of common stock or surplus funds in the event of our dissolution or liquidation;
    
    delaying, deferring or preventing a change in control of our company; and
    
    discouraging bids for our common stock.
  10




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We do not plan to pay any cash dividends on our common stock.
  The exercise of outstanding stock options and warrants would dilute the ownership interests of our
existing shareholders.
  Future sales of common stock by our existing shareholders and option and warrant holders could
cause our stock price to decline.
  
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
  
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Removed and Reserved
  11




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  Year ended September 30, 2010
    
    High
    
    
    LowFirst Quarter
    
    $
    1.12
    
    
    $
    0.63Second Quarter
    
    $
    1.04
    
    
    $
    0.48Third Quarter
    
    $
    0.53
    
    
    $
    0.32Fourth Quarter
    
    $
    0.42
    
    
    $
    0.23
 Year ended September 30, 2009
    
    High
    
    
    LowFirst Quarter
    
    $
    1.04
    
    
    $
    0.48Second Quarter
    
    $
    0.71
    
    
    $
    0.26Third Quarter
    
    $
    0.79
    
    
    $
    0.55Fourth Quarter
    
    $
    0.81
    
    
    $
    0.55
  Dividends
  Repurchase of Securities
  Recent Sales of Unregistered Securities
  Equity Compensation Plan Information
  Number of securities
    
    
    
    
    
    
    Number of securitiesto be issued upon
    
    
    Weighted-average
    
    
    remaining available forexercise of
    
    
    exercise price of
    
    
    future issuance underoutstanding options,
    
    
    outstanding options,
    
    
    equity compensation plansPlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    (excluding column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by security holders
    
    
    1,813,000
    
    
    $
    0.76
    
    
    
    513,000Equity compensation plans not approved by security
holders
    
    
    600,000
    
    
    $
    1.42
    
    
    
    Totals
    
    
    2,413,000
    
    
    $
    0.92
    
    
    
    513,000
  12




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Item 6.
    
    Selected Financial Data
  
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Overview
   13




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How We Generate Revenue
  Trends in Our Business
   Critical Accounting Policies and Estimates
  Revenue Recognition and Accounts Receivable
  14




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Allowance for Doubtful Accounts 
 Tax Valuation Allowance
 Inventory Valuation
  Results of Operations
 Year ended September 30, 2010 compared to September 30, 2009
  Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Research & Development:
 Other Income / Expense:
  15




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Provision for Income Taxes:
 Net Loss:
 Liquidity and Capital Resources
        16




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Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
   17




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Item 8.
    
    Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 XENONICS HOLDINGS, INC.
 Report of Independent Registered Public Accounting Firm
    
    
    19Consolidated Financial Statements:Balance Sheets as of September 30, 2010 and 2009
    
    
    20Statements of Operations for the years ended September 30, 2010 and 2009
    
    
    21Statements of Shareholders Equity for the years ended September 30, 2010 and 2009
    
    
    22Statements of Cash Flows for the years ended September 30, 2010 and 2009
    
    
    23Notes to Consolidated Financial Statements
    
    
    24
  18




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
  19




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CONSOLIDATED BALANCE SHEETS
 September 30,Rounded in thousands, except par value
    
    2010
    
    
    2009AssetsCurrent assets:Cash
    
    $
    705,000
    
    
    $
    126,000Accounts receivable, net
    
    
    956,000
    
    
    
    1,634,000Inventories, net
    
    
    1,966,000
    
    
    
    2,069,000Other current assets
    
    
    166,000
    
    
    
    119,000Total Current Assets
    
    
    3,793,000
    
    
    
    3,948,000Equipment, furniture and leasehold improvements at cost, net
    
    
    69,000
    
    
    
    130,000Goodwill
    
    
    375,000
    
    
    
    375,000Other assets
    
    
    216,000
    
    
    
    Total Assets
    
    $
    4,453,000
    
    
    $
    4,453,000Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    492,000
    
    
    $
    1,000,000Accrued expenses
    
    
    126,000
    
    
    
    157,000Accrued payroll and related taxes
    
    
    110,000
    
    
    
    156,000Accrued derivative liability
    
    
    
    
    
    
    199,000Total Current Liabilities
    
    
    728,000
    
    
    
    1,512,000Notes payable
    
    
    376,000
    
    
    
    292,000Total Liabilities
    
    
    1,104,000
    
    
    
    1,804,000Commitments and contingencies (Note 14)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 September 30, 2010 and
2009; 25,622,000 shares issued as of September 30, 2010 and 20,571,000 as of September 30,
2009; 25,509,000 shares outstanding as of September 30, 2010 and 20,459,000 outstanding as of
September 30, 2009
    
    
    25,000
    
    
    
    20,000Additional paid-in capital
    
    
    26,954,000
    
    
    
    24,478,000Accumulated deficit
    
    
    (23,324,000
    )
    
    
    (21,543,000
    )3,655,000
    
    
    
    2,955,000Less treasury stock, at cost, 113,000 shares
    
    
    (306,000
    )
    
    
    (306,000
    )Total Shareholders Equity
    
    
    3,349,000
    
    
    
    2,649,000Total Liabilities and Shareholders Equity
    
    $
    4,453,000
    
    
    $
    4,453,000
 The accompanying notes are an integral part of these consolidated financial statements.
  20




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CONSOLIDATED STATEMENTS OF OPERATIONS
 Years ended  September 30,Rounded in thousands, except per share amounts
    
    2010
    
    
    2009Revenue
    
    $
    4,397,000
    
    
    $
    7,378,000Cost of goods sold
    
    
    2,247,000
    
    
    
    4,005,000Gross profit
    
    
    2,150,000
    
    
    
    3,373,000Selling, general and administrative
    
    
    3,021,000
    
    
    
    4,535,000Research and development
    
    
    772,000
    
    
    
    623,000Income (loss) from operations
    
    
    (1,643,000
    )
    
    
    (1,785,000
    )Other income (expense):Gain (loss) on derivative revaluation
    
    
    38,000
    
    
    
    (39,000
    )Other (expense) income
    
    
    (26,000
    )
    
    
    10,000Interest income
    
    
    4,000
    
    
    
    15,000Interest (expense)
    
    
    (152,000
    )
    
    
    (38,000
    )Income (loss) before provision for income taxes
    
    
    (1,779,000
    )
    
    
    (1,837,000
    )Income tax provision
    
    
    2,000
    
    
    
    2,000Net income (loss)
    
    $
    (1,781,000
    )
    
    $
    (1,839,000
    )Net loss per share:Basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.09
    )Weighted average shares outstandingBasic and diluted
    
    
    22,994,000
    
    
    
    20,405,000
 The accompanying notes are an integral part of these consolidated financial statements.
  21




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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Common Stock
    
    
    Treasury Stock
    
    
    Additional
    
    
    AccumulatedRounded in thousands
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Deficit
    
    
    TotalBalances at September 30,
2008
    
    
    20,296,000
    
    
    $
    20,000
    
    
    
    (113,000
    )
    
    $
    (306,000
    )
    
    $
    23,744,000
    
    
    $
    (19,704,000
    )
    
    $
    3,754,000Shares issued in exchange
for minority interest
    
    
    275,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    214,000
    
    
    
    
    
    
    
    214,000Warrants issued for notes
payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    
    250,000Compensation charge for
stock options issued to
employees and directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237,000
    
    
    
    
    
    
    
    237,000Compensation charge for
warrants issued for
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,000
    
    
    
    
    
    
    
    33,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,839,000
    )
    
    
    (1,839,000
    )Balances at September 30,
2009
    
    
    20,571,000
    
    
    $
    20,000
    
    
    
    (113,000
    )
    
    $
    (306,000
    )
    
    $
    24,478,000
    
    
    $
    (21,543,000
    )
    
    $
    2,649,000Shares issued for cash
    
    
    4,400,000
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    1,924,000
    
    
    
    
    
    
    
    1,928,000Shares issued for services
    
    
    600,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    386,000
    
    
    
    
    
    
    
    387,000Warrants and stock
options exercised
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,000
    
    
    
    
    
    
    
    16,000Compensation charge for
stock options issued to
employees and directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,000
    
    
    
    
    
    
    
    34,000Compensation charge for
warrants issued for
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,000
    
    
    
    
    
    
    
    116,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,781,000
    )
    
    
    (1,781,000
    )Balances at September 30,
2010
    
    
    25,621,000
    
    
    $
    25,000
    
    
    
    (113,000
    )
    
    $
    (306,000
    )
    
    $
    26,954,000
    
    
    $
    (23,324,000
    )
    
    $
    3,349,000
 The accompanying notes are an integral part of these consolidated financial statements.
  22




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CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years ended September 30,Rounded in thousands
    
    2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    (1,781,000
    )
    
    $
    (1,839,000
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation
    
    
    63,000
    
    
    
    58,000Impairment loss from fixed asset disposals
    
    
    26,000
    
    
    
    9,000Provision for bad debts
    
    
    165,000
    
    
    
    110,000Non-cash compensation for stock options issued to employees and directors
    
    
    34,000
    
    
    
    236,000Non-cash compensation for warrants issued
    
    
    116,000
    
    
    
    Non-cash compensation to consultants
    
    
    90,000
    
    
    
    33,000(Gain) loss on derivative revaluation
    
    
    (38,000
    )
    
    
    39,000Amortization of warrants for notes payable
    
    
    84,000
    
    
    
    17,000Changes in operating assets and liabilities:Accounts receivable
    
    
    513,000
    
    
    
    (790,000
    )Inventories
    
    
    103,000
    
    
    
    (324,000
    )Other current assets
    
    
    34,000
    
    
    
    256,000Accounts payable
    
    
    (498,000
    )
    
    
    461,000Accrued expenses
    
    
    (31,000
    )
    
    
    63,000Accrued payroll and related taxes
    
    
    (46,000
    )
    
    
    (17,000
    )Accrued derivative liability
    
    
    (161,000
    )
    
    
    Net cash (used in) operating activities
    
    
    (1,327,000
    )
    
    
    (1,688,000
    )Cash flows from investing activities:Proceeds from investments in marketable securities
    
    
    
    
    
    
    1,000,000Purchases of equipment, furniture and leasehold improvements
    
    
    (28,000
    )
    
    
    (36,000
    )Net cash provided by (used in) investing activities
    
    
    (28,000
    )
    
    
    964,000Cash flows from financing activities:Proceeds from sales of common stock, net of expenses
    
    
    1,928,000
    
    
    
    Proceeds from bank note payable
    
    
    
    
    
    
    1,000,000Repayment of bank note payable
    
    
    
    
    
    
    (1,000,000
    )Proceeds from the exercises of warrants and stock options
    
    
    6,000
    
    
    
    Proceeds from notes payable
    
    
    
    
    
    
    525,000Net cash provided by (used in) financing activities
    
    
    1,934,000
    
    
    
    525,000Net increase (decrease) in cash
    
    
    579,000
    
    
    
    (199,000
    )Cash, beginning of period
    
    
    126,000
    
    
    
    325,000Cash, end of period
    
    $
    705,000
    
    
    $
    126,000Supplemental cash flow information:Cash paid during the year for income taxes
    
    $
    2,000
    
    
    $
    2,000Cash paid during the year for interest
    
    $
    68,000
    
    
    $
    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 and received $6,000 in
cash 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
    
    
    $
    The Company issued 300,000 shares of common stock for a one-year extension of the financial advisory
service agreement at $0.49 per share
    
    $
    147,000
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements
  23




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. OPERATIONS AND OTHER ORGANIZATIONAL MATTERS
    2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
 Use of Estimates
 Cash and Cash Equivalents 
 Equipment, Furniture and Leasehold Improvements 
 Long-Lived Assets
 Fair Value Of Financial Instruments 
  24




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Accounts Receivable 
 Concentrations of Credit Risk 
 Inventories
 Revenue Recognition
 Advertising Costs
 Cost of Goods Sold 
 Income Taxes
   25




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Loss Per Common Share 
  For the years endedSeptember 30,2010
    
    
    2009Shares outstanding, beginning
    
    
    20,459,000
    
    
    
    20,184,000Weighted average shares issued
    
    
    2,535,000
    
    
    
    221,000Weighted average shares outstanding  Basic and diluted
    
    
    22,994,000
    
    
    
    20,405,000
  September 30,2010
    
    
    2009Stock options and warrants
    
    
    8,061,000
    
    
    
    5,281,000
 Research and Development
 Stock Options
 Recently Adopted and Issued Accounting Pronouncements
 Recently Adopted:
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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
 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.
  27




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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
 3. ACCOUNTS RECEIVABLE
  September 30,
    
    
    September 30,2010
    
    
    2009Accounts Receivable
    
    $
    1,132,000
    
    
    $
    1,754,000Allowance for doubtful accounts
    
    
    (176,000
    )
    
    
    (120,000
    )$
    956,000
    
    
    $
    1,634,000
 4. INVENTORIES
  September 30,
    
    
    September 30,2010
    
    
    2009Raw materials
    
    $
    1,285,000
    
    
    $
    1,338,000Work in process
    
    
    250,000
    
    
    
    218,000Finished goods
    
    
    431,000
    
    
    
    513,000$
    1,966,000
    
    
    $
    2,069,000
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5. FIXED ASSETS
  Estimated
    
    September 30,
    
    
    September 30,Useful Lives
    
    2010
    
    
    2009Computer equipment and software
    
    5
    
    $
    109,000
    
    
    $
    211,000Furniture and leasehold improvements
    
    7
    
    
    92,000
    
    
    
    67,000201,000
    
    
    
    278,000Less: accumulated depreciation and amortization
    
    
    
    
    (132,000
    )
    
    
    (148,000
    )$
    69,000
    
    
    $
    130,000
  6. GOODWILL
  7. DERIVATIVE LIABILITY
  8. NOTES PAYABLE
   September 30,
    
    
    September 30,2010
    
    
    2009Notes payable
    
    Unsecured Notes payable, maturing in July 2012, bearing interest at 13% per annum (net
of unamortized debt discount of $149,000 in
2010 and $233,000 in 2009)
    
    $
    376,000
    
    
    $
    292,000Total debt obligations
    
    
    376,000
    
    
    
    292,000Less  current portion, net of debt discount
    
    
    
    
    
    
    Long-term portion
    
    $
    376,000
    
    
    $
    292,000
  29




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##### Table of Contents



2011
    
    $
    2012
    
    
    525,000Total
    
    $
    525,000
 9. MINORITY INTEREST
  10. SHAREHOLDERS EQUITY
      11. STOCK OPTIONS AND WARRANTS
 Stock Options
    30




---



##### Table of Contents



For the  years  endedSeptember 30,2010
    
    2009Risk-free interest rate
    
    1.41%  1.80%
    
    1.47%  2.37%Expected life (in years)
    
    4  5
    
    4Dividend yield
    
    0.0%
    
    0.0%Expected volatility
    
    102%  103%
    
    100%  104%Weighted-average volatility
    
    103%
    
    103%
    WeightedAverageWeighted
    
    
    ContractualStock
    
    
    Average
    
    
    Term in
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Years
    
    
    Intrinsic ValueOutstanding at October 1, 2008
    
    
    1,443,000
    
    
    $
    2.77Granted
    
    
    1,905,000
    
    
    $
    0.67Exercised
    
    
    
    
    
    
    Forfeited or Cancelled
    
    
    (1,115,000
    )
    
    $
    1.82Outstanding at September 30, 2009
    
    
    2,233,000
    
    
    $
    1.46
    
    
    
    3.57
    
    
    
    Granted
    
    
    985,000
    
    
    $
    0.66
    
    
    
    4.87
    
    
    
    Forfeited
    
    
    (25,000
    )
    
    $
    0.65Cancelled
    
    
    (1,355,000
    )
    
    $
    1.65Exercised
    
    
    (25,000
    )
    
    $
    0.65
    
    
    
    Outstanding at September 30, 2010
    
    
    1,813,000
    
    
    $
    0.76
    
    
    
    4.05
    
    
    
    Exercisable at September 30, 2010
    
    
    913,000
    
    
    $
    0.86
    
    
    
    3.20
    
    
    
    
    *
 *
    
    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 $0.34
at September 30, 2010.   31




---



##### Table of Contents



Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNon-vested at October 1, 2009
    
    
    900,000
    
    
    $
    0.45Granted
    
    
    985,000
    
    
    $
    0.22Forfeited or Exercised
    
    
    (905,000
    )
    
    $
    0.24Vested
    
    
    (80,000
    )
    
    $
    0.25Non-vested at September 30, 2010
    
    
    900,000
    
    
    $
    0.20
      Options Outstanding
    
    
    Options ExercisableAt September 30, 2010
    
    
    at September 30, 2010WeightedAverage
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Range of
    
    
    
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AverageExercise
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Vested and
    
    
    ExercisePrices
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.63  $1.00
    
    
    1,770,000
    
    
    
    4.12
    
    
    $
    0.68
    
    
    
    870,000
    
    
    $
    0.74$1.01  $2.85
    
    
    28,000
    
    
    
    0.19
    
    
    $
    1.83
    
    
    
    28,000
    
    
    $
    1.83$2.86  $5.75
    
    
    15,000
    
    
    
    3.64
    
    
    $
    5.75
    
    
    
    15,000
    
    
    $
    5.751,813,000
    
    
    
    4.05
    
    
    $
    0.76
    
    
    
    913,000
    
    
    $
    0.86
 Stock Warrants 
   32




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##### Table of Contents



For the years ended September 30,2010
    
    
    2009Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseWarrants
    
    
    Price
    
    
    Warrants
    
    
    PriceOutstanding-beginning of period
    
    
    3,048,000
    
    
    $
    2.31
    
    
    
    3,388,000
    
    
    $
    2.29Issued
    
    
    4,200,000
    
    
    $
    0.65
    
    
    
    825,000
    
    
    $
    0.66Exercised
    
    
    (25,000
    )
    
    $
    0.50
    
    
    
    
    
    
    
    Canceled/Forfeited
    
    
    (75,000
    )
    
    $
    3.86
    
    
    
    (1,165,000
    )
    
    $
    0.77Outstanding-end of period
    
    
    7,148,000
    
    
    $
    1.32
    
    
    
    3,048,000
    
    
    $
    2.31Exercisable-end of period
    
    
    2,212,000
    
    
    $
    1.72
    
    
    
    2,112,000
    
    
    $
    1.90
   Warrants Vested and Exercisableat September 30, 2010WeightedAverage
    
    
    Weighted-Range of
    
    Number
    
    
    Remaining
    
    
    AverageExercise
    
    Vested and
    
    
    Contractual
    
    
    ExercisePrices
    
    Exercisable
    
    
    Life (Years)
    
    
    Price$0.50 - $1.57
    
    
    725,000
    
    
    
    3.89
    
    
    $
    0.66$1.58 - $2.20
    
    
    800,000
    
    
    
    0.82
    
    
    $
    1.79$2.21 - $2.75
    
    
    687,000
    
    
    
    1.67
    
    
    $
    2.752,212,000
    
    
    
    2.09
    
    
    $
    1.72
 12. INCOME TAXES
    33




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##### Table of Contents



For the years endedSeptember 30,2010
    
    
    2009Current provision:Federal
    
    $
    
    
    
    $
    State
    
    
    2,000
    
    
    
    2,0002,000
    
    
    
    2,000Deferred provision:Federal
    
    
    (580,000
    )
    
    
    (624,000
    )State
    
    
    (145,000
    )
    
    
    (140,000
    )(725,000
    )
    
    
    (764,000
    )Valuation allowance
    
    
    725,000
    
    
    
    764,000$
    2,000
    
    
    $
    2,000
  For the years endedSeptember 30,2010
    
    
    2009Accrued derivative liability
    
    $
    
    
    
    $
    79,000Inventory reserve
    
    
    12,000
    
    
    
    Deferred lease liability
    
    
    17,000
    
    
    
    Allowance for doubtful accounts
    
    
    70,000
    
    
    
    48,000Stock compensation expense
    
    
    874,000
    
    
    
    865,000Warrant expense
    
    
    386,000
    
    
    
    340,000State taxes
    
    
    1,000
    
    
    
    1,000Accumulated depreciation / amortization
    
    
    (6,000
    )
    
    
    (15,000
    )R&D credit
    
    
    642,000
    
    
    
    575,000Other
    
    
    48,000
    
    
    
    72,000Net operating loss carry-forwards
    
    
    6,705,000
    
    
    
    6,059,0008,749,000
    
    
    
    8,024,000Valuation allowance
    
    
    (8,749,000
    )
    
    
    (8,024,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    
   For the years endedSeptember 30,2010
    
    
    2009Federal statutory rate
    
    
    34.00
    %
    
    
    34.00
    %State income taxes, net of federal income tax benefit
    
    
    5.83
    %
    
    
    5.83
    %Change in valuation allowance
    
    
    (40.70
    )%
    
    
    (41.54
    )%R&D credit carry-forward
    
    
    3.68
    %
    
    
    5.22
    %Other
    
    
    (2.92
    )%
    
    
    (3.62
    )%(0.11
    )%
    
    
    (0.11
    )%
  34




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##### Table of Contents



13. SAVINGS PLAN
  14. COMMITMENTS AND CONTINGENCIES
 Leases
  Employment Agreements 
 Litigation
   35




---



##### Table of Contents



15. SUBSEQUENT EVENTS
      36




---



##### Table of Contents



ITEM 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
     Changes in Internal Control Over Financial Reporting
   37




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##### Table of Contents



Inherent Limitations on the Effectiveness of Controls
  
 Item 9B.
    
    Other Information
   38




---



##### Table of Contents



PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance
  
 Item 11.
    
    Executive Compensation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accountant Fees and Services
   39




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules
 ExhibitNumber
    
    Description3.1
    
    
    Restated Articles of Incorporation of Xenonics Holdings, Inc. (incorporated by reference to Exhibit
3.1 to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc., File No. 333-123221, filed
on March 9, 2005).3.2
    
    
    Bylaws of Xenonics Holdings, Inc., formerly known as Digital Home Theater Systems, Inc. (incorporated
by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form SB-2 of Xenonics
Holdings, Inc., File No. 333-115324, filed on June 30, 2004).10.1
    
    
    Lease between Xenonics Holdings, Inc. and Lionshead Investments, LLC dated October 27, 2008
(incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-KSB of Xenonics Holdings,
Inc. filed on December 18, 2008).10.2
    
    
    PerkinElmer Manufacturing Terms and Conditions Agreement, dated as of January 6, 2003, between
Xenonics, Inc. and PerkinElmer Electronics, Inc. (incorporated by reference to Exhibit 10.7 to
Amendment No. 4 to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc., File No.
333-115324, filed on September 21, 2004.10.3
    
    
    Agreement for the License and Transfer of Intellectual Property Rights from Lightrays, Ltd. to
Xenonics, Inc., dated March 27, 1997, between Xenonics, Inc. and Lightrays, Ltd. (incorporated by
reference to Exhibit 10.9 to Amendment No. 2 to the Registration Statement on Form SB-2 of Xenonics
Holdings, Inc., File No. 333-115324, filed on August 16, 2004).10.4
    
    
    Amendment to Agreement for the License and Transfer of Intellectual Property Rights, dated April 23,
1998, between Xenonics, Inc. and Lightrays, Ltd. (incorporated by reference to Exhibit 10.10 to
Amendment No. 2 to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc., File No.
333-115324, filed on August 16, 2004).10.5
    
    
    Form of Indemnification Agreement entered into between Xenonics Holdings, Inc. and its directors and
certain officers (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form SB-2
of Xenonics Holdings, Inc., File No. 333-115324, filed on May 10, 2004).*10.6
    
    
    Employment Agreement between Xenonics, Inc. and Alan P. Magerman, dated January 1, 2003 (incorporated
by reference to Exhibit 10.5 to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc.,
File No. 333-115324, filed on May 10, 2004).*10.7
    
    
    Amendment dated April 15, 2005 to Employment Agreement between Xenonics, Inc. and Alan P. Magerman
(incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of Xenonics Holdings,
Inc. filed on April 21, 2005).*10.8
    
    
    Employment Agreement between Xenonics, Inc. and Jeffrey Kennedy, dated January 1, 2003 (incorporated
by reference to Exhibit 10.6 to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc.,
File No. 333-115324, filed on May 10, 2004).*10.9
    
    
    2003 Stock Option Plan of Xenonics Holdings, Inc. (incorporated by reference to Exhibit 10.4 to
Amendment No. 1 to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc., File No.
333-115324, filed on June 30, 2004).*10.10
    
    
    Form of Option Agreement for the 2003 Stock Option Plan (incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form S-8 of Xenonics Holdings, Inc., File No. 333-125468, filed on June
3, 2005).*10.11
    
    
    2004 Stock Incentive Plan of Xenonics Holdings, Inc (incorporated by reference to Exhibit 10.12 to
Post-Effective Amendment No. 1 to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc.,
File No. 333-115324, filed on February 17, 2005).*10.12
    
    
    Form of Option Agreement for the 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.13
to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc., File No. 333-123221, filed on
March 9, 2005).*10.13
    
    
    Form of Warrant Certificate of Xenonics Holdings, Inc. (incorporated by reference to Exhibit 4.2 to
the Registration Statement on Form SB-2 of Xenonics Holdings, Inc., File No. 333-115324, filed on May
10, 2004).10.15
    
    
    Form of Stock Purchase Agreement entered into by Xenonics Holdings, Inc. and certain investors in
March 2004 in connection with the purchase of common stock (incorporated by reference to Exhibit 10.2
to the Registration Statement on Form SB-2 of Xenonics Holdings, Inc., File No. 333-115324, filed on
May 10, 2004).
  40




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##### Table of Contents



ExhibitNumber
    
    Description10.19
    
    
    Warrant, dated September 5, 2006, issued by Xenonics Holdings, Inc. to Third Coast Marketing, LLC for
the purchase of an aggregate of 500,000 shares of the common stock of Xenonics Holdings, Inc.
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Xenonics Holdings,
Inc. filed on September 11, 2006).10.20
    
    
    Form of Selling Shareholder and Securities Purchase Agreement, dated as of January 17, 2005, entered
into by and among Xenonics Holdings, Inc. and the Selling Shareholders and the Investors named therein
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Xenonics Holdings,
Inc. filed on January 18, 2005).10.21
    
    
    Form of Registration Rights Agreement, dated as of January 17, 2005, entered into among Xenonics
Holdings, Inc. and the Selling Shareholders and the Investors named therein (incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on January 18,
2005).10.22
    
    
    Consulting Agreement dated as of September 5, 2006 between Xenonics Holdings, Inc. and Third Coast
Marketing, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of
Xenonics Holdings, Inc. filed on September 11, 2006).10.23
    
    
    Securities Purchase Agreement dated as of February 2, 2007 between Xenonics Holdings, Inc. and Gemini
Master Fund, Ltd. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of
Xenonics Holdings, Inc. filed on February 7, 2007).10.24
    
    
    Registration Rights Agreement dated as of February 2, 2007 between Xenonics Holdings, Inc. and Gemini
Master Fund, Ltd. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of
Xenonics Holdings, Inc. filed on February 7, 2007).10.25
    
    
    A Warrant issued by Xenonics Holdings, Inc. on February 2, 2007 to Gemini Master Fund, Ltd. for the
purchase of 300,000 shares of the common stock of Xenonics Holdings, Inc. (incorporated by reference
to Exhibit 10.3 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on February 7,
2007).10.26
    
    
    B Warrant issued by Xenonics Holdings, Inc. on February 2, 2007 to Gemini Master Fund, Ltd. for the
purchase of 300,000 shares of the common stock of Xenonics Holdings, Inc. (incorporated by reference
to Exhibit 10.4 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on February 7,
2007).10.27
    
    
    Engagement Letter dated January 25, 2007 between Xenonics Holdings, Inc. and Granite Financial Group,
Inc. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K of Xenonics
Holdings, Inc. filed on February 7, 2007).10.28
    
    
    A Warrant issued by Xenonics Holdings, Inc. on February 2, 2007 to Granite Financial Group, Inc. for
the purchase of 30,000 shares of the common stock of Xenonics Holdings, Inc. (incorporated by
reference to Exhibit 10.6 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on
February 7, 2007).10.29
    
    
    B Warrant issued by Xenonics Holdings, Inc. on February 2, 2007 to Granite Financial Group, Inc. for
the purchase of 30,000 shares of the common stock of Xenonics Holdings, Inc. (incorporated by
reference to Exhibit 10.7 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on
February 7, 2007).10.30
    
    
    Securities Purchase Agreement dated as of September 21, 2007 among Xenonics Holdings, Inc., Gemini
Master Fund, Ltd., and the other purchasers named in the Securities Purchase Agreement (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on
September 27, 2007).10.31
    
    
    Registration Rights Agreement dated as of September 21, 2007 among Xenonics Holdings, Inc., Gemini
Master Fund, Ltd., and the other purchasers named in the Registration Rights Agreement (incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on
September 27, 2007).10.32
    
    
    Form of A Warrant and B Warrant issued by Xenonics Holdings, Inc. on September 21, 2007 to Gemini
Master Fund, Ltd. and the other purchasers named in the Securities Purchase Agreement dated as of
September 21, 2007 for the purchase of 615,000 shares of the common stock of Xenonics Holdings, Inc.
(incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Xenonics Holdings,
Inc. filed on September 27, 2007).
  41




---



##### Table of Contents



ExhibitNumber
    
    Description10.33
    
    
    Form of A Warrant and B Warrant issued by Xenonics Holdings, Inc. to Granite Financial Group,
Inc. for the purchase of 98,400 shares of the common stock of Xenonics Holdings, Inc. (incorporated by
reference to Exhibit 10.4 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on
September 27, 2007).10.34
    
    
    Securities Purchase Agreement dated as of April 1, 2010 between Xenonics Holdings, Inc. and the
investors identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Xenonics Holdings, Inc. filed on April 2, 2010).10.35
    
    
    Form of Warrant between Xenonics Holdings, Inc. and the investors who are parties to a Securities
Purchase Agreement dated as of April 1, 2010 with Xenonics Holdings, Inc. (incorporated by reference
to Exhibit 4.1 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on April 2, 2010).10.36
    
    
    Securities Purchase Agreement dated as of April 20, 2010 between Xenonics Holdings, Inc. and the
investors identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K of Xenonics Holdings, Inc. filed on April 22, 2010).10.37
    
    
    Amendment dated as of April 20, 2010 to Securities Purchase Agreement dated as of April 1, 2010
between Xenonics Holdings, Inc. and the investors identified on the signature pages thereto
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Xenonics Holdings,
Inc. filed on April 22, 2010).10.38
    
    
    Form of Warrant between Xenonics Holdings, Inc. and the investors who are parties to a Securities
Purchase Agreement dated as of April 20, 2010 with Xenonics Holdings, Inc. (incorporated by reference
to Exhibit 4.1 to the Current Report on Form 8-K of Xenonics Holdings, Inc. filed on April 22, 2010).21.1
    
    
    List of subsidiaries of Xenonics Holdings, Inc. (incorporated by reference to Exhibit 21.1 to the
Registration Statement on Form SB-2 of Xenonics Holdings, Inc., File No. 333-115324, filed on May 10,
2004).23.1
    
    
    Consent of SingerLewak LLP31.1
    
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Denotes a management contract or compensatory plan or arrangement in which one or more
directors or executive officers participate.  42




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##### Table of Contents



SIGNATURES
  Xenonics Holdings, Inc.By:
    /s/ Alan P. MagermanDate: December 16, 2010
    
    Alan P. MagermanChief Executive Officer  Signature
    
    Title
    
    Date/s/ Alan P. Magerman

Alan P. Magerman
    
    Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
    
    December 16, 2010/s/ Jeffrey P. Kennedy

Jeffrey P. Kennedy
    
    Chief Operating Officer, President and Director
    
    December 16, 2010/s/ Richard S. Kay

Richard S. Kay
    
    Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
    
    December 16, 2010/s/ Allen K. Fox

Allen K. Fox
    
    Director
    
    December 16, 2010/s/ Brad J. Shapiro

Brad J. Shapiro
    
    Director
    
    December 16, 2010
  43