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EXCEL - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC. | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - XENONICS HOLDINGS, INC. | c19626exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - XENONICS HOLDINGS, INC. | c19626exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - XENONICS HOLDINGS, INC. | c19626exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - XENONICS HOLDINGS, INC. | c19626exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32469
XENONICS HOLDINGS, INC.
(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 No.) |
|
3186 Lionshead Avenue Carlsbad, California (Address of principal executive offices) |
92010 (Zip code) |
(760) 477-8900
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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.
Yes þ No o
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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
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). Yes o No þ
The registrant had 24,975,929 shares of common stock outstanding as of August 2, 2011.
TABLE OF CONTENTS
i
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PART I. FINANCIAL INFORMATION
ITEM 1. | Financial Statements |
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, | September 30, | |||||||
2011 | 2010 | |||||||
Rounded in thousands, except par value | (unaudited) | |||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash |
$ | 739,000 | $ | 705,000 | ||||
Accounts receivable, net |
679,000 | 956,000 | ||||||
Inventories, net |
2,123,000 | 1,966,000 | ||||||
Other current assets |
322,000 | 166,000 | ||||||
Total Current Assets |
3,863,000 | 3,793,000 | ||||||
Equipment, furniture and fixtures at cost, less accumulated
depreciation of $151,000 and $132,000 |
43,000 | 69,000 | ||||||
Goodwill |
375,000 | 375,000 | ||||||
Other assets |
141,000 | 216,000 | ||||||
Total Assets |
$ | 4,422,000 | $ | 4,453,000 | ||||
Liabilities and Shareholders Equity |
||||||||
Current Liabilities: |
||||||||
Accounts payable |
$ | 146,000 | $ | 492,000 | ||||
Accrued expenses |
83,000 | 126,000 | ||||||
Accrued payroll and related taxes |
132,000 | 110,000 | ||||||
Total Current Liabilities |
361,000 | 728,000 | ||||||
Notes payable |
438,000 | 376,000 | ||||||
Total Liabilities |
799,000 | 1,104,000 | ||||||
Commitments and contingencies (Note 9) |
||||||||
Shareholders Equity: |
||||||||
Preferred shares, $0.001 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding |
| | ||||||
Common shares, $0.001 par value, 50,000,000 shares
authorized as of June 30, 2011 and
September 30, 2010; 24,976,000 shares issued and outstanding
as of June 30, 2011 and 25,622,000 issued as of September 30,
2010; 25,509,000 shares outstanding as of September 30, 2010 |
25,000 | 25,000 | ||||||
Additional paid-in capital |
26,652,000 | 26,954,000 | ||||||
Accumulated deficit |
(23,054,000 | ) | (23,324,000 | ) | ||||
3,623,000 | 3,655,000 | |||||||
Less treasury shares, at cost, 0 shares as of June 30, 2011 and
113,000 shares as of September 30, 2010 |
| (306,000 | ) | |||||
Total Shareholders Equity |
3,623,000 | 3,349,000 | ||||||
Total Liabilities and Shareholders Equity |
$ | 4,422,000 | $ | 4,453,000 | ||||
See notes to unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended | Nine months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Rounded in thousands, except per share amounts | (unaudited) | (unaudited) | ||||||||||||||
Revenues |
$ | 775,000 | $ | 1,421,000 | $ | 6,323,000 | $ | 2,786,000 | ||||||||
Cost of goods sold |
537,000 | 692,000 | 3,463,000 | 1,433,000 | ||||||||||||
Gross profit |
238,000 | 729,000 | 2,860,000 | 1,353,000 | ||||||||||||
Selling, general and administrative |
601,000 | 709,000 | 1,878,000 | 2,198,000 | ||||||||||||
Research and development |
198,000 | 171,000 | 495,000 | 625,000 | ||||||||||||
Income (loss) from operations |
(561,000 | ) | (151,000 | ) | 487,000 | (1,470,000 | ) | |||||||||
Other income/(expense): |
||||||||||||||||
Gain on derivative revaluation |
| | | 38,000 | ||||||||||||
Interest income |
2,000 | 1,000 | 5,000 | 3,000 | ||||||||||||
Interest (expense) |
(38,000 | ) | (38,000 | ) | (113,000 | ) | (113,000 | ) | ||||||||
Income (loss) before provision for income taxes |
(597,000 | ) | (188,000 | ) | 379,000 | (1,542,000 | ) | |||||||||
Income tax provision |
| | 2,000 | 2,000 | ||||||||||||
Net income (loss) |
$ | (597,000 | ) | $ | (188,000 | ) | $ | 377,000 | $ | (1,544,000 | ) | |||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ | (0.02 | ) | $ | (0.01 | ) | $ | 0.02 | $ | (0.07 | ) | |||||
Fully-diluted |
$ | (0.02 | ) | $ | (0.01 | ) | $ | 0.02 | $ | (0.07 | ) | |||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
25,088,000 | 24,719,000 | 25,107,000 | 22,247,000 | ||||||||||||
Fully diluted |
25,088,000 | 24,719,000 | 25,107,000 | 22,247,000 |
See notes to unaudited condensed consolidated financial statements
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Rounded in thousands | (unaudited) | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 377,000 | $ | (1,544,000 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
Depreciation |
25,000 | 40,000 | ||||||
Provision for bad debts |
(36,000 | ) | (80,000 | ) | ||||
Non-cash compensation to employees and directors |
| 35,000 | ||||||
Non-cash compensation for warrants issued |
4,000 | 103,000 | ||||||
Non-cash compensation to consultants |
75,000 | 65,000 | ||||||
(Gain) loss on derivative revaluation |
| (38,000 | ) | |||||
Amortization of warrants for notes payable |
62,000 | 63,000 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
313,000 | 437,000 | ||||||
Inventories |
(157,000 | ) | 47,000 | |||||
Other current assets |
(156,000 | ) | 26,000 | |||||
Accounts payable |
(346,000 | ) | (453,000 | ) | ||||
Accrued expenses |
(43,000 | ) | (80,000 | ) | ||||
Accrued payroll and related taxes |
22,000 | (18,000 | ) | |||||
Accrued derivative liability |
| (161,000 | ) | |||||
Net cash provided by (used in) operating activities |
140,000 | (1,558,000 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from sale of common stock |
| 1,928,000 | ||||||
Proceeds from exercise of stock options |
| 6,000 | ||||||
Purchase of common stock |
(106,000 | ) | | |||||
Net cash provided by (used in) financing activities |
(106,000 | ) | 1,934,000 | |||||
Net increase in cash |
34,000 | 376,000 | ||||||
Cash, beginning of period |
705,000 | 126,000 | ||||||
Cash, end of period |
$ | 739,000 | $ | 502,000 | ||||
Supplemental cash flow information: |
||||||||
Cash paid during the period for income taxes |
$ | 2,000 | $ | 2,000 | ||||
Cash paid during the period for interest |
$ | 51,000 | $ | 51,000 | ||||
Supplemental schedule of non-cash financing activities: |
||||||||
The Company issued 25,000 shares of common stock for the exercise of stock options for
cash of $6,000 plus consulting services |
$ | | $ | 10,000 | ||||
The Company issued 300,000 shares of common stock for a three-year financial advisory
service agreement at $0.80 per share |
$ | | $ | 240,000 | ||||
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 |
See notes to unaudited condensed consolidated financial statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Rounded in thousands)
(Rounded in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. These
financial statements and notes thereto should be read in conjunction with the financial statements
and notes thereto for the year ended September 30, 2010 included in the Xenonics Holdings, Inc.
(Holdings) Form 10-K filing. The results for the interim period are not necessarily indicative
of the results for the full fiscal year.
The condensed consolidated financial statements include the accounts of Holdings and its
wholly-owned subsidiary, Xenonics, Inc. (Xenonics), collectively, the Company.
2. RECENTLY ADOPTED AND ISSUED ACCOUNTING PRONOUNCEMENTS
Recently Adopted:
On October 1, 2010, we adopted new FASB 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 amended 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
adoption of this standard did not have an impact on our consolidated financial statements.
On October 1, 2010, we adopted new FASB rules which amended 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 enterprises
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 entitys economic performance; and to require
enhanced disclosures that will provide users of financial statements with more transparent
information about an enterprises involvement in a VIE. The adoption of this standard did not have
an impact on our consolidated financial statements.
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Table of Contents
On October 1, 2010, we adopted new FASB rules which amended the Accounting Standards
Codification, Revenue Recognition (Topic 605): Multiple-Element Arrangements. The new rules
amended 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 entitys 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. Additionally, the new guidance will
require entities to disclose more information about their multiple-element revenue arrangements.
The adoption of this standard did not have an 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
Companys 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 Companys 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 December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic 805):
Disclosure of Supplementary Pro Forma Information for Business Combinations (ASU 2010-29), which
addresses diversity in practice about the interpretation of the pro forma revenue and earnings
disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a
public entity presents comparative financial statements, the entity should disclose revenue and
earnings of the combined entity as though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable prior annual reporting period only.
The amendments in ASU 2010-29 also expand the supplemental pro forma disclosures to include a
description of the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported pro forma revenue and earnings.
The amendments in ASU 2010-29 are effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2010. The new rules become effective for the Company on October 1, 2011. The
adoption of this guidance is not expected to have a material impact on our consolidated financial
statements.
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed by dividing the income available to common shareholders
by the weighted average number of common shares outstanding. Diluted earnings per share is
computed similarly to basic earnings per share, except that the denominator is increased to include
the number of additional common shares that would have been outstanding if the potential additional
common shares that were dilutive had been issued. Common share equivalents are
excluded from the computation if their effect is anti-dilutive. The Companys common share
equivalents consist of stock options and warrants.
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The diluted earnings per share did not include the dilutive effect, if any, from the potential
exercise of stock options and warrants outstanding using the treasury stock method, because the
exercise prices for all of the stock options and warrants outstanding was less than the average
stock price for the period. For the three and nine months ended June 30, 2011, the number of stock
options and warrants excluded was 7,453,000. For the three and nine months ended June 30, 2010,
the number of stock options and warrants excluded was 8,066,000 and 3,486,000, respectively.
4. INVENTORIES
Inventories were comprised of:
June 30, 2011 |
September 30, 2010 |
|||||||
(unaudited) | ||||||||
Raw materials |
$ | 1,189,000 | $ | 1,285,000 | ||||
Work in process |
226,000 | 250,000 | ||||||
Finished goods |
708,000 | 431,000 | ||||||
$ | 2,123,000 | $ | 1,966,000 | |||||
5. 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.
6. STOCK BASED COMPENSATION
Stock Options US GAAP requires that compensation cost relating to share-based payment
arrangements be recognized in the financial statements. US GAAP requires measurement of
compensation cost for all employee share-based awards at fair value on date of grant and
recognition of compensation over the service period for awards expected to vest. The fair value of
stock options is determined using the Black-Scholes valuation model. Such fair value is recognized
as expense over the service period, net of estimated forfeitures.
US GAAP requires that equity instruments issued to non-employees in exchange for services be
valued at the more accurate of the fair value of the services provided or the fair value of the
equity instruments issued. For equity instruments issued that are subject to a required service
period the expense associated with the equity instruments is recorded as the instruments vest or
the services are provided. The Company has granted options and warrants to non-employees and
recorded the fair value of these equity instruments on the date of issuance using the Black-Scholes
valuation model. The Company has granted stock to non-employees for services and values the stock
at the more reliable of the market value on the date of issuance or the value of the services
provided. For grants subject to vesting or service requirements, expenses are deferred and
recognized over the more appropriate of the vesting period, or as services are provided.
In July 2003, the Companys board of directors adopted a stock option plan. Under the 2003
option plan, options to purchase up to 1,500,000 shares of common stock are available for
employees, directors, and outside consultants.
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Table of Contents
In December 2004, the Companys board of directors adopted a 2004 stock incentive plan. The
Company may issue up to 1,500,000 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.
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 in the nine months ended
June 30, 2011 and 2010:
For the Nine Months | ||||||||
Ended June 30, | ||||||||
2011 | 2010 | |||||||
Risk-free interest rate |
| 1.76 | % | |||||
Expected life (in years) |
| 4 | ||||||
Dividend yield |
| 0.0 | % | |||||
Expected volatility |
| 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. US GAAP requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimated. Forfeitures were estimated based on the
Companys historical experiences.
A summary of the Companys stock option activity as of June 30, 2011, and changes during the
nine months then ended is presented below:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Stock | Average | Contractual | Aggregate | |||||||||||||
Options | Exercise Price | Term (Years) | Intrinsic Value * | |||||||||||||
Outstanding at October 1, 2010 |
1,813,000 | $ | 0.76 | 4.05 | ||||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited, Expired or Cancelled |
(108,000 | ) | $ | 1.79 | ||||||||||||
Outstanding at June 30, 2011 |
1,705,000 | $ | 0.69 | 3.41 | $ | | ||||||||||
Exercisable at June 30, 2011 |
805,000 | $ | 0.73 | 2.55 | $ | | * | |||||||||
* | 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
$0.45 at June 30, 2011. |
A summary of the status of the Companys non-vested stock options as of June 30, 2011, and
changes during the nine months ended June 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 Expired |
| | ||||||
Vested |
| | ||||||
Non-vested at June 30, 2011 |
900,000 | $ | 0.20 | |||||
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In September 2010, the Company granted a total of 900,000 new stock options. These
options will vest only if certain revenue and profitability milestones are achieved for the fiscal
year ended September 30, 2011. As of June 30, 2011, there was $178,000 of total unrecognized
compensation costs related to these non-vested stock options. No expense was recorded at this time
because the probability of achieving the milestones is not deemed certain as of June 30, 2011.
There was no compensation expense related to outstanding options for the three months ended
June 30, 2011 and 2010. There was no compensation expense related to outstanding options for the
nine months ended June 30, 2011. Total compensation expense related to outstanding options for the
nine months ended June 30, 2010 was $35,000. Such amounts are included in selling, general and
administrative expenses in the accompanying Condensed Consolidated Statements of Operations.
Stock warrants The Company recognizes the value of stock warrants issued based upon an
option-pricing model at their fair value as an expense over the period in which the grants vest
from the measurement date, which is the date when the number of warrants, their exercise price and
other terms became certain.
At June 30, 2011 and 2010, 6,648,000 and 7,148,000 warrants were outstanding and 5,962,000 and
2,212,000 warrants were vested, respectively.
There was no compensation expense related to outstanding warrants for the three months ended
June 30, 2011. Total compensation expense related to outstanding warrants for the three months
ended June 30, 2010 was $18,000. For the nine months ended June 30, 2011 and 2010 total
compensation expense was $4,000 and $103,000, respectively.
Common stock 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 three and nine months ended June 30, 2011, $25,000
and $74,000, respectively, was recorded as selling, general and administrative expense compared to
$28,000 and $65,000 for the three and nine months ended June 30, 2010.
On December 6, 2010, in connection with the resignation of a director, the Company purchased
and retired all 534,000 of its common shares owned by the director for a total price of $106,000 or
$0.20 per share.
During the quarter ended March 31, 2011 the Company retired 113,000 of its common shares that
had previously been designated as treasury shares.
7. INCOME TAXES
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 Companys 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 of June 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. As of June 30, 2011, the Company
does not expect any material changes to unrecognized tax positions within the next twelve months.
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The Company recognizes the amount of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events that have been
recognized in the Companys financial statements or tax returns. Judgment is required in assessing
the future tax consequences of events that have been recognized in our financial statements or tax
returns. Fluctuations in the actual outcome of these future tax consequences could materially
impact our financial position or our results of operations. For the nine months ended June 30,
2011, deferred income tax assets and the corresponding valuation allowance increased by $67,000.
The Companys 2011 provision for income taxes primarily relates to state taxes. The
difference between the Companys 2011 effective rate and statutory rate is primarily due to the use
of federal net operating losses to offset taxable income. The difference between the Companys
2010 effective rate and statutory rate is primarily due to the utilization of net operating losses.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companys cash and cash equivalents are measured at fair value in the Companys condensed
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.
9. COMMITMENTS AND CONTINGENCIES
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 Companys shares at the
exercise price in his warrants for Xenonics shares. Effective December 10, 2008 the Company 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.
The Company is occasionally subject to legal proceedings and claims that arise in the ordinary
course of business. It is impossible to predict with any certainty the outcome of pending
disputes, and management cannot predict whether any liability arising from pending claims and
litigation will be material in relation to the Companys consolidated financial position or results
of operations.
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10. 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 above.
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 June 30, 2011, the Company determined that no
such impairment indicators exist.
11. DERIVATIVE LIABILITY
In connection with the repurchase of the Companys minority interest as discussed in Note 9,
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. On December 11, 2009 the Company was notified that the final liability for this
obligation would be $161,000. On January 8, 2010 the final obligation was paid in full.
12. SUBSEQUENT EVENTS
Management evaluated all activity through the date that the consolidated financial statements
were issued, and concluded that no subsequent events have occurred that would require recognition
in the condensed consolidated financial statements or disclosure in the notes to the condensed
consolidated financial statements.
ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (rounded in thousands) |
The following discussion and analysis should be read in conjunction with the condensed
consolidated financial statements and accompanying notes filed as part of this report.
Forward-Looking Statements
The following Managements 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 us, 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 as a result of the factors
described in the Risk Factors section of our most recent Annual Report on Form 10-K. We do not
undertake any obligation to update or revise any forward-looking statements contained in this
report, whether as a result of new information, future events or otherwise.
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Results of Operations
Three-months ended June 30, 2011 compared to the three-months ended June 30, 2010
We operate in the security lighting systems and night vision industries, and the majority of
our revenues are derived from sales of our illumination products and our SuperVision night vision
product to various customers.
Revenues: Revenues for the quarter ended June 30, 2011 were $775,000 compared to revenues of
$1,421,000 for the quarter ended June 30, 2010. In the quarter ended June 30, 2011, 94% of revenues
were from sales of our NightHunter products to the military (U.S. Army, U.S. Marines and military
distributors). In the quarter ended June 30, 2010, 92% of revenues were from sales of our
NightHunter products to the military.
Cost of Goods and Gross Profit: Cost of goods consist of the cost of manufacturing our
NightHunter One and SuperVision products and the price that we pay to Excelitas Technologies
(formerly PerkinElmer) for NightHunter 3 products that Excelitas Technologies manufactures for us.
The gross profit percentages were 31% and 51% for the quarters ended June 30, 2011 and 2010,
respectively. The gross profit percentage for the quarter ended June 30, 2011 was lower because
sales during this quarter were primarily NightHunter 3s without shield mounts. Normal gross
profit percentages for the complete NightHunter 3 package with shield mounts is 48%. Normal gross
profit percentages for our NightHunter One and SuperVision products, which we manufacture, are
approximately 50%.
Selling, General and Administrative: Selling, general and administrative expenses decreased by
$108,000 to $601,000 for the quarter ended June 30, 2011 as compared to $709,000 for the quarter
ended June 30, 2010. The decrease is primarily attributed to the reduction in consulting services
of $51,000, legal expenses of $60,000 and non-cash compensation expenses for stock warrants of
$21,000 offset by an increase in board of director fees of $29,000 (a former consultant to the
Company became a member of the Board of Directors).
Research & Development: Research and development expenses increased by $27,000 to $198,000 for
the quarter ended June 30, 2011 compared to $171,000 for the quarter ended June 30, 2010. This
year when the Company had lower sales in the quarter, production staff personnel were used for the
further development of the Companys product lines.
Other Income (Expense): For the quarter ended June 30, 2011 interest expense was $38,000
compared to $38,000 of interest expense for the quarter ended June 30, 2010.
Net Income (Loss): Lower revenues in the quarter ended June 30, 2011 account for net loss of
$597,000 compared to a net loss of $188,000 for the quarter ended June 30, 2010.
Nine months ended June 30, 2011 compared to the nine months ended June 30, 2010
Revenues: Revenues for the nine months ended June 30, 2011 were $6,323,000 compared to
revenues of $2,786,000 for the nine months ended June 30, 2010. For the nine months ended June 30,
2011, 95% of revenues were from sales of our NightHunter products to the military (U.S. Army, U.S.
Marines and military distributors). This compares to 86% of revenues to the military market for
the nine months ended June 30, 2010.
Cost of Goods and Gross Profit: Cost of goods consist of the cost of manufacturing our
NightHunter One and SuperVision products and the price that we pay to Excelitas Technologies
(formerly PerkinElmer) for NightHunter 3 products that Excelitas Technologies manufactures for us.
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The gross profit percentages were 45% and 49% for the nine months ended June 30, 2011 and
2010, respectively. The gross profit percentage for the first nine months ended June 30, 2011 was
impacted by the lower margin sales in the three months ended June 30, 2011.
Selling, General and Administrative: Selling, general and administrative expenses decreased by
$320,000 to $1,878,000 for the nine months ended June 30, 2011 as compared to $2,198,000 for the
nine months ended June 30, 2010. The decrease is primarily attributable to decreases in non-cash
compensation expenses for stock options and warrants of $124,000, consulting expenses of $189,000
and legal expenses of $46,000 offset by an increase in board of director fees of $73,000 (a former
consultant to the Company became a member of the Board of Directors).
Research & Development: Research and development expenses were $495,000 for the nine months
ended June 30, 2011 compared to $625,000 for the nine months ended June 30, 2010. Last year when
the Company had lower sales for the nine month period, production staff personnel were used for the
further development of the Companys product lines. This year the Company also incurred lower costs
for outside engineering services.
Net Income (Loss): Significantly higher revenues for the nine month period ended June 30, 2011
accounted for net income of $377,000 compared to a net loss of $1,544,000 for the nine-months ended
June 30, 2010.
In connection with the repurchase of the Companys minority interest in December
2008, the Company issued 275,000 shares of common stock with a guaranteed market value of at least
$375,000 as of December 10, 2009. The Company recorded a derivative of $161,000 at the time of the
transaction. During the quarter ended December 31, 2009, the fair value of the common stock
increased in value and the Company recorded the mark to market adjustment of $38,000 as a gain on
derivative revaluation. The repurchase was completed in January 2010 for $161,000 and there was no
mark to market adjustment for the nine months ended June 30, 2011.
Liquidity and Capital Resources
As of June 30, 2011, the Company had working capital of $3,502,000 and a current ratio of
10.7 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.
Our net income of $377,000 for the nine months ended June 30, 2011 positively impacted cash.
Significant sources of cash from operating activities during the first nine months of the current
year included a decrease in accounts receivable of $313,000 offset by increases in inventories of
$157,000 and other current assets of $156,000, which includes cash deposits for inventory to be
delivered and a decrease in accounts payable of $346,000. Cash provided by operating activities
totaled $140,000 for the nine months ended June 30, 2011.
Based on the amount of working capital that we had on hand on June 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. 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 3. | Quantitative and Qualitative Disclosures about Market Risk |
Not applicable
ITEM 4. | Controls and Procedures |
The Companys management conducted an evaluation, with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness as of the end of the period
covered by this quarterly report of the Companys 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 Companys disclosure controls and
procedures were effective as of June 30, 2011, which is the end of the period covered by this
quarterly report.
Based upon our evaluation, we also concluded that there was no change in our internal control
over financial reporting during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 6. | Exhibits |
Exhibit Number | Description | |||
31.1 | Certification of the Chairman of the Board and Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
|||
31.2 | Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act |
|||
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act |
|||
32.2 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act |
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SIGNATURES
Pursuant to the requirements 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: August 15, 2011 | By: | /s/ Alan P. Magerman | ||
Alan P. Magerman | ||||
Chairman of the Board Chief Executive Officer | ||||
Date: August 15, 2011 | By: | /s/ Richard S. Kay | ||
Richard S. Kay | ||||
Chief Financial Officer |
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