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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, 2009
 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 Number)3186 Lionshead Avenue 
Carlsbad, California
(Address of principal executive offices)
    
    92010-4701
(Zip code)
 (760) 477-8900
  Title of each class 
Common Stock, $.001 par value
    
    Name of each exchange on which registered
NYSE Amex
  o
Yes þ No
 o
Yes þ No
 þ o
 § o
Yes o No
 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
    
    
    9ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    13ITEM 2. PROPERTIES
    
    
    13ITEM 3. LEGAL PROCEEDINGS
    
    
    13ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    13PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    14ITEM 6. SELECTED FINANCIAL DATA
    
    
    15ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    15ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    21ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    22ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    43ITEM 9A (T). CONTROLS AND PROCEDURES
    
    
    43ITEM 9B. OTHER INFORMATION
    
    
    44PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    45ITEM 11. EXECUTIVE COMPENSATION
    
    
    45ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    45ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    45ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    45PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    46Exhibit 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
 NightHunter Tactical IR
 SuperVision
 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
    6




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Manufacturing
     Competition
     7




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Regulation
  Intellectual Property
    Research and Development
    Employees
   8




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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 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
 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.
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Because we have a new marketing and sales team, we may be unable to compete successfully against
other companies that have a history and track record in the high-intensity lighting and night
vision marketplaces.
   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 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.
 International Traffic in Arms
Regulations ITAR
 We may experience production delays if suppliers fail to deliver materials to us, which could
reduce our revenue.
   10




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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.
   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.
   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.
 -
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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.
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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.
    
    Submission of Matters to a Vote of Security Holders
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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, 2009
    
    High
    
    
    LowFirst Quarter
    
    $
    1.04
    
    
    $
    0.48Second Quarter
    
    $
    0.71
    
    
    $
    0.26Third Quarter
    
    $
    0.79
    
    
    $
    0.55Fourth Quarter
    
    $
    0.81
    
    
    $
    0.55
 Year ended September 30, 2008
    
    High
    
    
    LowFirst Quarter
    
    $
    2.29
    
    
    $
    1.48Second Quarter
    
    $
    2.00
    
    
    $
    1.41Third Quarter
    
    $
    1.80
    
    
    $
    1.00Fourth Quarter
    
    $
    1.20
    
    
    $
    0.72
  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
    
    
    2,233,000
    
    
    $
    1.46
    
    
    
    118,000Equity compensation
plans not approved
by security holders
    
    
    550,000
    
    
    $
    1.50
    
    
    
    Totals
    
    
    2,783,000
    
    
    $
    1.47
    
    
    
    118,000
  14




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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
   15




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How We Generate Revenue
   Trends in Our Business
   Critical Accounting Policies and Estimates
   16




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Revenue Recognition and Accounts Receivable 
 Allowance for Doubtful Accounts 
 Investments in Marketable Securities 
 Investments in marketable
securities Investments in marketable securities
  Tax Valuation Allowance 
 Inventory Valuation 
   17




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Results of Operations
 Year ended September 30, 2009 compared to September 30, 2008
  Revenues:
 Cost of Goods and Gross Profit:
  Selling, General and Administrative:
 Research & Development:
 Other Income / Expense:
  Provision for Income Taxes:
 Net Loss:
 Liquidity and Capital Resources
   18




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Investments in
marketable securities Investments in marketable securities
   19




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20




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Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
   21




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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
    
    
    23Consolidated Financial Statements:Balance Sheets as of September 30, 2009 and 2008
    
    
    24Statements of Operations for the years ended September 30, 2009 and 2008
    
    
    25Statements of Shareholders Equity for the years ended September 30, 2009 and 2008
    
    
    26Statements of Cash Flows for the years ended September 30, 2009 and 2008
    
    
    27Notes to Consolidated Financial Statements
    
    
    28
  22




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
  23




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CONSOLIDATED BALANCE SHEETS
 September 30,Rounded in thousands, except par value
    
    2009
    
    
    2008AssetsCurrent assets:Cash
    
    $
    126,000
    
    
    $
    325,000Accounts receivable, net
    
    
    1,634,000
    
    
    
    954,000Inventories
    
    
    2,069,000
    
    
    
    1,745,000Other current assets
    
    
    119,000
    
    
    
    375,000Total Current Assets
    
    
    3,948,000
    
    
    
    3,399,000Investments in marketable securities
    
    
    
    
    
    
    1,000,000Equipment, furniture and leasehold improvements at cost, net
    
    
    130,000
    
    
    
    161,000Goodwill
    
    
    375,000
    
    
    
    Total Assets
    
    $
    4,453,000
    
    
    $
    4,560,000Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    1,000,000
    
    
    $
    539,000Accrued expenses
    
    
    157,000
    
    
    
    94,000Accrued payroll and related taxes
    
    
    156,000
    
    
    
    173,000Accrued derivative liability
    
    
    199,000
    
    
    
    Total Current Liabilities
    
    
    1,512,000
    
    
    
    806,000Notes payable
    
    
    292,000
    
    
    
    Total Liabilities
    
    
    1,804,000
    
    
    
    806,000Commitments and contingencies (Note 15)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, 2009 and
2008; 20,571,000 shares issued as of September 30, 2009 and 20,296,000 as of September 30,
2008; 20,459,000 shares outstanding as of September 30, 2009 and 20,184,000 outstanding as of
September 30, 2008
    
    
    20,000
    
    
    
    20,000Additional paid-in capital
    
    
    24,478,000
    
    
    
    23,744,000Accumulated deficit
    
    
    (21,543,000
    )
    
    
    (19,704,000
    )2,955,000
    
    
    
    4,060,000Less treasury stock, at cost, 113,000 shares
    
    
    (306,000
    )
    
    
    (306,000
    )Total Shareholders Equity
    
    
    2,649,000
    
    
    
    3,754,000Total Liabilities and Shareholders Equity
    
    $
    4,453,000
    
    
    $
    4,560,000
 The accompanying notes are an integral part of these consolidated financial statements.
  24




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CONSOLIDATED STATEMENTS OF OPERATIONS
 Years ended September 30,Rounded in thousands, except per share amounts
    
    2009
    
    
    2008Revenue
    
    $
    7,378,000
    
    
    $
    10,168,000Cost of goods sold
    
    
    4,005,000
    
    
    
    5,728,000Gross profit
    
    
    3,373,000
    
    
    
    4,440,000Selling, general and administrative
    
    
    4,535,000
    
    
    
    4,926,000Research and development
    
    
    623,000
    
    
    
    963,000Income (loss) from operations
    
    
    (1,785,000
    )
    
    
    (1,449,000
    )Other income (expense):Gain (loss) on derivative revaluation
    
    
    (39,000
    )
    
    
    Other income
    
    
    10,000
    
    
    
    Interest income
    
    
    15,000
    
    
    
    60,000Interest (expense)
    
    
    (38,000
    )
    
    
    Income (loss) before provision for income taxes
    
    
    (1,837,000
    )
    
    
    (1,389,000
    )Income tax provision
    
    
    2,000
    
    
    
    2,000Net income (loss)
    
    $
    (1,839,000
    )
    
    $
    (1,391,000
    )Net loss per share:Basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.07
    )Weighted average shares outstandingBasic and diluted
    
    
    20,405,000
    
    
    
    19,948,000
 The accompanying notes are an integral part of these consolidated financial statements.
  25




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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, 2007
    
    
    19,952,000
    
    
    $
    20,000
    
    
    
    (113,000
    )
    
    $
    (306,000
    )
    
    $
    23,341,000
    
    
    $
    (18,313,000
    )
    
    $
    4,742,000Warrants and stock options exercised
    
    
    344,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,000
    
    
    
    
    
    
    
    162,000Compensation charge for stock options issued to employees and directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239,000
    
    
    
    
    
    
    
    239,000Compensation charge for warrants issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    2,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,391,000
    )
    
    
    (1,391,000
    )Balances 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
    )
    
    $
    2,649,000
 The accompanying notes are an integral part of these consolidated financial statements.
  26




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CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years ended September 30,Rounded in thousands
    
    2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (1,839,000
    )
    
    $
    (1,391,000
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation
    
    
    58,000
    
    
    
    54,000Impairment loss from fixed asset disposals
    
    
    9,000
    
    
    
    Provision for bad debts
    
    
    110,000
    
    
    
    (61,000
    )Non-cash compensation for stock options issued to employees and directors
    
    
    236,000
    
    
    
    239,000Non-cash compensation for warrants issued to consultants for services
    
    
    33,000
    
    
    
    2,000Loss on derivative revaluation
    
    
    39,000
    
    
    
    Amortization of warrants for notes payable
    
    
    17,000
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (790,000
    )
    
    
    (588,000
    )Inventories
    
    
    (324,000
    )
    
    
    890,000Other current assets
    
    
    256,000
    
    
    
    (10,000
    )Accounts payable
    
    
    461,000
    
    
    
    (353,000
    )Accrued expenses
    
    
    63,000
    
    
    
    (57,000
    )Accrued payroll and related taxes
    
    
    (17,000
    )
    
    
    50,000Net cash (used in) operating activities
    
    
    (1,688,000
    )
    
    
    (1,225,000
    )Cash flows from investing activities:Proceeds from and (purchases of) investments in marketable securities
    
    
    1,000,000
    
    
    
    (1,000,000
    )Purchases of equipment, furniture and leasehold improvements
    
    
    (36,000
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    964,000
    
    
    
    (1,000,000
    )Cash flows from financing activities:Proceeds from bank note payable
    
    
    1,000,000
    
    
    
    Repayment of bank note payable
    
    
    (1,000,000
    )
    
    
    Proceeds from the exercises of warrants
    
    
    
    
    
    
    162,000Proceeds from notes payable
    
    
    525,000
    
    
    
    Net cash provided by (used in) financing activities
    
    
    525,000
    
    
    
    162,000Net increase (decrease) in cash
    
    
    (199,000
    )
    
    
    (2,063,000
    )Cash, beginning of period
    
    
    325,000
    
    
    
    2,388,000Cash, end of period
    
    $
    126,000
    
    
    $
    325,000Supplemental cash flow information:Cash paid during the year for income taxes
    
    $
    2,000
    
    
    $
    2,000Cash paid during the year for interest
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements.
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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 
  28




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Investments in Marketable Securities 
 Investments in marketable
securities Investments in marketable securities
  Accounts
Receivable 
 Concentrations
of Credit Risk 
 Inventories
 Revenue Recognition
  29




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Advertising
Costs
 Cost of Goods Sold 
 Income Taxes
  Loss Per Common Share 
  For the years endedSeptember 30,2009
    
    
    2008Shares outstanding, beginning
    
    
    20,184,000
    
    
    
    19,839,000Weighted average shares issued
    
    
    221,000
    
    
    
    109,000Weighted average shares outstanding  Basic and diluted
    
    
    20,405,000
    
    
    
    19,948,000
  September 30,2009
    
    
    2008Stock options and warrants
    
    
    5,281,000
    
    
    
    4,831,000
 Research and Development
 Stock
Options 
 Recently Adopted and Issued Accounting Pronouncements
 Recently Adopted:
 Fair Value Measurements
  30




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Recently Issued:
      32




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3. ACCOUNTS RECEIVABLE
  September 30,
    
    
    September 30,2009
    
    
    2008Accounts Receivable
    
    $
    1,754,000
    
    
    $
    964,000Allowance for doubtful accounts
    
    
    (120,000
    )
    
    
    (10,000
    )$
    1,634,000
    
    
    $
    954,000
 4. INVENTORIES
  September 30,
    
    
    September 30,2009
    
    
    2008Raw materials
    
    $
    1,338,000
    
    
    $
    1,371,000Work in process
    
    
    218,000
    
    
    
    149,000Finished goods
    
    
    513,000
    
    
    
    225,000$
    2,069,000
    
    
    $
    1,745,000
 5. FAIR VALUE OF MEASUREMENTS
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##### Table of Contents



Auction Rate SecuritiesSeptember 30,
    
    
    September 30,2009
    
    
    2008Balance, beginning of year
    
    $
    1,000,000
    
    
    $
    Purchases during year
    
    
    
    
    
    
    1,000,000Transfer into Level 1
    
    
    (1,000,000
    )
    
    
    Balance, end of year
    
    $
    
    
    
    $
    1,000,000
 6. FIXED ASSETS
  Estimated
    
    
    September 30,
    
    
    September 30,Useful Lives
    
    
    2009
    
    
    2008Computer equipment and software
    
    5
    
    
    $
    211,000
    
    
    $
    283,000Furniture and leasehold improvements
    
    7
    
    
    
    67,000
    
    
    
    40,000278,000
    
    
    
    323,000Less: accumulated depreciation and
amortization
    
    
    
    
    
    
    (148,000
    )
    
    
    (162,000
    )$
    130,000
    
    
    $
    161,000
  7. GOODWILL
  8. DERIVATIVE LIABILITY
  9. NOTES PAYABLE
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##### Table of Contents



September 30,
    
    
    September 30,2009
    
    
    2008Notes payable
    
    Unsecured Notes payable, maturing in July
2012, bearing interest at 13% per annum
(net of unamortized debt discount of
$233,000 in 2009 and $0 in 2008)
    
    $
    292,000
    
    
    $
    Total debt obligations
    
    
    292,000
    
    
    
    Less  current portion, net of debt discount
    
    
    
    
    
    
    Long-term portion
    
    $
    292,000
    
    
    $
    
  2010
    
    $
    2011
    
    
    2012
    
    
    525,000Total
    
    $
    525,000
 10. MINORITY INTEREST
   11. SHAREHOLDERS EQUITY
  12. STOCK OPTIONS AND WARRANTS
 Stock Options
    36




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##### Table of Contents



For the  years  endedSeptember 30,2009
    
    
    2008Risk-free interest rate
    
    
    1.47%  2.37%
    
    
    
    3.02%  4.16%Expected life (in years)
    
    
    4
    
    
    
    4Dividend yield
    
    
    0.0%
    
    
    
    0.0%Expected volatility
    
    
    100%  104%
    
    
    
    100%  105%Weighted-average volatility
    
    
    103%
    
    
    
    102%
    WeightedAverageWeighted
    
    
    ContractualStock
    
    
    Average
    
    
    Term in
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Years
    
    
    Intrinsic ValueOutstanding at October 1, 2007
    
    
    1,988,000
    
    
    $
    2.52Granted
    
    
    75,000
    
    
    $
    1.75Exercised
    
    
    (108,000
    )
    
    $
    0.25Forfeited or Expired
    
    
    (512,000
    )
    
    $
    2.18Outstanding at September 30, 2008
    
    
    1,443,000
    
    
    $
    2.77
    
    
    
    2.72
    
    
    $
    70,000Granted
    
    
    1,905,000
    
    
    $
    0.67
    
    
    
    4.19Exercised
    
    
    
    
    
    
    Forfeited or Expired
    
    
    (1,115,000
    )
    
    $
    1.82
    
    
    
    Outstanding at September 30, 2009
    
    
    2,233,000
    
    
    $
    1.46
    
    
    
    3.57
    
    
    
    Exercisable at September 30, 2009
    
    
    1,333,000
    
    
    $
    1.78
    
    
    
    2.95
    
    
    
    
 *
    
    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 September 30, 2009.   37




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##### Table of Contents



Weighted AverageGrant-DateStock Options
    
    
    Fair ValueNon-vested at October 1, 2008
    
    
    45,000
    
    
    $
    1.27Granted
    
    
    1,905,000
    
    
    $
    0.42Forfeited or Exercised
    
    
    (533,000
    )
    
    $
    0.60Vested
    
    
    (517,000
    )
    
    $
    0.51Non-vested at September 30, 2009
    
    
    900,000
    
    
    $
    0.45
     Options Outstanding
    
    
    Options ExercisableAt September 30, 2009
    
    
    at September 30, 2009WeightedAverage
    
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AverageExercise
    
    Number
    
    Contractual
    
    
    Exercise
    
    
    Vested and
    
    
    ExercisePrices
    
    Outstanding
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.63  $1.00
    
    1,730,000
    
    
    4.36
    
    
    $
    0.87
    
    
    
    830,000
    
    
    $
    0.74$1.01  $2.85
    
    84,000
    
    
    2.67
    
    
    $
    1.71
    
    
    
    84,000
    
    
    $
    1.71$2.86  $3.80
    
    404,000
    
    
    0.34
    
    
    $
    3.78
    
    
    
    404,000
    
    
    $
    3.78$3.81  $5.75
    
    15,000
    
    
    4.64
    
    
    $
    5.75
    
    
    
    15,000
    
    
    $
    5.752,233,000
    
    
    3.57
    
    
    $
    1.46
    
    
    
    1,333,000
    
    
    $
    1.78
 Stock Warrants 
    38




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##### Table of Contents



For the years ended September 30,2009
    
    
    2008Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseWarrants
    
    
    Price
    
    
    Warrants
    
    
    PriceOutstanding-beginning of period
    
    
    3,388,000
    
    
    $
    2.29
    
    
    
    3,691,000
    
    
    $
    2.16Issued
    
    
    825,000
    
    
    $
    0.66
    
    
    
    840,000
    
    
    $
    1.10Exercised
    
    
    
    
    
    
    
    
    
    
    (238,000
    )
    
    $
    0.68Canceled/Modified
    
    
    (1,165,000
    )
    
    $
    0.77
    
    
    
    (905,000
    )
    
    $
    1.06Outstanding-end of period
    
    
    3,048,000
    
    
    $
    2.31
    
    
    
    3,388,000
    
    
    $
    2.29Exercisable-end of period
    
    
    2,112,000
    
    
    $
    1.90
    
    
    
    2,451,000
    
    
    $
    2.06
   Warrants Vested and Exercisableat September 30, 2009WeightedAverage
    
    
    Weighted-Range of
    
    
    Number
    
    Remaining
    
    
    AverageExercise
    
    
    Vested and
    
    Contractual
    
    
    ExercisePrices
    
    
    Exercisable
    
    Life (Years)
    
    
    Price$0.50  $1.57
    
    
    575,000
    
    
    4.76
    
    
    $
    0.73$1.58  $2.20
    
    
    800,000
    
    
    1.82
    
    
    $
    1.79$2.21  $5.04
    
    
    687,000
    
    
    2.67
    
    
    $
    2.75$5.05  $5.50
    
    
    50,000
    
    
    0.33
    
    
    $
    5.502,112,000
    
    
    2.86
    
    
    $
    1.90
 13. INCOME TAXES
   39




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##### Table of Contents



For the years endedSeptember 30,2009
    
    
    2008Current provision:Federal
    
    $
    
    
    
    $
    State
    
    
    2,000
    
    
    
    2,0002,000
    
    
    
    2,000Deferred provision:Federal
    
    
    (624,000
    )
    
    
    (369,000
    )State
    
    
    (140,000
    )
    
    
    (120,000
    )(764,000
    )
    
    
    (489,000
    )Valuation allowance
    
    
    764,000
    
    
    
    489,000$
    2,000
    
    
    $
    2,000
  For the years endedSeptember 30,2009
    
    
    2008Accrued derivative liability
    
    $
    79,000
    
    
    $
    Allowance for doubtful accounts
    
    
    48,000
    
    
    
    4,000Stock compensation expense
    
    
    865,000
    
    
    
    760,000Warrant expense
    
    
    340,000
    
    
    
    327,000State taxes
    
    
    1,000
    
    
    
    1,000Accumulated depreciation / amortization
    
    
    (15,000
    )
    
    
    (22,000
    )R&D credit
    
    
    575,000
    
    
    
    479,000Other
    
    
    72,000
    
    
    
    77,000Net operating loss carry-forwards
    
    
    6,059,000
    
    
    
    5,635,0008,024,000
    
    
    
    7,261,000Valuation allowance
    
    
    (8,024,000
    )
    
    
    (7,261,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    
   For the years endedSeptember 30,2009
    
    
    2008Federal statutory rate
    
    
    34.00
    %
    
    
    34.00
    %State income taxes, net of federal income tax benefit
    
    
    5.83
    %
    
    
    5.83
    %Change in valuation allowance
    
    
    (41.54
    )%
    
    
    (43.42
    )%R&D credit carry-forward
    
    
    5.22
    %
    
    
    10.43
    %Other
    
    
    (3.62
    )%
    
    
    (6.98
    )%(0.11
    )%
    
    
    (0.14
    )%
  40




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##### Table of Contents



14. SAVINGS PLAN
  15. COMMITMENTS AND CONTINGENCIES
 Leases
  Purchase Agreement with PerkinElmer, Inc . 
 Employment Agreements 
 Litigation
   41




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##### Table of Contents



16. SUBSEQUENT EVENTS
     42




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##### Table of Contents



ITEM 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A
    
    (T). 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
   43




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##### Table of Contents



Inherent Limitations on the Effectiveness of Controls
  
 Item 9B.
    
    Other Information
   44




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##### 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 Accounting Fees and Services.
   45




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits, 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; the Commission has granted confidential treatment to selected
portions of this document).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).
  46




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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).
  47




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##### 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).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.  48




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##### Table of Contents



SIGNATURES
  Xenonics Holdings, Inc.Date: December 22, 2009
    By:
    /s/ Alan P. MagermanAlan P. MagermanChief Executive Officer  Signature
    
    Title
    
    Date/s/ Alan P. Magerman

Alan P. Magerman
    
    Chairman of the Board and Chief Executive Officer
    
    December 22, 2009/s/ Jeffrey P. Kennedy

Jeffrey P. Kennedy
    
    Chief Operating Officer, President and Director
    
    December 22, 2009/s/ Richard S. Kay

Richard S. Kay
    
    Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
    
    December 22, 2009/s/ Robert Petersen

Robert Petersen
    
    Director
    
    December 22, 2009/s/ Robert Buie

Robert Buie
    
    Director
    
    December 22, 2009
  49