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EX-31.1 - EXHIBIT 31.1 - XENONICS HOLDINGS, INC.c25948exv31w1.htm
EX-23.1 - EXHIBIT 23.1 - XENONICS HOLDINGS, INC.c25948exv23w1.htm
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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, 2011
     
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.
(Exact name of registrant as specified in its charter)
     
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)
Registrant’s telephone number, including area code: (760) 477-8900
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.001 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): o Yes þ No
The aggregate market value of the common stock held by non-affiliates of the registrant as of March 31, 2011 was approximately $11,240,000.
There were 24,975,929 shares of the registrant’s common stock outstanding on December 10, 2011.
Documents Incorporated by Reference:
Certain portions of the registrant’s Proxy Statement for the 2012 annual meeting of shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the registrant’s fiscal year, are incorporated by reference under Part III of this Form 10-K.
 
 

 

 


 

TABLE OF CONTENTS
         
 
       
PART I
 
       
    4  
 
       
    8  
 
       
    11  
 
       
    11  
 
       
    11  
 
       
    11  
 
       
PART II
 
       
    12  
 
       
    13  
 
       
    13  
 
       
    17  
 
       
    18  
 
       
    36  
 
       
    36  
 
       
    37  
 
       
PART III
 
       
    38  
 
       
    38  
 
       
    38  
 
       
    38  
 
       
    38  
 
       
PART IV
 
       
    39  
 
       
 Exhibit 23.1
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

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Introductory Comment
Throughout this annual report on Form 10-K, the terms “we,” “us,” “our,” and “our company” refer to Xenonics Holdings, Inc., a Nevada corporation, and, unless the context indicates otherwise, also includes our subsidiary, Xenonics, Inc., a Delaware corporation.
Forward-Looking Statements
This annual report contains forward-looking statements, which reflect the views of our management with respect to future events and financial performance. These forward-looking statements are subject to a number of uncertainties and other factors that could cause actual results to differ materially from such statements. Forward-looking statements are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “plans,” “projects,” “targets” and similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on the information available to management at this time and which speak only as of this date. Our actual results may differ materially from results anticipated in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under “Risk Factors.”

 

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PART I
Item 1.  
Business
Overview
We design, manufacture and market high-end, high-intensity portable illumination products and low light viewing systems (night vision). Our core product line consists of lightweight, long-range, ultra-high intensity illumination products used in a wide variety of applications by the military, law enforcement, security, search and rescue and, to a lesser extent, in commercial markets. The night vision system is used across the entire spectrum from commercial to the military.
We have 22 general, utility and design patents issued, allowed or pending. Our illumination line of products has 10 utility and design patents issued, allowed or pending, including patents for our technology platform, which applies high efficiency dimmable electronic ballast circuitry and precision optics to xenon light to produce an illumination device that delivers improved performance over current technologies. For our night vision product line we have 5 utility and design patents and 2 pending. They include the integration of the entire system as well as weapons mounting and recording capability. In addition, for our night vision product line, we have 2 granted foreign patents and 3 pending foreign applications.
We are largely dependent upon government orders for our revenues. While the night vision products expanded our sales into the commercial market and the international market, the government market, particularly law enforcement, will continue to be a large part of the night vision sales. Existing customers include all branches of the United States Armed Forces and federal, state and local law enforcement.
We market our illumination products under the NightHunter brand name and night vision under the SuperVision brand. The NightHunter series of products is produced in a variety of configurations to suit specific customer needs. These include compact hand-held systems for foot-borne personnel and stabilized systems for airborne, vehicular and shipboard use. These NightHunter illumination systems are used for reconnaissance, surveillance, search and rescue, physical security, target identification, navigation, and non-lethal deterrence. The systems allow the user to illuminate an area, an object or a target with visible or non-visible light, and to improve visibility through many types of obscurants such as smoke, haze and most types of fog.
The SuperVision product was launched in June 2007 and brings a new category to night vision using a high resolution HDTV display with an ultra-sensitive infrared (IR)/visible sensor and a proprietary Digital Signal Processor (DSP). This all digital format brings capabilities comparable to high end military analog systems at less than half the price. In addition the digital format allows for zoom capability. The price and capability opens the market to law enforcement and the general consumer, whether in the maritime environment, hunting, camping, security, or any other activity done in a low light situation.
Our Products
The NightHunter ultra-high intensity series of illumination products currently consists of three versatile compact illumination systems — NightHunter One, NightHunter ext, and NightHunter 3, which replaced the NightHunter II. Our products are lightweight, ruggedized for operation in harsh environments, and allow users to illuminate objects with visible or infrared (IR) light at distances of more than one mile. With our infrared filter accessory in place, the NightHunter products emit non-visible infrared light. When used with night vision devices or low-light cameras, our NightHunter products can illuminate a target without the target knowing that it is being illuminated. Each NightHunter product incorporates a mechanical focusing design that enables the user to vary the flood spread of the beam. For example, the systems can be focused at a 0.5° spread that results in only a 60-90 foot footprint at one mile, or at a 10° spread that results in a 900 foot footprint at one mile. Unlike other high intensity lighting systems (and traditional flashlights), the NightHunter products do not have a “black hole” at the center of the light beam that obstructs the field of view (that is, there is no “blind spot” in the beam), allowing the user to keep the illumination centered on the target area. Our NightHunter One and NightHunter 3 products all have an internal rechargeable battery and built-in charger. In addition, the NightHunter One, NightHunter ext and NightHunter 3 can be operated from external power sources. Depending on the functionality and accessories of the product, the retail prices for our ultra-high intensity products range from $3,000 to over $6,000.

 

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The SuperVision HDTV display with an ultra-sensitive IR/visible sensor, zoom capability, and a proprietary Digital Signal Processor (DSP) brings capability to a wide variety of customers. Operating in both the visible and IR spectrum SuperVision allows the user to operate from dusk to dark. SuperVision can operate with or without an illuminator and with its extended IR spectrum in excess of 1,000 nanometers it can operate well past the range of a conventional analog tube system. With a retail price of just $1,799 it is affordable at the local law enforcement level as well as with commercial customers. In 2008 we added two products to the SuperVision line, the SuperVision Tactical Package and the SuperVision Long Range Surveillance System. The Tactical Package was specifically designed for the law enforcement community and packages the SuperVision with a Tactical IR in a waterproof case. The Long Range Surveillance System expands the SuperVision capability out to 100x zoom giving law enforcement facial identification out past half a mile. In 2009 we introduced SuperVision Video Out which added the ability to connect video signal to a recording device, monitor or both for surveillance or evidence gathering. This unit runs for up to eight hours on external DC or AC power, as well as its rechargeable battery.
Our currently available products and their respective features are listed below.
NightHunter One The NightHunter One system is a lightweight (6.1 lbs.) illumination system that can be readily adapted to a variety of uses and platforms, from handheld to fixed mounted use on vehicles, boats, and helicopters. The NightHunter can be powered from its internal rechargeable battery or from any 12-32 VDC power source.
NightHunter ext The NightHunter ext is a durable and lightweight (5.5 lbs) illumination system that is designed for fixed mounted applications and for use on stationary platforms or vehicles, boats, or helicopters. The NightHunter ext has the same range as the NightHunter One, but with an increased field-of-view. The NightHunter ext can be equipped with an optional pistol grip and utilized as a powerful spotlight.
NightHunter 3 The NightHunter 3 was designed to replace and improve upon the NightHunter II capabilities in a light weight weapons mountable system. Utilizing Xenonics proprietary technology and lessons learned, NightHunter 3 is a 3.0 pound illuminator that exceeds the range of the NightHunter II while at the same time incorporating an integral filter assembly, new battery technology, and remote control.
SuperVision SuperVision allows the user to see in the dark with greater clarity than conventional night vision, and with a zoom capability. The product is a small hand held device and weighs only 20 ounces. SuperVision retails for significantly less than the high-end night vision products.
SuperVision Video Out SuperVision with Video Out adds the ability to connect video signal to a recording device, monitor or both for surveillance or evidence gathering. This unit runs for up to twenty hours on external DC or AC power, as well as its rechargeable battery.
SuperVision Tactical Package The package was designed to meet the need of law enforcement professionals. It combines SuperVision with the Tactical IR and mount, extra batteries and a portable waterproof case. This has become the primary purchase item for the law enforcement market. This package can also include video-out capability.
SuperVision Long Range Surveillance System The system adds a long range lens, the required adapters, and a tactical case allowing the law enforcement professional the ability to view items of interest at a much great distance.
SuperVision Vehicle Patrol Package The package was designed specifically to make law enforcement patrol operations safer and more effective at night by providing a mobile handheld device that can be mounted in vehicles and connected to onboard computers to view, control and record activities in total darkness. The SuperVision unit can also be easily dismounted when needed to pursue subjects on foot.
The Markets
The actual and potential markets for our products consist of the following.
Military Forces of the United States and Foreign Allies
Military forces in the United States currently represent the primary target market for our NightHunter products. Through September 30, 2011, we have sold more than $50,000,000 of NightHunter brand illumination systems into this market, which is estimated at over $700,000,000. Our customers include the U.S. Army, the U.S. Air Force, the U.S. Navy and the U.S. Marine Corps.

 

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According to the International Institute for Strategic Studies and the U.S. Department of Defense, there are nearly 10,400,000 active and reserve troops, approximately 800 warships, and 1,600 amphibious, major mine, and support ships, 60,000 heavy tanks, and 97,000 armored infantry vehicles in the armed forces of the United States and its key allies. Given the large number of applications for NightHunter products, we believe that this represents a substantial market opportunity for the NightHunter product line.
SuperVision has application to the US Military though it was not optimized for military operations. It is listed on the GSA schedule and is also sold through the military exchange network. With the high performance and quality of SuperVision and no export restrictions, we see a good market in the international militaries.
U.S. Department of Homeland Security
The agencies of the U.S. Department of Homeland Security represent another key market for NightHunter and SuperVision products. These agencies include the U.S. Customs and Border Protection, Federal Emergency Management Agency, the Transportation Security Administration, the U.S. Secret Service and the U.S. Coast Guard. The United States Border Patrol has over 18,000 vehicles, nearly 200 marine vessels and over 1,200 canine teams deployed daily. The United States Coast Guard has a fleet of 252 cutters, 945 shore units and 1,660 boats. FEMA has over 2,600 full-time employees along with 4,000 employees on standby for disaster relief. The TSA oversees security on highway, railroads, buses, mass transit systems, ports and the 450 United States airports. Our NightHunter products have been tested and deployed in key strategic locations for port, waterway, coastline, airport and border security. We believe that the increased concern about homeland security and the higher amounts budgeted for new security products may make homeland security a potentially significant market for both of our product lines. Our goal is for agencies within the United States Department of Homeland Security to use discretionary funding to purchase our products, and we believe that in the future we may achieve specific line items in the budget similar to our experience with the defense budget.
Law Enforcement and Fire, Search & Rescue
We have been actively pursuing additional opportunities for sales of NightHunter illumination systems and SuperVision to law enforcement and fire, search and rescue organizations. We have seen significant traction in this market and we currently have over 100 U.S. local, state, or federal government agencies that have purchased and are using SuperVision. Law enforcement and fire, search and rescue represent a large market opportunity. Approximately 860,000 law enforcement personnel are estimated to be employed in the United States and there are approximately 40,000 fire, search & rescue departments in the United States. In addition, the international market opportunity remains large, primarily with the SuperVision product line. SuperVision products have been sold into Europe, South America, Mexico, and Asia.
Commercial Markets
SuperVision was designed to be a high performance but affordable night vision system. Because of this, we have an excellent opportunity in several domestic and international commercial markets. There are more than 5,100,000 registered maritime vehicles in the world and over 105,000,000 hunters, fisherman and wildlife watchers. There has also been interest from several industrial customers.
Sales & Marketing
We generate most of our revenue from the direct sale of our products to customers. To date, most of our sales have been to the United States military.
Manufacturing
We conduct manufacturing and final assembly operations on the NightHunter One, NightHunter ext and SuperVision products at our headquarters in Carlsbad, California, and own all of the equipment required to manufacture and assemble these finished products. In addition, we also own all molds, schematics, and prototypes utilized by our vendors in the production of the components and sub-assemblies used in our products. We can expand our production capabilities by adding additional personnel with negligible new investment in tooling and equipment.

 

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We currently purchase both commodity off-the-shelf components and custom-designed fabricated parts and sub-assemblies for use in our products from a number of qualified local, national and international suppliers. Although we currently obtain these components from many single source suppliers, we believe we could obtain components from alternative suppliers without incurring significant production delays. We acquire all of our components on a purchase order basis and do not have long-term contracts with suppliers.
We currently outsource the manufacturing of our NightHunter 3 product to Excelitas Technologies (formerly PerkinElmer Electronics, Inc.). In recent years they manufactured over 13,000 of our NightHunter products.
Competition
Other companies that offer high intensity, portable lighting products include SureFire, LLC, Polarion-USA and Peak Beam Systems, Inc. We believe that none of these companies currently offers a product with the features or range of applications of our NightHunter series. To our knowledge, only one company, Peak Beam Systems, supplies a short-arc xenon-based product. Peak Beam’s product also has the capability of utilizing infrared and ultraviolet filters, and provides a long-range light beam. However, unlike our products, Peak Beam’s products project a “black hole” and hence an obstructed field-of-view, are not as durable, and are not a self contained unit with integrated charger and battery.
In addition to these suppliers of hand-held high intensity lighting products, we believe that other companies that use first generation xenon technology, such as Spectrolab (helicopter searchlights), Phoebus (entertainment spotlights), and Strong (entertainment spotlights) could enter our market in the future. Our strategy is to remain the recognized market and technology leader for hand held size systems thus not leaving an opening for the searchlight companies. Furthermore, during this last fiscal year we became an approved supplier of crew served weapons light systems for the Army.
We have chosen an open spot in the market in the night vision market. We deliver in a high definition digital format the capabilities of current analog Gen 3 systems, at about half to one third the price. While our system retails at $1,799, analog Gen 3 systems are typically priced over $3,800. There are also lower performing products, usually analog Gen 1 or 2 systems, in the sub $600 retail range. Since our performance well exceeds these systems, our real competition is with the higher end product.
Regulation
We applied to the United States Department of Commerce, Bureau of Export Administration for an export license for both SuperVision and NightHunter products. In response to our inquiry, the department assigned an EAR classification of 99. We can export all our products without a license to all countries that are not on the restricted list IAW part 746 of the EAR. Xenonics is registered with the Department of State for any restrictions under the ITAR rules. At this time there are no restrictions on any of our products.
Intellectual Property
We have 15 utility and design patents issued and 7 pending applications, including 2 granted foreign patents and 3 pending foreign applications. Our illumination line of products has 8 US utility and design patents issued and 2 pending US applications, including patents for our technology platform, which applies high efficiency dimmable electronic ballast circuitry and precision optics to xenon light to produce an illumination device that delivers improved performance over current technologies. For our night vision product line we have 5 US utility and design patents issued and 2 pending US applications. In addition, for our night vision product line, we have 2 granted foreign patents and 3 pending foreign applications.
In addition to the foregoing patents, we also rely on certain know-how and trade secrets related to the design and manufacture of our products. We believe that the patents (both granted and pending) and our know-how and trade secrets provide protection to certain of our core technologies, and allow us to develop future products that can be scaled up or down (or to develop alternative packages for the existing products). We are not aware of any infringement of our patents or that we are infringing any patents owned by others.
Our “NightHunter”, “Xenonics” and “SuperVision” trademarks have been registered with the United States Patent and Trademark Office.

 

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Research and Development
We maintain a research and development program for the development and introduction of new products and accessories and for the development of enhancements and improvements to our existing products. In addition, we collaborate closely with certain of our largest customers in the design and improvement of our products to suit their respective needs. As such, we consider our research and development program to be an important element of our business, operations and future success.
Our research and development efforts currently are focused on (i) improving our current product line, (ii) designing and developing product line extensions that employ our proprietary illumination and electronics platforms, and (iii) designing and developing new products complementary to our existing products. We maintain an active research and development program at our facilities in Carlsbad, California, and as needed we retain outside consultants who can provide any necessary additional engineering or technological expertise. We also regularly work with our outside vendors and manufacturers to improve product performance and manufacturability, and to reduce manufacturing costs.
During the fiscal years ended September 30, 2011 and 2010, we spent $709,000 and $772,000, respectively, on research and development.
Employees
As of September 30, 2011, we employed 17 persons. There are three officers on our executive management team, eight persons are employed in operations, two persons in engineering, one person in customer service and three persons in administrative support. We are not a party to any collective bargaining agreements.
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.
For the most recent fiscal year ended September 30, 2011, we had a net loss of $92,000 on revenues of $7,179,000, compared to a net loss of $1,781,000 on revenues of $4,397,000 for the year ended September 30, 2010. For the year ended September 30, 2009, we had a net loss of $1,839,000 on revenues of $7,378,000. For the year ended September 30, 2008, we had a net loss of $1,391,000 on revenues of $10,168,000. For the year ended September 30, 2007, we had a net loss of $4,034,000 on revenues of $4,984,000. For the year ended September 30, 2006, we had a net loss of $1,488,000 on revenues of $4,833,000. For the year ended September 30, 2005, we had a net loss of $5,310,000 on revenues of $4,434,000. For the year ended September 30, 2004, we recorded net income of $1,476,000 on revenues of $11,927,000. Since our revenues are primarily dependent upon the receipt of large orders from the military and other governmental organizations, which orders are sporadic and unpredictable, our revenues fluctuate significantly from quarter to quarter and from year to year. No assurance can be given that we will generate sales at any specific levels or that any additional sales that may be generated will result in the profitability or viability of our Company.
The loss of contracts with U.S. government agencies would adversely affect our revenue.
To date, substantially all of our sales have been derived from sales to military and security organizations, such as the U.S. military, and various other governmental law enforcement agencies. While we believe that we will continue to be successful in marketing our products to these entities, there are certain considerations and limitations inherent in sales to governmental or municipal entities such as budgetary constraints, timing of procurement, political considerations, and listing requirements that are beyond our control and could affect our future sales. There is no assurance that we will be able to achieve our targeted sales objectives to these governmental and municipal entities or that we will continue to generate any material sales to these entities in the future.

 

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Potential customers may prefer our competitors’ technology and products.
The ultra-high intensity lighting industry, in which we operate, is characterized by mature products and established industry participants. We compete with other providers of specialized lights in the United States and abroad who have created or are developing technologies and products that are similar to the products we are selling to many of the same purchasers in our targeted markets. Although we believe that our competitors do not offer products as advanced as ours, competition from these companies is intense. Because we are currently a small company with a limited marketing budget, our ability to compete effectively will depend on the benefits of our technology and on our patents. There is no assurance that potential customers will select our technology over that of a competitor, or that a competitor will not market a competing technology with operating characteristics similar to those owned by us.
The loss of any of our key personnel could adversely affect our business.
We depend on the efforts of our senior management, particularly Alan P. Magerman, our Chairman of the Board and Chief Executive Officer and Jeffrey P. Kennedy, our Chief Operating Officer and President. The loss of the services of one of these individuals could delay or prevent us from achieving our objectives.
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 dependent on our ability to obtain sales orders and/or additional equity or debt financing to continue to support planned operations and satisfy obligations. The Company’s marketing activity has been intensified and management remains optimistic about our growth opportunity. However, due to the nature of our business, there is no assurance that we will receive new orders during the quarters that we expect them. Although management believes it can obtain additional financing, there is no certainty that it can. Any equity financing may involve dilution of the interests of our current shareholders, and any debt financing would subject us to the risks associated with leverage, including the possible risk of default and insolvency.
We may experience production delays if suppliers fail to deliver materials to us, which could reduce our revenue.
The manufacturing process for our products consists primarily of the assembly of purchased components. Although we can obtain materials and purchase components from different suppliers, we rely on certain suppliers for our components. If a supplier should cease to deliver such components, this could result in added cost and manufacturing delays and have an adverse effect on our business.
Any delay in our ability to market, sell or ship our existing products would adversely affect our revenue.
To date, all of our revenues have been generated from the sales of our NightHunter illumination system products — the NightHunter One, NightHunter II (now discontinued), NightHunter 3 and NightHunter ext — related accessories and SuperVision. In addition to the NightHunter models and SuperVision with tactical illumination, we are now marketing the NightHunter 3. The profitability and viability of our Company is dependent upon our continued ability to sell, manufacture and ship our illumination products and SuperVision, and any delay or interruption in our ability to market, sell, or ship our NightHunter illumination systems or SuperVision and related accessories will have a material adverse affect on our business and financial condition.
Further, our future growth and profitability will depend on our ability to successfully expand NightHunter, SuperVision and other products. While our goal is to develop and commercialize a line of ultra-high intensity illumination systems, and digital low-light viewing devices, new products will require substantial expenditures for development and advertising. There is no guarantee that the market will accept these new products. If we are unable to develop and release other products, the future of our Company will depend on the commercial success of our existing NightHunter products and SuperVision.

 

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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.
There is no assurance as to the depth or liquidity of any market for our common stock or the prices at which holders may be able to sell the shares. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Due to these conditions, there is no assurance that shareholders will be able to sell their shares at or near ask prices 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.
Small, relatively unknown companies can achieve visibility in the trading market through research reports that industry or securities analysts publish. The lack of published reports by independent securities analysts could limit the interest in our common stock and negatively affect our stock price. We do not have any control over the research reports these analysts publish or whether they will be published at all. If any analyst who does cover us downgrades our stock, our stock price would likely decline. If any analyst ceases coverage of our Company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price to decline.
Anti-takeover provisions in our articles of incorporation could adversely affect the value of our common stock.
Our articles of incorporation contain certain provisions that could impede a non-negotiated change in control. In particular, without shareholder approval we can issue up to 5,000,000 shares of preferred stock with rights and preferences determined by the board of directors. These provisions could make a hostile takeover or other non-negotiated change in control difficult.
The future issuance of additional common and preferred stock could dilute existing shareholders.
We are currently authorized to issue up to 50,000,000 shares of common stock. To the extent that common shares are available for issuance, our board of directors has the ability, without seeking shareholder approval, to issue additional shares of common stock in the future for such consideration as the board of directors may consider sufficient. The issuance of additional common stock in the future will reduce the proportionate ownership and voting power of the common stock held by our existing shareholders.
We are also authorized to issue up to 5,000,000 shares of preferred stock, the rights and preferences of which may be designated in series by the board of directors. Such designation of new series of preferred stock may be made without shareholder approval and could create additional securities which would have dividend and liquidation preferences over our common stock. Preferred shareholders could adversely affect the rights of holders of common stock by:
   
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.
We do not plan to pay any cash dividends on our common stock.
We do not plan to pay any cash dividends on our common stock in the foreseeable future. Any decision to pay dividends is within the discretion of the board of directors and will depend upon our profitability at the time, cash available and other factors. As a result, there is no assurance that there will ever be any cash dividends or other distributions on our common stock.

 

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The exercise of outstanding stock options and warrants would dilute the ownership interests of our existing shareholders.
There are currently outstanding stock options and warrants entitling the holders to purchase 6,953,000 shares of our common stock, including a number of options granted to directors, officers, employees and consultants that are subject to vesting and financial performance conditions. These options and warrants have exercise prices ranging from $0.50 per share to $3.25 per share. It is likely that many of the holders of these options and warrants will exercise and sell shares of our common stock when the stock price exceeds their exercise price. Substantial option and warrant exercises and subsequent stock sales by our option and warrant holders would significantly 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.
The release into the public market of a large number of freely tradable shares and restricted securities that are now eligible or subsequently become eligible for public resale under Rule 144 could cause the market price of our common stock to decline. The perception among investors that these sales may occur could produce the same adverse effect on our market price.
Item 1B.  
Unresolved Staff Comments
None.
Item 2.  
Properties
Our principal operations and executive offices are located at 3186 Lionshead Avenue, Carlsbad, California 92010 and our telephone number is (760) 477-8900. The Company moved into new facilities in January 2009, under the terms of a new lease that expires in March 2014. This new facility consists of approximately 13,200 square feet of leased office, warehouse and manufacturing space.
Item 3.  
Legal Proceedings
We are occasionally subject to legal proceedings and claims that arise in the ordinary course of our business. It is impossible for us to predict with any certainty the outcome of pending disputes, and we cannot predict whether any liability arising from pending claims and litigation will be material in relation to our consolidated financial position or results of operations.
Item 4.  
Removed and Reserved

 

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PART II
Item 5.  
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently traded under the symbol “XNNH” on the OTCBB & OTCQB. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock.
                 
Year ended September 30, 2011   High     Low  
First Quarter
  $ 0.49     $ 0.30  
Second Quarter
  $ 0.62     $ 0.43  
Third Quarter
  $ 0.48     $ 0.35  
Fourth Quarter
  $ 0.51     $ 0.32  
                 
Year ended September 30, 2010   High     Low  
First Quarter
  $ 1.12     $ 0.63  
Second Quarter
  $ 1.04     $ 0.48  
Third Quarter
  $ 0.53     $ 0.32  
Fourth Quarter
  $ 0.42     $ 0.23  
As of September 30, 2011, there were 24,975,929 common shares outstanding and 46 shareholders of record, not including shareholders who hold their stock in “street name”.
Dividends
The Company has never paid any cash dividends on its common stock. The Company currently anticipates that it will retain all future earnings for use in its business. Consequently, it does not anticipate paying any cash dividends in the foreseeable future. The payment of dividends in the future will depend upon our results of operations, as well as our short-term and long-term cash availability, working capital, working capital needs and other factors, as determined by our Board of Directors. Currently, except as may be provided by applicable laws, there are no contractual or other restrictions on our ability to pay dividends if we were to decide to declare and pay them.
Repurchase of Securities
The Company did not purchase any shares of its common stock during the quarter ended September 30, 2011.
Recent Sales of Unregistered Securities
The Company has previously reported all equity securities that it sold during the period covered by this annual report that were not registered under the Securities Act.

 

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Equity Compensation Plan Information
The following table summarizes as of September 30, 2011, the number of securities to be issued upon the exercise of outstanding derivative securities (options, warrants and rights); the weighted-average exercise price of the outstanding derivative securities; and the number of securities remaining available for future issuance under the Company’s equity compensation plans.
                         
    Number of securities             Number of securities  
    to be issued upon     Weighted-average     remaining available for  
    exercise of     exercise price of     future issuance under  
    outstanding options,     outstanding options,     equity compensation plans  
Plan Category   warrants and rights     warrants and rights     (excluding column (a))  
    (a)     (b)     (c)  
Equity compensation plans approved by security holders
    805,000     $ 0.73       1,521,000  
Equity compensation plans not approved by security holders
    100,000     $ 0.50        
 
                 
Totals
    905,000     $ 0.71       1,521,000  
 
                 
The equity compensation plans approved by the security holders are the 2003 Stock Option Plan of Xenonics Holdings, Inc. and the 2004 Stock Incentive Plan of Xenonics Holdings, Inc. Except as described in the following paragraphs, the Company has not adopted without the approval of security holders any equity compensation plan under which securities of the issuer are authorized for issuance.
On November 11, 2009 the Company entered into an agreement with an independent firm to conduct institutional investor services for a period of one year. As part of this agreement the Company issued a five year warrant, vested upon issuance, to purchase 100,000 shares of the Company’s common stock at $0.50 per share.
Item 6.  
Selected Financial Data
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.
Item 7.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained elsewhere in this report, contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements include statements regarding the intent, belief or current expectations of management, our directors or our officers with respect to, among other things: anticipated financial or operating results, financial projections, business prospects, future product performance and other matters that are not historical facts. The success of our business operations is dependent on factors such as the impact of competitive products, product development, commercialization and technology difficulties, the results of financing efforts and the effectiveness of our marketing strategies, general competitive and economic conditions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors, including those described under “Risk Factors” above.
Overview
We design, manufacture and market high-end, high-intensity portable illumination products and low light viewing systems (night vision). Our core product line consists of lightweight, long-range, ultra-high intensity illumination products used in a wide variety of applications by the military, law enforcement, security, search and rescue and, to a lesser extent, in commercial markets. The night vision system is used across the entire spectrum from commercial to the military. We hold several patents for our technology platform, which applies high efficiency dimmable electronic ballast circuitry and precision optics to xenon light to produce an illumination device that delivers improved performance over current technologies, and additional patents to the integration of the night vision system.

 

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We are largely dependent upon government orders for our revenues. While the night vision products could expand our sales into the commercial market, the government market, particularly law enforcement, will continue to be a large part of the night vision sales. Existing customers include all branches of the United States Armed Forces and federal law enforcement.
We market our illumination products under the NightHunter brand name and night vision under the SuperVision brand. The NightHunter series of products is produced in a variety of configurations to suit specific customer needs. These include compact hand-held systems for foot-borne personnel and stabilized systems for airborne, vehicular and shipboard use. These NightHunter illumination systems are used for reconnaissance, surveillance, search and rescue, physical security, target identification and navigation. The systems allow the user to illuminate an area, an object or a target with visible or non-visible light, and to improve visibility through many types of obscurants such as smoke, haze and most types of fog.
The SuperVision product uses a high resolution HDTV display with an ultra-sensitive IR/visible sensor and a proprietary Digital Signal Processor. This all digital format brings capabilities comparable to high end military analog systems at less than half the price. In addition the digital format allows for zoom capability. The price and capability opens the market to law enforcement and the general consumer, whether in the maritime environment, hunting, camping, security, or any other activity done in a low light situation.
We conduct all of our operations through our subsidiary, Xenonics, Inc.
How We Generate Revenue
We generate most of our revenue from the direct sale of our products to customers. To date, most of our sales have been to the United States military.
Trends in Our Business
The Company has not had revenue sufficient to generate net income in the last five years. In order to improve our revenue, we are focusing on improving our current products, introducing new products and expanding our customer base. In addition to an ongoing effort to improve revenue, we continually seek to lower costs wherever possible to improve our operating margin.
Our current challenge is to supplement government sales with commercial sales of both our current products and new products. Risks include new competitors entering the market, decreases in government budgets (particularly the defense budget) and our ability to penetrate other markets.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used in the current period, and changes in the accounting estimates we used are reasonably likely to occur from period to period which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary and reviewed by the audit committee.
Revenue Recognition and Accounts Receivable — The Company recognizes revenue upon shipment and transfer of title and when it has evidence that payment arrangements exist and the price to the buyer is fixed through signed contracts or purchase orders. Collectability is reasonably assured through one or more of the following: government purchase, historical payment practices or review of new customer credit. Customers do not have the right to return product unless it is damaged or defective.
Allowance for Doubtful Accounts — Credit evaluations are undertaken for all major sales transactions before shipment is authorized. Normal terms require payment on a net 30 basis depending on the customer. On an ongoing basis, we analyze the payment history of customer accounts, including recent purchases. We evaluate aged items in accounts receivable and provide reserves for doubtful accounts. Customer creditworthiness and economic conditions may change, including increased risk of collectability and sales returns, and may require additional provisions, which could negatively impact our operating results.

 

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Tax Valuation Allowance — A tax valuation allowance is established, as needed, to reduce net deferred tax assets to the amount for which recovery is probable. We have established a full valuation allowance against our U.S. net deferred tax assets because of our history of losses. In the event it becomes more likely than not that some or all of the deferred tax assets will be realized, we will adjust our valuation allowance. Depending on the amount and timing of taxable income we ultimately generate in the future, as well as other factors, we could recognize no benefit from our deferred tax assets, in accordance with our current estimate, or we could recognize a portion of or their full value.
Inventory Valuation — Inventories are stated at the lower of cost or market. Cost is computed using weighted average cost, which approximates actual cost, on a first-in, first-out basis. The Company may also provide inventory allowances based on excess and obsolete inventories determined primarily by future demand forecasts.
A physical inventory is completed on a monthly basis, and adjustments are made based on such inventories. If it is determined that our estimates of the valuation of inventories are incorrect, we may need to establish reserves, which would negatively affect any future earnings.
Results of Operations
Year ended September 30, 2011 compared to September 30, 2010
We operate in the security lighting systems and night vision industries. The majority of our revenues were derived from sales of our illumination products to various customers, primarily the military.
Revenues: Revenues for the year ended September 30, 2011 were $7,179,000 compared to revenues of $4,397,000 for the year ended September 30, 2010. In the year ended September 30, 2011, we sold $6,668,000 or 93% of our NightHunter products to the US Government, which includes both direct sales to the military (U.S. Army and U.S. Marines) as well as domestic and international military resellers. This compares to $3,950,000 or 90% of revenue to the military market (U.S. Army, U.S. Marines and military resellers) in 2010. Shipments to military, law enforcement and commercial customers of our SuperVision product accounted for 7% of revenues for the year ended September 30, 2011 and 10% for the year ended September 30, 2010.
Cost of Goods and Gross Profit: Cost of goods consist of our cost of manufacturing our NightHunter One and SuperVision products and the price that we pay to Excelitas Technologies (formerly PerkinElmer) for the NightHunter 3 products that Excelitas Technologies manufactures for us.
The gross profit percentage on revenue was 45% and 49% for the years ended September 30, 2011 and 2010, respectively. The decrease in the gross profit percentage is attributed to cost increases from Excelitas Technologies for our NightHunter 3 products.
Selling, General and Administrative: Selling, general and administrative expenses decreased by $580,000 to $2,441,000 for the year ended September 30, 2011 as compared to $3,021,000 for the year ended September 30, 2010. The decrease is primarily attributable to decreases in non-cash compensation expenses for stock options and warrants of $136,000, legal and accounting expenses of $105,000, bad debt expense of $164,000 and consulting expenses of $239,000 offset by an increase in board of director fees of $70,000 (a former consultant to the Company became a member of the Board of Directors).
Research & Development: Research and development expenses decreased by $63,000 to $709,000 for the year ended September 30, 2011 as compared to $772,000 for the year ended September 30, 2010. The decrease is primarily attributable to a decrease in outside engineering expenses.
Other Income / Expense: For the years ended September 30, 2011 and 2010, interest expense was $152,000. Interest expense for both years includes amortization of warrants issued for notes payable and interest paid in cash for the loan proceeds that were received in July 2009.
For the year ended September 30, 2011, interest income was $6,000 compared to $4,000 in the prior year.
In connection with the repurchase of the Company’s minority interest, the Company issued 275,000 shares of common stock with a guaranteed market value of at least $375,000 as of December 10, 2009. In connection with this repurchase, the Company recorded a derivative at the time of the transaction of $161,000. At September 30, 2009, the fair value of the common stock decreased and the Company recorded the mark to market year to date adjustment of $39,000 as a loss on derivative revaluation. The repurchase was completed in January 2010 for $161,000 and the Company recorded the mark to market year to date adjustment of $38,000 as a gain on derivative revaluation.

 

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Provision for Income Taxes: For the years ended September 30, 2011 and 2010, the provision for income tax was $2,000, which represents the minimum annual payments for state taxes.
Net Loss: Higher sales plus a reduction in expenses in the current year accounted for a net loss of $92,000 when compared to a net loss of $1,781,000 for the prior year.
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming that we will continue as a going concern. As reflected in the accompanying financial statements, we have an accumulated deficit of $23,522,000 as of September 30, 2011. Our continued existence is dependent on our ability to obtain orders for our products and/or additional equity and/or debt financing to support planned operations and satisfy obligations. There is no assurance that we will be able to obtain enough orders for our products or additional financing to support our current operations.
Historically, we have invested substantial resources in the development of our products and in the establishment of our business, which negatively impacted our cost structure and created the accumulated deficit of $23,522,000. Our net loss of $92,000 negatively impacted cash. Significant sources of cash from operating activities included a decrease in accounts receivable (net of allowances) of $683,000, depreciation of $34,000, non-cash compensation of $104,000 and amortization of warrants for notes payable of $83,000 offset by an increase in inventory of $576,000 and a decrease in accounts payable of $78,000. Cash provided by operating activities totaled $140,000. Cash flows used in financing activities included $107,000 for purchasing our common stock from a former member of our Board of Directors. There was no cash used for investing activities during the year ended September 30, 2011. Currently we do not anticipate any material capital expenditures during the fiscal year ending September 30, 2012.
As of September 30, 2011, the Company had working capital of $3,088,000 and a current ratio of 6.1 to 1 as compared to working capital of $3,065,000 and a current ratio of 5.2 to 1 as of September 30, 2010. Cash on hand at the end of the year increased by $33,000 from the amount of cash on hand as of September 30, 2010.
We do not believe that inflation has had a material impact on our business or operations.
We are not a party to any off-balance sheet arrangements and do not engage in trading activities involving non-exchange traded contracts. In addition, we have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets.
Based on the amount of working capital that we had on hand on September 30, 2011 and the amount of unfilled and potential orders we have pending, we are optimistic about our ability to obtain sales orders and/or additional equity or debt financing to continue to support planned operations and satisfy obligations. Management remains optimistic about our growth opportunity. However, due to the nature of our business, there is no assurance that we will receive new orders during the quarters that we expect them and although management believes it can obtain additional financing, there is no certainty that it can.

 

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Item 7A.  
Quantitative and Qualitative Disclosures About Market Risk
Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K

 

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Item 8.  
Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
XENONICS HOLDINGS, INC.
         
 
       
    19  
 
       
Consolidated Financial Statements:
       
 
       
    20  
 
       
    21  
 
       
    22  
 
       
    23  
 
       
    24  
 
       

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Xenonics Holdings, Inc.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Xenonics Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Xenonics Holdings, Inc. and subsidiary (collectively, the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
SingerLewak LLP
Irvine, California
December 19, 2011

 

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CONSOLIDATED BALANCE SHEETS
                 
    September 30,  
Rounded in thousands, except par value   2011     2010  
Assets
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 738,000     $ 705,000  
Accounts receivable, net
    273,000       956,000  
Inventories, net
    2,542,000       1,966,000  
Other current assets
    144,000       166,000  
 
           
Total Current Assets
    3,697,000       3,793,000  
Equipment, furniture and leasehold improvements at cost, net
    35,000       69,000  
Goodwill
    375,000       375,000  
Other assets
    116,000       216,000  
 
           
Total Assets
  $ 4,223,000     $ 4,453,000  
 
           
 
               
Liabilities and Shareholders’ Equity
               
 
               
Current liabilities:
               
Accounts payable
  $ 414,000     $ 492,000  
Accrued expenses
    99,000       126,000  
Accrued payroll and related taxes
    96,000       110,000  
 
           
Total Current Liabilities
    609,000       728,000  
 
               
Notes payable, net of debt discount
    459,000       376,000  
 
           
Total Liabilities
    1,068,000       1,104,000  
 
           
 
               
Commitments 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, 2011 and 2010; 24,976,000 shares issued as of September 30, 2011 and 25,621,000 as of September 30, 2010; 24,976,000 shares outstanding as of September 30, 2011 and 25,509,000 outstanding as of September 30, 2010
    25,000       25,000  
Additional paid-in capital
    26,652,000       26,954,000  
Accumulated deficit
    (23,522,000 )     (23,324,000 )
 
           
 
    3,155,000       3,655,000  
Less treasury stock, at cost, 0 shares as of September 30, 2011 and 113,000 shares as of September 30, 2010
          (306,000 )
 
           
Total Shareholders’ Equity
    3,155,000       3,349,000  
 
           
 
               
Total Liabilities and Shareholders’ Equity
  $ 4,223,000     $ 4,453,000  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

 

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CONSOLIDATED STATEMENTS OF OPERATIONS
                 
    Years ended September 30,  
Rounded in thousands, except per share amounts   2011     2010  
 
               
Revenue, net
  $ 7,179,000     $ 4,397,000  
Cost of goods sold
    3,982,000       2,247,000  
 
           
Gross profit
    3,197,000       2,150,000  
 
               
Selling, general and administrative
    2,441,000       3,021,000  
Research and development
    709,000       772,000  
 
           
Income (loss) from operations
    47,000       (1,643,000 )
 
               
Other income (expense):
               
Gain on derivative revaluation
          38,000  
Other (expense) income
    9,000       (26,000 )
Interest income
    6,000       4,000  
Interest (expense)
    (152,000 )     (152,000 )
 
           
Income (loss) before provision for income taxes
    (90,000 )     (1,779,000 )
 
               
Income tax provision
    2,000       2,000  
 
           
Net income (loss)
  $ (92,000 )   $ (1,781,000 )
 
           
 
               
Net loss per share:
               
Basic and diluted
  $ 0.00     $ (0.08 )
 
           
Weighted average shares outstanding
               
Basic and diluted
    25,074,000       22,994,000  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

 

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
                                                         
    Common Stock     Treasury Stock     Additional     Accumulated        
Rounded in thousands   Shares     Amount     Shares     Amount     Paid-In Capital     Deficit     Total  
Balances at September 30, 2009
    20,571,000     $ 20,000       (113,000 )   $ (306,000 )   $ 24,478,000     $ (21,543,000 )   $ 2,649,000  
Shares issued for cash
    4,400,000       4,000                       1,924,000               1,928,000  
Shares issued for services
    600,000       1,000                       386,000               387,000  
Warrants and stock options exercised
    50,000                               16,000               16,000  
Compensation charge for stock options issued to employees and directors
                                    34,000               34,000  
Compensation charge for warrants issued for services
                                    116,000               116,000  
Net 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  
Shares purchased for cash from related party
    (532,000 )                                     (106,000 )     (106,000 )
Treasury stock retired
    (113,000 )             113,000       306,000       (306,000 )              
Compensation charge for warrants issued for services
                                    4,000               4,000  
Net loss
                                            (92,000 )     (92,000 )
 
                                         
Balances at September 30, 2011
    24,976,000     $ 25,000       -0-     $ -0-     $ 26,652,000     $ (23,522,000 )   $ 3,155,000  
 
                                         
The accompanying notes are an integral part of these consolidated financial statements.

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS
                 
    Years ended September 30,  
Rounded in thousands   2011     2010  
Cash flows from operating activities:
               
Net income (loss)
  $ (92,000 )   $ (1,781,000 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
Depreciation
    34,000       63,000  
Impairment loss from fixed asset disposals
          26,000  
Provision for bad debts
    (174,000 )     165,000  
Non-cash compensation for stock options issued to employees and directors
          34,000  
Non-cash compensation for warrants issued
    4,000       116,000  
Non-cash compensation to consultants
    100,000       90,000  
(Gain) loss on derivative revaluation
          (38,000 )
Amortization of warrants for notes payable
    83,000       84,000  
Changes in operating assets and liabilities:
               
Accounts receivable
    857,000       513,000  
Inventories, net
    (576,000 )     103,000  
Other current assets
    22,000       34,000  
Accounts payable
    (78,000 )     (498,000 )
Accrued expenses
    (27,000 )     (31,000 )
Accrued payroll and related taxes
    (13,000 )     (46,000 )
Accrued derivative liability
          (161,000 )
 
           
Net cash provided by (used in) operating activities
    140,000       (1,327,000 )
 
           
 
               
Cash flows from investing activities:
               
Purchases of equipment, furniture and leasehold improvements
          (28,000 )
 
           
Net cash (used in) investing activities
          (28,000 )
 
           
 
               
Cash flows from financing activities:
               
Purchase of common stock from related party
    (107,000 )      
Proceeds from sales of common stock, net of expenses
          1,928,000  
Proceeds from the exercise of stock options
          6,000  
 
           
Net cash provided by (used in) financing activities
    (107,000 )     1,934,000  
 
           
 
               
Net increase in cash
    33,000       579,000  
Cash and cash equivalents, beginning of period
    705,000       126,000  
 
           
Cash and cash equivalents, end of period
  $ 738,000     $ 705,000  
 
           
 
               
Supplemental cash flow information:
               
Cash paid during the year for income taxes
  $ 2,000     $ 2,000  
Cash paid during the year for interest
  $ 68,000     $ 68,000  
Supplemental schedule of non-cash financing activities:
               
The 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

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND OTHER ORGANIZATIONAL MATTERS
Xenonics, Inc. (Xenonics) was organized under the laws of the state of Delaware in November 1996. Xenonics was formed to develop and commercialize compact, ultra-high intensity illumination products, based on patented technology. Xenonics markets its products directly to end users on a contract and purchase order basis in a variety of markets for military, law enforcement, security, and search and rescue applications.
In July 2003, Xenonics completed a reorganization with Digital Home Theater Systems, Inc. (DHTS), a Nevada corporation that had previously operated as a multimedia service provider. DHTS had discontinued operations in 1999. In connection with the transaction, DHTS acquired 100% of Xenonics. Upon the closing of the reorganization, DHTS changed its name to Xenonics Holdings, Inc. (Holdings), together with Xenonics, collectively, the “Company”. The transaction was accounted for as a recapitalization of Xenonics with an issuance of common stock for cash. Although Holdings was the legal acquirer in the transaction, Xenonics was the accounting acquirer and, as such, its historical financial statements will continue. No goodwill was recorded as a result of the transaction.
On December 14, 2004, one warrant holder of Xenonics exercised warrants to purchase 125,000 shares of Xenonics, Inc. Effective December 10, 2008 the Company repurchased these shares, thus resulting in Xenonics, Inc. becoming a wholly-owned subsidiary of the Company — see Note 9 for more details.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation — The consolidated financial statements include the accounts of Holdings and its 100% owned subsidiary Xenonics.
Use of Estimates — The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents — Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company considers highly liquid money market investments with original maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. At times, such amounts may exceed federally insured limits; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash equivalent accounts.
Equipment, Furniture and Leasehold Improvements — Equipment, furniture and leasehold improvements are stated at cost less accumulated depreciation which is computed using the straight-line method over the estimated useful lives of the assets, generally ranging from five to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. Expenditures for repairs and maintenance are charged to operations as incurred.
Long-Lived Assets — The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts or fair value less costs to sell.
Fair Value Of Financial Instruments — The Company’s principal financial instruments represented by cash and equivalents, accounts receivable, accounts payable and accrued expenses, approximate their fair value due to the short-term nature of these items. The fair value of the notes payable is estimated based on current rates offered to the Company for similar debt of the same remaining maturities.

 

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Accounts Receivable — The Company provides for the possibility of customers’ inability to make required payments by recording an allowance for doubtful accounts. The Company writes-off an account when it is considered to be uncollectible. The Company evaluates the collectability of its accounts receivable on an on-going basis. In some circumstances the Company records a specific allowance against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company records an allowance for doubtful accounts based on the length of time the receivables are past due, the current business environment and the Company’s historical experience. As of September 30, 2011, the allowance for doubtful accounts was $2,000 compared to $176,000 as of September 30, 2010. The Company allows its customers to return damaged or defective products following a customary return merchandise authorization process. The Company utilizes actual historical return rates to determine its allowance for returns each period. Gross sales are reduced by estimated returns and cost of goods sold is reduced by the estimated cost of those sales. The Company records a corresponding allowance for the estimated liability associated with the estimated returns. This estimated liability is based on the gross margin of the products corresponding to the estimated returns. This allowance is offset each period by the actual product returns. As of September 30, 2011, the Company determined that no allowance for sales returns was necessary.
Concentrations of Credit Risk — The Company provides credit to its customers in the normal course of business. During the year ended September 30, 2011, three customers accounted for 84% of total product sales. One of these customers represented 62% of accounts receivable at September 30, 2011. During the year ended September 30, 2010, two customers accounted for 87% of total product sales. These customers represented 81% of accounts receivable, respectively at September 30, 2010. The Company does not obtain collateral with which to secure its accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses based upon the Company’s historical experience related to credit losses and any unusual circumstances that may affect the ability of its customers to meet their obligations.
Inventories — Inventories are stated at the lower of cost or market. Cost is computed using weighted average cost, which approximates actual cost, on a first-in, first-out basis. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete or in excess of future needs. Items determined to be obsolete are reserved for. The Company provides for the possible inability to sell its inventories by providing an excess inventory reserve. As of September 30, 2011 the Company determined that a reserve of $30,000 was required.
Revenue Recognition — The Company recognizes revenue net of discounts upon shipment and transfer of title and when it has evidence that payment arrangements exist and the price to the buyer is fixed through signed contracts or purchase orders. Collectability is reasonably assured through one or more of the following: government purchase, historical payment practices or review of new customer credit. Customers do not have the right to return product unless it is damaged or defective.
Advertising Costs — Advertising costs are expensed as incurred. For the years ended September 30, 2011 and 2010 there were no expenditures for advertising.
Cost of Goods Sold — Cost of goods sold includes raw materials and components, labor, and manufacturing overhead. Also included are the costs related to outside production of product through an exclusive manufacturing agreement.
Income Taxes — Income taxes are provided for the effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to differences between the basis of certain assets and liabilities for financial and income tax reporting. Deferred taxes are classified as current or non-current depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred tax assets if it is more likely than not that all, or some portion of, such deferred tax assets will not be realized.
The Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established for certain tax positions. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. At the date of adoption, and as of September 30, 2011 and September 30, 2010, the Company does not have a liability for unrecognized tax benefits. The Company concluded that at this time there are no uncertain tax positions. There was no cumulative effect on retained earnings.
Net Income (Loss) Per Common Share — Basic net income (loss) per common share is computed by dividing the net income (loss) available to common shareholders by the weighted average number of common shares outstanding. Diluted net income (loss) per share includes the dilutive effect, if any, from the potential exercise of stock options and warrants using the treasury stock method.

 

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The weighted average shares outstanding used in the calculations of net income (loss) per share were as follows:
                 
    For the years ended  
    September 30,  
    2011     2010  
Shares outstanding, beginning
    25,509,000       20,459,000  
Weighted average shares issued (purchased)
    (435,000 )     2,535,000  
 
           
Weighted average shares outstanding — Basic and diluted
    25,074,000       22,994,000  
 
           
Potential common shares not included in the calculation of net income (loss) per share, as their effect would be anti-dilutive, are as follows:
                 
    September 30,  
    2011     2010  
Stock options and warrants
    6,953,000       8,061,000  
 
           
Research and Development — Research and development costs are expensed as incurred. Substantially all research and development expenses are related to new product development and designing improvements in current products.
Stock Options — The Company measures the compensation cost for all stock-based awards at fair value on the date of grant and recognizes the compensation expense over the service period for awards expected to vest. The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with the Company’s valuation techniques previously utilized for stock options. Such fair value is recognized as expense over the service period, net of estimated forfeitures.
Recently Adopted and Issued Accounting Pronouncements
Recently Adopted:
In June 2009, the FASB issued new rules related to accounting for transfers of financial assets. These new rules were incorporated into the Accounting Standards Codification in December 2009 as discussed in FASB Accounting Standards Update (ASU) No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. The new rules amend various provisions related to accounting for transfers and servicing of financial assets and extinguishments of liabilities, by removing the concept of a qualifying special-purpose entity and removes the exception from applying FASB rules related to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. The new rules become effective for the Company on October 1, 2010, earlier application is prohibited. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
In June 2009, the FASB issued new rules to amend certain accounting for variable interest entities (VIE). These new rules were incorporated into the Accounting Standards Codification in December 2009 as discussed in FASB ASU No. 2009-17, Consolidation (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. The new rules require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE; to eliminate the quantitative approach previously required for determining the primary beneficiary of a VIE; to add an additional reconsideration event for determining whether an entity is a VIE when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a VIE. The new rules become effective for the Company on October 1, 2010; earlier application is prohibited. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

 

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In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 amends accounting for revenue arrangements with multiple deliverables, to eliminate the requirement that all undelivered elements have Vendor-Specific Objective Evidence (VSOE) or Third-Party Evidence (TPE) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. Application of the “residual method” of allocating an overall arrangement fee between delivered and undelivered elements will no longer be permitted upon adoption of ASU 2009-13. Additionally, the new guidance will require entities to disclose more information about their multiple-element revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity will be required to apply the amendments in this Update retrospectively from the beginning of the entity’s fiscal year. Additionally, vendors electing early adoption will be required to disclose the following information at a minimum for all previously reported interim periods in the fiscal year of adoption: revenue, income before income taxes, net income, earnings per share and the effect of the change for the appropriate captions presented. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
Recently Issued:
In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures About Fair Value Measurements. The ASU requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation of disclosed assets and liabilities, and about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures were effective, and adopted, during the Company’s second quarter ended March 31, 2010, however the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 measurements, will be effective for the Company’s first quarter ending December 31, 2011. Other than requiring additional disclosures, the full adoption of this new guidance will not have an impact on our consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04 to amend the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurement to (1) clarify the application of existing fair value measurement requirements and (2) change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The primary purpose of the amendments are to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments in ASU 2011-04 are to be applied prospectively for interim and annual periods beginning after December 15, 2011. Adoption of this new guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08 to amend and simplify tests for goodwill impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. The amendments in ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Adoption of this new guidance is not expected to have a material impact on the Company’s consolidated financial statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable were comprised of:
                 
    September 30,     September 30,  
    2011     2010  
Accounts Receivable
  $ 275,000     $ 1,132,000  
Allowance for doubtful accounts
    (2,000 )     (176,000 )
 
           
 
  $ 273,000     $ 956,000  
 
           

 

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4. INVENTORIES
Inventories were comprised of:
                 
    September 30,     September 30,  
    2011     2010  
Raw materials
  $ 1,126,000     $ 1,285,000  
Work in process
    282,000       250,000  
Finished goods
    1,134,000       431,000  
 
           
 
  $ 2,542,000     $ 1,966,000  
 
           
5. FIXED ASSETS
Fixed assets consist of the following:
                     
    Estimated   September 30,     September 30,  
    Useful Lives   2011     2010  
Equipment and software
  5   $ 128,000     $ 134,000  
Furniture and leasehold improvements
  7     67,000       67,000  
 
             
 
        195,000       201,000  
Less: accumulated depreciation and amortization
        (160,000 )     (132,000 )
 
             
 
      $ 35,000     $ 69,000  
 
               
Depreciation expense was $34,000 and $63,000 for the years ended September 30, 2011 and 2010, respectively.
6. GOODWILL
The $375,000 recorded as goodwill represents the excess of the purchase price over the recorded minority interest of the Xenonics common stock repurchased as discussed in Note 9 below. The Company does not amortize goodwill. Instead, the Company evaluates goodwill annually in the fourth quarter and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has been incurred. As of September 30, 2011, the Company determined that no such impairment indicators exist.
7. DERIVATIVE LIABILITY
In connection with the repurchase of the Company’s minority interest as discussed in Note 9 below, the Company issued 275,000 shares of common stock with a guaranteed market value of at least $375,000 as of December 10, 2009. A derivative liability of $161,000 was initially recorded as the difference between the stock price on December 10, 2008 and the guaranteed market value of $375,000. Accordingly, any gains or losses resulting from the change in fair value of the common stock are reported as other income or expense in the accompanying consolidated financial statements. At September 30, 2009, the difference in the fair value of the common stock and the guaranteed value of $375,000 amounted to $199,000. Accordingly the Company has recorded a mark to market adjustment for the year ended September 30, 2009 of $39,000 as a loss on derivative revaluation. On December 11, 2009 the Company was notified that the final liability for this obligation would be $161,000. The repurchase was completed in January 2010 for $161,000 and the Company recorded the mark to market year to date adjustment of $38,000 as a gain on derivative revaluation.
8. NOTES PAYABLE
On July 15, 2009 the Company borrowed $525,000 under the terms of promissory notes due July 15, 2012 with interest only payments due quarterly at an annual rate of 13%. The notes may be prepaid without penalty on or after January 15, 2010.
In connection with the notes payable transaction, the Company granted and issued 525,000 warrants with an exercise price of $0.75 and valued the warrants at $250,000 using the Black-Scholes option-pricing model and the following assumptions: the market price was $0.68, the volatility was estimated at 104%, the life of the warrants was 4 years, the risk free rate was 2.06% and the dividend yield of 0%. The value assigned for the warrants issued in conjunction with the notes payable was recorded as debt discount and is being amortized over the three year life of the notes. Pursuant to the terms of the promissory notes, the exercise price for the warrants was adjusted to $0.65 in April 2010 when the Company issued warrants at that lower price in connection with a stock offering. The Company recorded a valuation adjustment in 2010 of $6,000 for this change in the exercise price. For the years ended September 30, 2011 and 2010 the Company recorded amortization of $83,000 and $84,000, respectively.

 

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On December 7, 2011 the Company and the holders of the promissory notes agreed to amend the due date to October 15, 2012. In conjunction with the amendment, the Company amended the warrants issued with the original notes to lower the exercise price from $0.65 per share to $0.49 per share. The Company evaluated these amendments under ASC 470-50, Debt-Modification and Extinguishment, and concluded that the amendments were not significant and were therefore treated as debt modification.
                     
        September 30,     September 30,  
        2011     2010  
Notes payable
 
Unsecured Notes payable, maturing in October 2012, bearing interest at 13% per annum (net of unamortized debt discount of $66,000 in 2011 and $149,000 in 2010)
  $ 459,000     $ 376,000  
 
               
 
  Total long-term debt obligations   $ 459,000     $ 376,000  
 
               
Future payments under long-term obligations as of September 30, 2011 are as follows:
         
2013
  $ 525,000  
 
     
Total
  $ 525,000  
 
     
9. MINORITY INTEREST
On December 14, 2004, one warrant holder exercised warrants to purchase 125,000 shares of Xenonics, Inc. resulting in Xenonics Holdings, Inc. owning 98.6% of the issued and outstanding capital stock of Xenonics, Inc. On December 10, 2008 the Company repurchased the minority interest in exchange for 275,000 shares of the Company, with a guaranteed value on December 10, 2009 of $375,000 — see Note 15 below for more details.
10. SHAREHOLDERS’ EQUITY
The Company has two classes of stock. There is no cumulative voting by shareholders and no preemptive rights. Each shareholder is entitled to have one vote for each share of stock held.
On October 10, 2009 the Company issued 300,000 shares of unregistered common stock to an independent firm for investor relations, financial public relations and marketing services for a period of three years. The total value of the common stock issued was $240,000, of which $80,000 was recorded in Other current assets and $142,000 was recorded in Other assets. On April 28, 2010 the Company issued 300,000 shares to the same independent firm for an additional year for investor relations, financial public relations and marketing services. The total value of the common stock issued was $147,000, of which $43,000 was recorded in Other current assets and $104,000 was recorded in Other assets. For the year ended September 30, 2011, $99,000 was recorded as selling, general and administrative expense compared to $90,000 for the year ended September 30, 2010.
On December 11, 2009 the Company sold 400,000 shares of common stock for $0.72 per share and granted warrants to purchase 100,000 shares for $0.90 per share.
On April 6, 2010 the Company sold 2,900,000 shares of common stock for $0.50 per share and granted warrants to purchase 2,900,000 shares for $0.65 per share.
On April 23, 2010 the Company sold 1,100,000 shares of common stock for $0.50 per share and granted warrants to purchase 1,100,000 shares for $0.65 per share.
On December 7, 2010 the Company announced the purchase of 534,000 shares of its common stock for $107,000 or $0.20 per share from director, Robert F. Buie, who resigned from the Board for personal reasons.
During the quarter ended March 31, 2011 the Company retired 113,000 of its common shares that had previously been designated as treasury shares.

 

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11. STOCK OPTIONS AND WARRANTS
Stock Options — The Company accounts for all share-based payments to employees, including grants of employee stock options, based on their fair values and classifies all stock-based compensation as selling, general and administrative expenses.
In July 2003, the Company’s Board of Directors adopted a stock option plan. Under the 2003 Option Plan, options to purchase up to 1,500,000 new shares of common stock are available for issuance to employees, directors, and outside consultants. Each option is exercisable as set forth in the documents evidencing the option, however, no option shall have a term in excess of ten years from the grant date. Options outstanding under the 2003 Option Plan have vesting periods ranging from immediate to three years.
In December 2004, the Company’s Board of Directors adopted a 2004 stock option plan. The Company may issue up to 1,500,000 new shares of common stock under the 2004 plan and no person may be granted awards during any twelve-month period that cover more than 300,000 shares of common stock. Each option is exercisable as set forth in the documents evidencing the option, however, no option shall have a term in excess of ten years from the grant date. Options outstanding under the 2004 stock option plan have vesting periods ranging from immediate to three years.
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model. The following assumptions were used for options granted under both plans in the years ended September 30, 2011 and 2010.
                 
    For the years ended  
    September 30,  
    2011     2010  
Risk-free interest rate
        1.41% – 1.80%
Expected life (in years)
        4 – 5
Dividend yield
        0.0%
Expected volatility
        102% – 103%
Weighted-average volatility
        103%
Expected volatility is determined based on historical volatility. Expected life is determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Share-based compensation expense recognized is based on the options ultimately expected to vest, reduced by estimated forfeitures.
On December 28, 2007, the Securities and Exchange Commission staff published Staff Accounting Bulletin No. 110 (SAB 110), which updates SAB 107 and provides the SEC staff’s views on a variety of matters relating to stock-based compensation. SAB 110 requires stock-based compensation to be classified in the same expense line items as cash compensation. The Company classifies all stock-based compensation as selling, general and administrative expenses.

 

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A summary of the Company’s stock option activity for both plans as of September 30, 2011 and 2010, and changes during the years then ended is presented below:
                                 
                    Weighted        
                    Average        
            Weighted     Contractual        
    Stock     Average     Term in     Aggregate  
    Options     Exercise Price     Years     Intrinsic Value  
Outstanding at October 1, 2009
    2,233,000     $ 1.46                  
Granted
    985,000     $ 0.66                  
Exercised
    (25,000 )   $ 0.65                  
Forfeited
    (25,000 )   $ 0.65                  
Cancelled
    (1,355,000 )   $ 1.65                  
 
                             
Outstanding at September 30, 2010
    1,813,000     $ 0.76       4.05        
Granted
                           
Forfeited
                           
Cancelled
    (1,008,000 )   $ 0.77                  
Outstanding at September 30, 2011
    805,000     $ 0.73       2.30        
 
                       
Exercisable at September 30, 2011
    805,000     $ 0.73       2.30        
 
                       
     
*  
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 $0.38 at September 30, 2011.
There were no stock options granted during the year ended September 30, 2011. The weighted-average grant-date fair value of stock options granted during the year ended September 30, 2010 was $0.22.
A summary of the status of the Company’s non-vested stock options as of September 30, 2011, and changes during the year ended September 30, 2011, is presented below:
                 
            Weighted Average  
            Grant-Date  
    Stock Options     Fair Value  
Non-vested at October 1, 2010
    900,000     $ 0.20  
Granted
           
Forfeited or Exercised
    (900,000 )   $ 0.20  
Vested
           
 
           
Non-vested at September 30, 2011
           
 
           
As of September 30, 2011, there was no unrecognized compensation cost related to non-vested performance-based compensation arrangements granted under the stock options plans.
There was no compensation expense related to outstanding stock options for the year ended September 30, 2011. Total compensation expense related to outstanding stock options for the years ended September 30, 2010 was $34,000.
In September 2010, the Company granted a total of 900,000 new stock options. These options would vest only if certain profitability milestones were achieved for the fiscal year ended September 30, 2011. No expense was recorded at that time because the milestones were not achieved. In October 2009 the Company granted a total of 45,000 new stock options to two directors for $0.80 per share. In July 2010 the Company granted a total of 40,000 new stock options to two new directors for $0.65 per share.

 

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The following table summarizes information concerning currently outstanding and exercisable stock options as of September 30, 2011:
                                             
                Options Outstanding     Options Exercisable  
                At September 30, 2011     at September 30, 2011  
                Weighted                        
                Average     Weighted-             Weighted-  
                Remaining     Average     Number     Average  
Exercise     Number     Contractual     Exercise     Vested and     Exercise  
Prices     Outstanding     Life (Years)     Price     Exercisable     Price  
$ 0.65       505,000       2.58     $ 0.65       505,000     $ 0.65  
$ 0.875       300,000       1.80     $ 0.875       300,000     $ 0.875  
                                   
          805,000       2.30     $ 0.73       805,000     $ 0.73  
                                   
Stock Warrants — The Company, from time to time, has issued common stock purchase warrants to employees, directors, shareholders and others. The warrants are nontransferable and are exercisable at any time after the date of issuance and on or before their respective expiration date, which is generally five years.
On March 16, 2009 the Company entered into an agreement with an independent firm for financial advisory services for a period of one year. As part of this agreement the Company issued a five-year warrant, vested upon issuance, to purchase 300,000 shares of the Company’s common stock at $0.50 per share (which exceeded the fair market value of the common stock as of the date of the agreement). Subsequently, on June 11, 2009 the Company engaged the same firm to assist in raising funds for working capital by August 31, 2009. While the Company was able to privately raise $525,000 in debt financing, this financing was not completed by the independent firm. On September 16, 2009 the Company and the independent firm mutually agreed to modify the warrant to an attainable performance level and reduce the number of shares to 50,000. Pursuant to the terms of the warrant, the independent firm made a cashless exercise on December 21, 2009 and 25,000 shares were issued.
On July 15, 2009 the Company borrowed $525,000 under the terms of promissory notes due July 15, 2012 with interest only payments due quarterly at an annual rate of 13%. The Company also issued 525,000 five-year warrants at an exercise price of $0.75 per share. Pursuant to the terms of the promissory notes, the exercise price for the warrants was adjusted to $0.65 in April 2010 when the Company issued warrants at that lower price in connection with a stock offering. The Company recorded a valuation adjustment in 2010 of $6,000 for this change in the exercise price.
A summary of the Company’s warrant activity is as follows:
                                 
    For the years ended September 30,  
    2011     2010  
            Weighted             Weighted  
            Average             Average  
            Exercise             Exercise  
    Warrants     Price     Warrants     Price  
Outstanding-beginning of period
    7,148,000     $ 1.32       3,048,000     $ 2.31  
Issued
                4,200,000     $ 0.65  
Exercised
                (25,000 )   $ 0.50  
Canceled/Forfeited
    (1,000,000 )   $ 2.15       (75,000 )   $ 3.86  
 
                       
Outstanding-end of period
    6,148,000     $ 1.18       7,148,000     $ 1.32  
 
                       
Exercisable-end of period
    5,462,000     $ 0.92       2,212,000     $ 1.72  
 
                       
Total compensation expense related to outstanding warrants for the years ended September 30, 2011 and 2010 was $4,000 and $116,000, respectively.

 

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The following table summarizes information concerning currently vested and exercisable warrants as of September 30, 2011:
                         
    Warrants Vested and Exercisable  
    at September 30, 2011  
            Weighted        
            Average     Weighted-  
Range of   Number     Remaining     Average  
Exercise   Vested and     Contractual     Exercise  
Prices   Exercisable     Life (Years)     Price  
$0.50 – $0.90
    4,725,000       3.86     $ 0.65  
$0.91 – $1.62
    50,000       0.10     $ 1.62  
$1.63 – $2.75
    687,0000       0.67     $ 2.75  
 
                 
 
    5,462,000       3.42     $ 0.92  
 
                 
12. INCOME TAXES
The Company made a comprehensive review of its portfolio of uncertain tax positions. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. As a result of this review, the Company concluded that at this time there are no uncertain tax positions. As a result, there was no cumulative effect on retained earnings.
The Company is subject to U.S. federal income tax as well as income tax in multiple states and foreign jurisdictions. For all major taxing jurisdictions, the tax years 2004 through 2008 remain open for state and federal examination. As of September 30, 2011, the Company does not expect any material changes to unrecognized tax positions within the next twelve months.
The provision for income taxes is summarized below:
                 
    For the years ended  
    September 30,  
    2011     2010  
Current provision:
               
Federal
  $     $  
State
    2,000       2,000  
 
           
 
    2,000       2,000  
 
           
Deferred provision:
               
Federal
    (96,000 )     (580,000 )
State
    (40,000 )     (145,000 )
 
           
 
    (136,000 )     (725,000 )
Valuation allowance
    136,000       725,000  
 
           
 
  $ 2,000     $ 2,000  
 
           

 

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The principal components of deferred tax assets, liabilities and the valuation allowance are as follows:
                 
    For the years ended  
    September 30,  
    2011     2010  
Inventory reserve
  $ 12,000     $ 12,000  
Deferred lease liability
    16,000       17,000  
Allowance for doubtful accounts
    1,000       70,000  
Stock compensation expense
    874,000       874,000  
Warrant expense
    388,000       386,000  
State taxes
    1,000       1,000  
Accumulated depreciation / amortization
    (1,000 )     (6,000 )
R&D credit
    778,000       642,000  
Other
    53,000       48,000  
Net operating loss carry-forwards
    6,763,000       6,705,000  
 
           
 
    8,885,000       8,749,000  
Valuation allowance
    (8,885,000 )     (8,749,000 )
 
           
Net deferred tax asset
  $     $  
 
           
As of September 30, 2011, the Company had federal and state net operating loss (NOL) carry-forwards of $17,302,000 and $15,080,000, respectively, which begin to expire in 2012 for federal tax purposes and 2014 for state purposes. A valuation allowance of $(8,885,000) has been recorded to offset net deferred tax assets since the realization of these assets is uncertain. Some of these carry forward NOL’s may be subjected to limitations imposed by the Internal Revenue Code. Except to the extent of the valuation allowance that has been established, the Company believes these limitations will not prevent the carry forward benefits from being realized.
The reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:
                 
    For the years ended  
    September 30,  
    2011     2010  
Federal statutory rate
    34.0 %     34.0 %
State income taxes, net of federal income tax benefit
    5.8 %     5.8 %
Change in valuation allowance
    (148.5 )%     (40.7 )%
R&D credit carry-forward
    129.9 %     3.7 %
Other
    (22.9 )%     (2.9 )%
 
           
 
    (1.7 )%     (0.1 )%
 
           
13. SAVINGS PLAN
On July 1, 2004, the Company implemented a 401(k) Savings Plan (the “Savings Plan”) which covers all eligible employees. Participants may contribute no less than 1% and up to the maximum allowable under the Internal Revenue Service regulations. In addition, the Company may make discretionary contributions to the Savings Plan, subject to certain limitations. For the years ended September 30, 2011 and 2010, the Company made no matching contributions.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s cash and cash equivalents are measured at fair value in the Company’s consolidated financial statements and are valued using unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs under ASC 820). The carrying amount of our accounts receivable, accounts payable and accrued expenses reported in the consolidated balance sheets approximates fair value because of the short maturity of those instruments. The fair value of the notes payable is estimated based on current rates offered to the Company for similar debt of the same remaining maturities.

 

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15. COMMITMENTS AND CONTINGENCIES
Leases — The Company moved into new facilities in January 2009, under the terms of a new lease that expires in March 2014. The new lease requires that the Company pay a pro-rata share of all operating expenses including, but not limited to, real estate taxes, common area maintenance and utilities. The Company also leases office equipment under non-cancelable operating leases. Rent expense under these leases totaled $210,000 and $210,000 for the years ended September 30, 2011 and 2010, respectively.
Minimum future cash obligations for the new lease total $221,000, $229,000 and $117,000 for the years ending September 30, 2012, 2013 and 2014 respectively.
Employment Agreements — Alan P. Magerman and Jeffrey P. Kennedy are our only employees who have employment agreements. Under their employment agreements, Mr. Magerman is to serve as the Chief Executive Officer of Xenonics, Inc., and Mr. Kennedy is to serve as President and Chief Operating Officer of Xenonics, Inc. Both employment agreements were entered into by Xenonics, Inc. as of January 1, 2003 and, except as set forth below, are substantially identical. Neither employment agreement has a fixed term or expiration date. Instead, Mr. Magerman’s agreement will continue until 24 months after either he or Xenonics, Inc. gives the other notice of termination. Likewise, Mr. Kennedy’s agreement will continue until 12 months after either he or Xenonics gives the other notice of termination. On December 15, 2010, the Board of Directors approved an amendment to both agreements to provide that either party can terminate the agreement with 30 days written notice, however, in the event of termination by Xenonics without cause, the benefits of the agreements will continue for 36 months after notice of termination. Both agreements provide for base compensation of $180,000 per year, to be adjusted annually according to the Consumer Price Index. As of September 30, 2011 the base compensation for each of the two officers was $220,000. In addition, if either Mr. Magerman or Mr. Kennedy is terminated for any reason other than for cause, the agreements require that they must be paid the remaining balances due to them under the agreements as liquidated damages.
Litigation — The Company received notice in February 2006 regarding a breach of contract action filed in the Delaware Superior Court by Steven M. Mizel against Xenonics, Inc. (“Xenonics”), a 98.6% owned subsidiary of the Company. Plaintiff, a former holder of warrants of Xenonics, alleged that prior to the effective date of a transaction on or about July 23, 2003 between Digital Home Theatre Systems, Inc. (“DHTS”) and Xenonics, plaintiff was not allowed to exercise his warrants and that Xenonics wrongfully refused to permit him to purchase the Company’s shares at the exercise price in his warrants for Xenonics shares. Effective December 10, 2008 the Company has agreed to repurchase the minority interest pursuant to an Exchange Agreement between the Company and Mr. Mizel (the “Exchange Agreement”), whereby Mr. Mizel transferred to the Company 125,000 shares of common stock of Xenonics in exchange for 275,000 shares of common stock of the Company with a guaranteed market value (taking into account shares of common stock sold by Mr. Mizel before December 10, 2009) of at least $375,000, on December 10, 2009. In connection with this exchange, Mr. Mizel dismissed with prejudice the action in the Delaware Superior Court. On December 11, 2009 Mr. Mizel notified the Company that its final liability for this obligation would be $161,000.
The Company is occasionally subject to legal proceedings and claims that arise in the ordinary course of our business. It is impossible to predict with any certainty the outcome of pending disputes, and the Company cannot predict whether any liability arising from pending claims and litigation will be material in relation to the consolidated financial position or results of operations.
16. SUBSEQUENT EVENTS
Management has evaluated all activity through the date that the consolidated financial statements were issued and concluded that no other subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

 

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ITEM 9.  
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable
Item 9A.  
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management conducted an evaluation, with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness as of the end of the period covered by this annual report of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”) and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2011, which is the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, and for assessing the effectiveness of internal control over financial reporting.
Internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that the Company’s receipts and expenditures are being made only in accordance with authorizations of its management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of the Company’s assets that could have a material effect on its financial statements.
Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting, as of September 30, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management concluded that, as of September 30, 2011, the Company’s internal control over financial reporting was effective.
Pursuant to applicable law, this annual report is not required to include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the most recent fiscal year that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Inherent Limitations on the Effectiveness of Controls
Management of the Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Furthermore, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons or by the collusion of two or more persons. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Item 9B.  
Other Information
None.

 

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PART III
Item 10.  
Directors, Executive Officers and Corporate Governance
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
Item 11.  
Executive Compensation
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
Item 12.  
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
Item 13.  
Certain Relationships and Related Transactions, and Director Independence
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.
Item 14.  
Principal Accountant Fees and Services
The information required is incorporated herein by reference to the issuer’s definitive Proxy Statement for the 2012 Annual Meeting of Shareholders.

 

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PART IV
Item 15.  
Exhibits and Financial Statement Schedules
         
Exhibit    
Number   Description
  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 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).
       
 
  10.3    
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).
       
 
  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).

 

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Exhibit    
Number   Description
  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).
       
 
  10.33    
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).

 

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Exhibit    
Number   Description
  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 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.
       
 
  101    
The following financial information from the Annual Report on Form 10-K of Xenonics Holdings, Inc. for the year ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Balance Sheets as of September 30, 2011 and 2010; (2) Consolidated Statements of Operations for the years ended September 30, 2011 and 2010; (3) Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2011 and 2010; (4) Consolidated Statements of Cash Flows for years ended September 30, 2011 and 2010; and (5) Notes to Condensed Financial Statements.**
 
     
*  
Denotes a management contract or compensatory plan or arrangement in which one or more directors or executive officers participate.
 
**  
Pursuant to Rule 406T of Regulation S-T, the information in Exhibit 101 (a) is “furnished” and is not deemed to be “filed” or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, (b) is deemed not to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and (c) is not otherwise subject to liability under those sections.

 

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Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
             
    Xenonics Holdings, Inc.    
 
           
Date: December 19, 2011
  By:   /s/ Alan P. Magerman
 
Alan P. Magerman
   
 
      Chief Executive Officer    
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
         
Signature   Title   Date
/s/ Alan P. Magerman
 
Alan P. Magerman
  Chairman of the Board and Chief Executive Officer (Principal Executive Officer)    December 19, 2011
 
       
/s/ Jeffrey P. Kennedy
 
Jeffrey P. Kennedy
  Chief Operating Officer, President and Director    December 19, 2011
 
       
/s/ Richard S. Kay
 
Richard S. Kay
  Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)   December 19, 2011
 
       
/s/ Allen K. Fox
 
Allen K. Fox
  Director    December 19, 2011
 
       
/s/ Brad J. Shapiro
 
Brad J. Shapiro
  Director    December 19, 2011

 

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