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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-KSB





þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934


For the fiscal year ended September 30, 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
    
    84-1433854(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)2236 Rutherford Road, Suite 123
Carlsbad, California
    
    92008-7297(Address of principal executive offices)
    
    (Zip Code)


(760) 438-4004






o þ o
 o
 o þ
    o þ




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##### 



TABLE OF CONTENTS
 PART IITEM 1.
    
    DESCRIPTION OF BUSINESS
    
    
    4ITEM 2.
    
    DESCRIPTION OF PROPERTY
    
    
    9ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    9ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    10PART IIITEM 5.
    
    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    11ITEM 6.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    
    
    13ITEM 7.
    
    FINANCIAL STATEMENTS
    
    
    F1ITEM 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    28ITEM 8A.
    
    CONTROLS AND PROCEDURES
    
    
    28ITEM 8B.
    
    OTHER INFORMATION
    
    
    28PART IIIITEM 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
    
    
    29ITEM 10.
    
    EXECUTIVE COMPENSATION
    
    
    29ITEM 11.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    29ITEM 12.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    29ITEM 13.
    
    EXHIBITS
    
    
    30ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    32EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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Introductory Comment
  Forward-Looking Statements
  - 3 -




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PART I
 
 ITEM 1. DESCRIPTION OF BUSINESS
 Overview
    History
    - 4 -




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Our Products
 ext ° ° ext
  NightHunter
 NightHunterII
 NightHunter ext ext ext ext
 The Markets
  Military Forces, of the United States and Foreign Allies
 th nd st th
 - 5 -




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




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Manufacturing
 ext
   - 7 -




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Competition
   Regulation
  Intellectual Property
   - 8 -




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Research and Development
    Employees
  
 ITEM 2. DESCRIPTION OF PROPERTY
  
 ITEM 3. LEGAL PROCEEDINGS
  - 9 -




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  - 10 -




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PART II
 
 ITEM 5. Market for Common Equity and Related Stockholder Matters
  Year ended September 30, 2005
    
    High
    
    LowFirst Quarter
    
    
    12.25
    
    
    
    3.25Second Quarter
    
    
    8.00
    
    
    
    4.00Third Quarter
    
    
    5.00
    
    
    
    2.05Fourth Quarter
    
    
    3.70
    
    
    
    1.60
 Year ended September 30, 2004
    
    High
    
    LowFirst Quarter
    
    
    7.00
    
    
    
    1.70Second Quarter
    
    
    7.30
    
    
    
    4.10Third Quarter
    
    
    8.75
    
    
    
    4.75Fourth Quarter
    
    
    6.50
    
    
    
    3.00
  Dividends
  Repurchase of Securities
  - 11 -




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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 plansand rights
    
    
    and rights
    
    
    (excluding column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    1,635,000
    
    
    $
    2.56
    
    
    
    860,000Equity compensation
plans not approved
by security holders
    
    
    438,000
    
    
    $
    2.00
    
    
    
    Total
    
    
    2,073,000
    
    
    $
    2.44
    
    
    
    860,000
   - 12 -




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ITEM 6. Managements Discussion and Analysis or Plan of Operation
 Forward-Looking Statements
  Overview
      - 13 -




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How We Generate Revenue
    Trends in Our Business
   Critical Accounting Policies and Estimates
  - 14 -




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Accounts Receivable
 Tax Valuation Allowance
 Inventory Valuation
  .
 - 15 -




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Results of Operations
 Twelve-months ended September 30, 2005 compared to September 30, 2004
 Revenues:
      Cost of Goods and Gross Profit:
 - 16 -




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Selling, General and Administrative:
  Engineering, Research & Development:
  Other Income / Expense:
 Provision for Income Taxes:
 Liquidity and Capital Resources
  - 17 -




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   - 18 -




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2010Contractual Obligations
    
    Total
    
    2006
    
    2007
    
    2008
    
    2009
    
    and thereafterLong-Term Office Lease
    
    $
    331,000
    
    
    $
    104,000
    
    
    $
    108,000
    
    
    $
    110,000
    
    
    $
    9,000
    
    
    
    Other
    
    $
    3,000
    
    
    $
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    334,000
    
    
    $
    107,000
    
    
    $
    108,000
    
    
    $
    110,000
    
    
    $
    9,000
    
    
    
    
    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 and in the documents incorporated herein by reference. 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
 We have a limited operating history, which makes it difficult for investors to evaluate our
business prospects.
  - 19 -




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Fluctuations in our quarterly and annual operating results make it difficult to assure
future positive cash flows from operations.
  The loss of any one of our major customers would have an adverse effect on our revenue.
   The loss of contracts with U.S. government agencies would adversely affect our revenue.
  Potential customers may prefer our competitors technology and products.
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Because we have limited marketing and sales experience in the illumination products
marketplace, we may be unable to compete successfully against other companies that have a history
and track record in the high-intensity lighting marketplace.
  The loss of any of our key personnel could adversely affect our business.
  The interests of our current stockholders 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.
 .
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We are subject to government regulation which may require us to obtain additional licenses
and could limit our ability to sell our products outside the United States.
  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.
  We may not have adequate protection of our intellectual property, which could result in a
reduction in our revenue if our competitors are able to use our intellectual property or if we lose
our rights to the NighthunterII patent application.
   - 22 -




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Because we currently only have a single line of products, any delay in our ability to market, sell
or ship these existing products would adversely affect our revenue.
 EXT
  Because we depend on a single manufacturer to make our NightHunterII products, any failure by the
manufacturer to honor its obligations to us will impair our ability to deliver our products to
customers.
 -
  - 23 -




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Risks Related to Our Common Stock
 Because our stock is thinly traded, 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
stockholders.
  - 24 -




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-
    
    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.
 There has been, and may continue to be, significant volatility in our stock price and, as a
result, you may be unable to sell your shares for more than your purchase price.
  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 stockholders and could cause our stock price to decline.
  - 25 -




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Future sales of common stock by our existing stockholders and option and warrant holders could
cause our stock price to decline.
    - 26 -




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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 XENONICS HOLDINGS, INC.
 Report
of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Financial Statements:Balance Sheet as of September 30, 2005
    
    
    F-3Statements of Operations for the years ended September 30, 2005 and 2004
    
    
    F-4Statements of Shareholders Equity (Deficit) for the years ended September 30, 2005 and 2004
    
    
    F-5Statements of Cash Flows for the years ended September 30, 2005 and 2004
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 F-2




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CONSOLIDATED BALANCE SHEET
 September 30,2005in thousands, except per share amountsAssetsCurrent assets:Cash
    
    $
    890Accounts receivable, net of allowance for doubtful accounts of $0
    
    
    213Inventories, net
    
    
    1,206Other current assets
    
    
    82Total Current Assets
    
    
    2,391Equipment, furniture and fixtures at cost, less accumulated
depreciation of $70 and $59, respectively
    
    
    50Other non-current assets
    
    
    25Total Assets
    
    $
    2,466Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    608Accrued royalty
    
    
    Accrued payroll and related taxes
    
    
    86Other current liabilities
    
    
    6Total Current Liabilities
    
    
    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 and 20,000 shares
authorized as of 2005 and 2004, respectively; 15,686
and 14,167 shares issued and outstanding in 2005 and 2004,
respectively
    
    
    16Less treasury stock, at cost, 113 shares in 2005
    
    
    (306
    )Additional paid-in capital
    
    
    14,541Accumulated deficit
    
    
    (12,485
    )Total Shareholders Equity
    
    
    1,766Total Liabilities and Shareholders Equity
    
    $
    2,466
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




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CONSOLIDATED STATEMENTS OF OPERATIONS
 Year endedSeptember 30,2005
    
    
    2004in thousands, except per share amountsRevenue
    
    $
    4,434
    
    
    $
    11,927Cost of goods
sold (including write down of excess inventory of $1,953 in 2005)
    
    
    4,431
    
    
    
    6,916Gross profit
    
    
    3
    
    
    
    5,011Selling, general and administrative
    
    
    4,884
    
    
    
    3,113Engineering, research and development
    
    
    504
    
    
    
    248(Loss) / income from operations
    
    
    (5,385
    )
    
    
    1,650Other income/(expense), net:Interest income
    
    
    22
    
    
    
    15Gain on settlement
    
    
    306
    
    
    
    Interest expense
    
    
    (36
    )
    
    
    (31
    )Other income
    
    
    6
    
    
    
    (Loss) / income before provision for income taxes
    
    
    (5,087
    )
    
    
    1,634Income tax (benefit) provision
    
    
    (49
    )
    
    
    158(Loss) / income before minority interest
    
    $
    (5,038
    )
    
    $
    1,476Minority interest
    
    
    (34
    )
    
    
    Net (loss) / income
    
    $
    (5,004
    )
    
    $
    1,476Net (loss) / income per share:Basic
    
    
    (.33
    )
    
    
    .11Diluted
    
    
    (.33
    )
    
    
    .09Weighted average shares outstandingBasic
    
    
    14,963
    
    
    
    13,508Diluted
    
    
    14,963
    
    
    
    16,932
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
 AdditionalCommon Stock
    
    
    Treasury Stock
    
    
    Paid-In
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Totalin thousandsBalance at September 30, 2003
    
    
    12,792
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    7,757
    
    
    
    (8,957
    )
    
    
    (1,187
    )Options exercised
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Issuance of common stock in
private placement
    
    
    600
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,499
    
    
    
    
    
    
    
    1,500Warrants exercised
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8Issuance of common stock in
private placement, net of
offering costs of $136
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    714
    
    
    
    
    
    
    
    714Conversion of debt of $250 and
related accrued interest of $17
to common stock
    
    
    533
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    267Issuance of common stock for
services
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Compensation charge for stock
options issued to employees and
directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    185Issuance of warrants for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    57Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,476
    
    
    
    1,476Balance at September 30, 2004
    
    
    14,167
    
    
    $
    14
    
    
    
    
    
    
    
    
    
    
    $
    10,540
    
    
    $
    (7,481
    )
    
    $
    3,073Options exercised
    
    
    495
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    124Warrants exercised
    
    
    364
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    248
    
    
    
    
    
    
    
    248Issuance of common stock for
services
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    110Issuance of common stock in
private placement, net of
offering costs of $321
    
    
    500
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,178
    
    
    
    
    
    
    
    2,179Conversion of accrued royalties
to common stock
    
    
    97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    400Gain on settlement
    
    
    
    
    
    
    
    
    
    
    (113
    )
    
    
    (306
    )
    
    
    
    
    
    
    
    
    
    
    (306
    )Compensation charge for stock
options issued to employees and
directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    614
    
    
    
    
    
    
    
    614Issuance of warrants for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328
    
    
    
    
    
    
    
    328Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,004
    )
    
    
    (5,004
    )Balance at September 30, 2005
    
    
    15,686
    
    
    $
    16
    
    
    
    (113
    )
    
    $
    (306
    )
    
    $
    14,541
    
    
    $
    (12,485
    )
    
    $
    1,766
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




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CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year endedSeptember 30,2005
    
    2004in thousandsCash flows from operating activities:Net (loss) / income
    
    $
    (5,004
    )
    
    $
    1,476Adjustments to reconcile net (loss) / income to net cash (used in) provided by
operating activities:Depreciation and amortization
    
    
    11
    
    
    
    6Compensation to employees and directors paid with
stock options
    
    
    614
    
    
    
    185Issuance of warrants for services
    
    
    328
    
    
    
    57Gain from settlement of common stock
    
    
    (306
    )
    
    
    Write down
of excess inventory
    
    
    1,953
    
    
    
    Interest expense converted to common stock
    
    
    
    
    
    
    17Issuance of common stock for services
    
    
    110
    
    
    
    50Minority interest in net loss of subsidiary
    
    
    (34
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    40
    
    
    
    274Inventories, net
    
    
    (2,237
    )
    
    
    (738
    )Other current assets
    
    
    106
    
    
    
    (156
    )Accounts payable
    
    
    (518
    )
    
    
    548Accrued payroll and related taxes
    
    
    (7
    )
    
    
    43Accrued interest
    
    
    
    
    
    
    (92
    )Other current liabilities
    
    
    6
    
    
    
    Net cash (used in) provided by operating activities
    
    
    (4,938
    )
    
    
    1,670Cash flows from investing activities:Purchases of equipment, furniture and fixtures
    
    
    (26
    )
    
    
    (36
    )Net cash used for investing activities
    
    
    (26
    )
    
    
    (36
    )Cash flows from financing activities:Proceeds from short-term borrowings
    
    
    1,305Repayment of short-term borrowings
    
    
    (1,305
    )
    
    
    (400
    )Repayments on notes payable
    
    
    
    
    
    
    (316
    )Net proceeds from issuance of common stock net of expenses
    
    
    2,179
    
    
    
    2,214Proceeds in connection with the exercise of options and warrants
    
    
    372
    
    
    
    11Proceeds in connection with the exercise of warrants in subsidiary
    
    
    34
    
    
    
    Net cash provided by financing activities
    
    
    2,585
    
    
    
    1,509(Decrease) Increase in cash
    
    
    (2,379
    )
    
    
    3,143Cash, beginning of period
    
    
    3,269
    
    
    
    126Cash, end of period
    
    $
    890
    
    
    $
    3,269Supplemental cash flow information:Cash paid during the year for income taxes
    
    $
    
    
    
    $
    237Cash paid during the year for interest
    
    $
    36
    
    
    $
    69Noncash transactions:Conversion of long-term debt to common stock
    
    
    
    
    
    $
    250Conversion of accrued interest to common stock
    
    
    
    
    
    $
    17Conversion of accrued royalties to common stock
    
    $
    400
    
    
    
    
 The accompanying notes are an integral part of these consolidated financial statements
 F-6




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except for per share amounts)
 1.
    
    OPERATIONS AND OTHER ORGANIZATIONAL MATTERS
     2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
 Use of Estimates
 F-7




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Cash and Cash Equivalents  
 Equipment and Leasehold Improvements 
 Long-Lived Assets
 Fair Value Of Financial Instruments 
 Inventories
 Revenue Recognition
 Advertising Costs
 Industry Segment And Geographical Data 
  Year endedSeptember 30,2005

    
    2004US Military
    
    
    91
    %
    
    
    94
    %US Border Patrol
    
    
    3
    %
    
    
    4
    %International
    
    
    1
    %
    
    
    1
    %Other
    
    
    5
    %
    
    
    1
    %100
    %
    
    
    100
    %
 F-8




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Cost of Goods Sold -
 Income Taxes
 Earnings Per Common Share -
  For the year ended2005
    
    
    2004Shares outstanding, beginning
    
    
    14,167
    
    
    
    12,792Weighted average shares issued
    
    
    796
    
    
    
    716Weighted
average shares outstanding  Basic
    
    
    14,963
    
    
    
    13,508Effect of dilutive securities(stock options and warrants)
    
    
    
    
    
    
    3,424Weighted
average shares outstanding  diluted
    
    
    14,963
    
    
    
    16,932
  2005
    
    
    2004Stock options and warrants
    
    
    4,281
    
    
    
    135
 Research and Development
 Stock Options Accounting for Stock-Based Compensation
 F-9




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Major Concentrations 
   Recent Accounting Pronouncements
   Accounting Changes ).
 3.
    
    FIXED ASSETS
  Year endedEstimated
    
    September 30,Useful Lives
    
    2005Computer equipment
    
    
    5
    
    
    $
    80Computer software
    
    
    5
    
    
    
    23Leasehold improvement
    
    
    7
    
    
    
    17120Less: accumulated depreciation and amortization
    
    
    
    
    
    
    70$
    50
 F-10




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##### Table of Contents



4.
    
    INVENTORIES
  September 30,2005Raw materials
    
    $
    107Work in process
    
    
    247Finished goods
    
    
    2,816Reserve for obsolescence
    
    
    (1964
    )$
    1,206
  5.
    
    ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  September 30,2005Accounts payable
    
    $
    409Accrued expenses
    
    
    199$
    608
 6.
    
    SHORT-TERM BORROWINGS
  7.
    
    NOTES PAYABLE
   F-11




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##### Table of Contents



8.
    
    ACCRUED ROYALTIES
       9.
    
    SHAREHOLDERS EQUITY
  Common Stock
  F-12




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##### Table of Contents



10.
    
    INCOME TAXES
  Year endedSeptember 30,2005
    
    
    2004Current provision:Federal
    
    $
    28
    
    
    $
    State
    
    
    (77
    )
    
    
    158$
    (49
    )
    
    $
    158
 F-13




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##### Table of Contents



September 30,2005
    
    
    2004Inventory reserve
    
    
    782
    
    
    
    4Accrued royalties
    
    
    
    
    
    
    159Stock compensation expense
    
    
    256
    
    
    
    255Warrant expense
    
    
    154
    
    
    
    Accumulated depreciation / amortization
    
    
    (17
    )
    
    
    (8
    )R&D credit
    
    
    147
    
    
    
    Other
    
    
    50
    
    
    
    19Net operating loss carryforwards
    
    
    2,951
    
    
    
    1,8054,323
    
    
    
    2,234Valuation allowance
    
    
    (4,323
    )
    
    
    (2,234
    )Net deferred tax asset
    
    $
    
    
    
    $
    
    Year endedSeptember 30,2005
    
    
    2004Federal statutory rate
    
    
    (34.0
    %)
    
    
    34.0
    %State income taxes, net of federal income tax benefit
    
    
    (5.7
    %)
    
    
    5.8
    %Change in valuation allowance
    
    
    41.7
    %
    
    
    (32.7
    %)R&D credit carryforward
    
    
    (2.9
    %)
    
    
    Other
    
    
    (0.1
    %)
    
    
    2.3
    %1.0
    %
    
    
    9.4
    %
 11.
    
    MINORITY INTEREST
  F-14




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##### Table of Contents



12 . SIGNIFICANT CONTRACTS
     13. SAVINGS PLAN
  14. COMMITMENTS AND CONTINGENCIES
 Leases
  Purchase Agreement with PerkinElmer, Inc . 
 F-15




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##### Table of Contents



Consulting Agreements 
    F-16




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##### Table of Contents



Employment Agreements 
  Litigation
    F-17




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##### Table of Contents



15. STOCK OPTIONS AND WARRANTS
  2003
Stock Option Plan
   F-18




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##### Table of Contents



2004 Stock Option Plan 
       Year
ended September 30,2005
    
    
    
    
    
    
    2004Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageOptions
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise PriceOutstanding-beginning of period
    
    
    1,245
    
    
    $
    0.958
    
    
    
    1,250
    
    
    $
    0.500Granted
    
    
    1,040
    
    
    $
    3.408
    
    
    
    155
    
    
    $
    4.126Exercised
    
    
    (495
    )
    
    $
    0.250
    
    
    
    (10
    )
    
    $
    0.250Forfeited
    
    
    (155
    )
    
    $
    2.726
    
    
    
    (150
    )
    
    $
    0.458Outstanding-end of period
    
    
    1,635
    
    
    $
    2.563
    
    
    
    1,245
    
    
    $
    0.958Exercisable at end of period
    
    
    680
    
    
    $
    1.347
    
    
    
    963
    
    
    $
    0.508Weighted-average fair value of options
granted during the period
    
    
    
    
    
    $
    1.550
    
    
    
    
    
    
    $
    2.160
 F-19




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##### Table of Contents



Options Outstanding
    
    Options Exercisableat September 30, 2005
    
    at September 30, 2005WeightedAverage
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    
    
    
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise
    
    Number
    
    Contractual
    
    Exercise
    
    Vested and
    
    ExercisePrices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Exercisable
    
    Price$0.250  $2.850
    
    
    770
    
    
    
    5.96
    
    
    $
    1.074
    
    
    
    558
    
    
    $
    0.760$3.500  $3.800
    
    
    820
    
    
    
    4.39
    
    
    $
    3.778
    
    
    
    107
    
    
    $
    3.777$5.750  $6.000
    
    
    45
    
    
    
    5.00
    
    
    $
    5.917
    
    
    
    15
    
    
    $
    5.9171,635
    
    
    
    5.15
    
    
    $
    2.563
    
    
    
    680
    
    
    $
    1.347
 Stock Warrants 
      Year ended September 30,2005
    
    
    
    
    
    
    2004Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageWarrants
    
    
    Exercise Price
    
    
    Warrants
    
    
    Exercise PriceOutstanding-beginning of period
    
    
    2,522
    
    
    $
    0.894
    
    
    
    2,459
    
    
    $
    0.707Issued
    
    
    488
    
    
    $
    2.359
    
    
    
    75
    
    
    $
    7.017Exercised
    
    
    (364
    )
    
    $
    0.683
    
    
    
    (12
    )
    
    $
    0.727Outstanding-end of period
    
    
    2,646
    
    
    $
    1.193
    
    
    
    2,522
    
    
    $
    0.894
 F-20




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##### Table of Contents



Warrants Outstanding and Exercisableat September 30, 2005WeightedNumber
    
    
    Average
    
    
    Weighted-Range of
    
    Outstanding,
    
    
    Remaining
    
    
    AverageExercise
    
    Vested and
    
    
    Contractual
    
    
    ExercisePrices
    
    Exercisable
    
    
    Life (Years)
    
    
    Price$0.600  $2.000
    
    
    2,521
    
    
    
    3.16
    
    
    $
    0.935$5.050  $8,000
    
    
    125
    
    
    
    3.91
    
    
    $
    6.4102,646
    
    
    
    3.20
    
    
    $
    1.193
  F-21




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##### Table of Contents



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 8A. CONTROLS AND PROCEDURES
    
 ITEM 8B. OTHER INFORMATION
  - 27 -




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##### Table of Contents



PART III
 
 ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION
               16(a) OF THE EXCHANGE ACT
  
 ITEM 10. EXECUTIVE COMPENSATION
  
 ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED
                   STOCKHOLDER
MATTERS
  
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  - 28 -




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##### Table of Contents



ITEM 13. EXHIBITS
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Reorganization between Xenonics,
Inc. and Digital Home Theater Systems, Inc., dated July 23,
2003 (incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form SB-2 of Xenonics Holdings,
Inc., File No. 333-115324, filed on May 10, 2004).3.1
    
    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, Inc. and SM/CT Partners, L.P.,
dated August 16, 2000 (incorporated by reference to Exhibit
10.3 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).10.2
    
    1st Amendment to Lease Agreement, dated
July 21, 2004, between Bay West Equities Carlsbad Research
Center, LLC and Xenonics, Inc. (incorporated by reference
to Exhibit 10.11 to Amendment No. 3 to the Registration
Statement on Form SB-2 of Xenonics Holdings, Inc., File No.
333-115324, filed on September 2, 2004).10.3
    
    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; the
Commission has granted confidential treatment to selected
portions of this document).10.4
    
    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).10.5
    
    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).10.6
    
    Settlement Agreement and Mutual Release, dated as of
December 3, 2004, among Xenonics Holdings, Inc., Xenonics,
Inc. and Lightrays, Ltd. (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K of Xenonics
Holdings, Inc. filed on December 8, 2004).10.7
    
    Engagement letter, dated March 1, 2004, as amended by
letters dated April 12, 2004 and May 18, 2004, between
Bryant Park Capital, Inc. and Xenonics Holdings, Inc.
(incorporated by reference to Exhibit 4.6 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).10.8
    
    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).*10.9
    
    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).*
 - 29 -




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##### Table of Contents



ExhibitNumber
    
    Description10.10
    
    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).*10.11
    
    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).*10.12
    
    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).*10.13
    
    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).*10.14
    
    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).*10.15
    
    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).*10.16
    
    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).10.17
    
    Form of Participating Dealers Warrant Agreement, entered
into by Xenonics Holdings, Inc. and certain participating
broker-dealers on July 23, 2003 (incorporated by reference
to Exhibit 4.3 to the Registration Statement on Form SB-2
of Xenonics Holdings, Inc., File No. 333-115324, filed on
May 10, 2004).10.18
    
    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).10.19
    
    Form of Warrant to Purchase Common Stock of Xenonics
Holdings, Inc., dated April 26, 2004, issued to White Rock
Capital Partners, L.P. (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form SB-2 of
Xenonics Holdings, Inc., File No. 333-115324, filed on May
10, 2004).10.20
    
    Form of Warrant to Purchase Common Stock of Xenonics
Holdings, Inc., dated April 26, 2004, issued to Texrock,
Ltd. (incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form SB-2 of Xenonics Holdings,
Inc., File No. 333-115324, filed on May 10, 2004).10.21
    
    Warrant Certificate, dated July 1, 2004, for the purchase
of 25,000 shares of Xenonics Holdings, Inc. common stock,
issued to Neil G. Berkman Associates (incorporated by
reference to Exhibit 4.7 to Amendment No. 3 to the
Registration Statement on Form SB-2 of Xenonics Holdings,
Inc., File No. 333-115324, filed on September 2, 2004).10.22
    
    Form of Selling Stockholder and Securities Purchase
Agreement, dated as of January 17, 2005, entered into by
and among Xenonics Holdings, Inc. and the Selling
Stockholders 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).10.23
    
    Form of Registration Rights Agreement, dated as of January
17, 2005, entered into among Xenonics Holdings, Inc. and
the Selling Stockholders 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).
 - 30 -




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##### Table of Contents



ExhibitNumber
    
    Description10.24
    
    Consulting Agreement, dated as of September 9, 2005
and effective as of August 9, 2005, between Xenonics
Holdings, Inc. and Patriot Associates LLC (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
of Xenonics Holdings, Inc. filed on September 14, 2005).10.25
    
    Amendment No. 1, dated as of October 19, 2005, between
Xenonics Holdings, Inc. and Patriot Associates LLC, to the
Consulting Agreement dated as of September 9, 2005, between
Xenonics Holdings, Inc. and Patriot Associates LLC
(incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K of Xenonics Holdings, Inc. filed on
October 24, 2005).10.26
    
    Warrant, dated September 9, 2005, issued by Xenonics
Holdings, Inc. to Patriot Associates LLC, for the purchase
of 437,500 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 14, 2005).10.27
    
    Warrant, dated October 19, 2005, issued by Xenonics
Holdings, Inc. to Patriot Associates LLC, for the purchase
of 1,312,500 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 October 24, 2005).10.28
    
    Registration Rights Agreement, dated as of September 9,
2005, between Xenonics Holdings, Inc. and Patriot
Associates LLC (incorporated by reference to Exhibit 10.3
to the Current Report on Form 8-K of Xenonics Holdings,
Inc. filed on September 14, 2005).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 Eisner LLP.31.1
    
    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. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  - 31 -




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##### Table of Contents



SIGNATURES
  Xenonics Holdings, Inc.Date: January 13, 2006
    
    By:
    
    /s/ Richard J. NaughtonRichard J. NaughtonChief Executive Officer
  Signature
    
    
    
    Title
    
    
    
    Date/s/ Alan P. Magerman
    
    
    
    Chairman of the Board
    
    
    
    January 13, 2006Alan P. Magerman/s/ Richard J. Naughton
    
    
    
    Chief Executive Officer, Director
    
    
    
    January 13, 2006Richard J. Naughton
    
    
    
    (Principal Executive Officer)/s/ Jeffrey P. Kennedy
    
    
    
    Chief Operating Officer and President
    
    
    
    January 13, 2006Jeffrey P. Kennedy/s/ Donna G. Lee
    
    
    
    Chief Financial Officer (Principal
Financial Officer and Principal
    
    
    
    January 13, 2006Donna G. Lee
    
    
    
    Accounting Officer)/s/ Robert Petersen
    
    
    
    Director
    
    
    
    January 13, 2006Robert Petersen/s/ Robert Buie
    
    
    
    Director
    
    
    
    January 13, 2006Robert Buie/s/ Eli Shapiro
    
    
    
    Director
    
    
    
    January 13, 2006Eli Shapiro
 - 32 -