Attached files

file filename
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R18.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R20.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R27.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R10.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R5.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R26.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R21.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R34.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R16.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R14.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R13.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R15.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R19.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R23.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R11.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R12.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R4.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R1.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R17.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R3.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R7.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R24.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R22.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R35.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R6.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R2.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R32.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R8.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R31.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R30.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R28.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R29.htm
EXCEL - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.Financial_Report.xls
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R9.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R25.htm
XML - IDEA: XBRL DOCUMENT - XENONICS HOLDINGS, INC.R33.htm
EX-32.2 - EX-32.2 - XENONICS HOLDINGS, INC.d665296dex322.htm
EX-32.1 - EX-32.1 - XENONICS HOLDINGS, INC.d665296dex321.htm
EX-31.2 - EX-31.2 - XENONICS HOLDINGS, INC.d665296dex312.htm
EX-31.1 - EX-31.1 - XENONICS HOLDINGS, INC.d665296dex311.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2013

or

 

¨ 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   84-1433854

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3186 Lionshead Avenue

Carlsbad, California

  92010
(Address of principal executive offices)   (Zip code)

(760) 477-8900

(Registrant’s 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  x    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

  ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The registrant had 24,975,929 shares of common stock outstanding as of February 3, 2014.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

    

PART I. FINANCIAL INFORMATION

  
Item 1.   Financial Statements   
 

Condensed Consolidated Balance Sheets as of December 31, 2013 (unaudited) and September 30, 2013

     1   
 

Condensed Consolidated Statements of Operations for the Three Months ended December 31, 2013 and 2012 (unaudited)

     2   
  Condensed Consolidated Statements of Cash Flows for the Three Months ended December 31, 2013 and 2012 (unaudited)      3   
  Notes to Unaudited Condensed Consolidated Financial Statements      4   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      12   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      13   

Item 4.

  Controls and Procedures      13   

PART II. OTHER INFORMATION

  

Item 6.

  Exhibits      14   

SIGNATURES

     15   

EXHIBIT 31.1

  

EXHIBIT 31.2

  

EXHIBIT 32.1

  

EXHIBIT 32.2

  

 

i


Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     December 31,     September 30,  
     2013     2013  

Rounded in thousands, except par value

   (unaudited)        

Assets

    

Current Assets:

    

Cash

   $ 51,000      $ 220,000   

Accounts receivable

     —          30,000   

Inventories

     1,127,000        1,154,000   

Other current assets

     19,000        27,000   
  

 

 

   

 

 

 

Total Current Assets

     1,197,000        1,431,000   

Inventories

     480,000        480,000   

Equipment, furniture and fixtures at cost, less accumulated depreciation of $191,000 and $187,000

     8,000        11,000   

Goodwill

     375,000        375,000   

Other assets

     17,000        17,000   
  

 

 

   

 

 

 

Total Assets

   $ 2,077,000      $ 2,314,000   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current Liabilities:

    

Accounts payable

   $ 515,000      $ 399,000   

Accrued expenses

     254,000        211,000   

Accrued payroll and related taxes

     79,000        91,000   

Notes payable, net of debt discount

     2,112,000        —     
  

 

 

   

 

 

 

Total Current Liabilities

     2,960,000        701,000   

Notes payable

     —          1,962,000   
  

 

 

   

 

 

 

Total Liabilities

     2,960,000        2,663,000   
  

 

 

   

 

 

 

Commitments and contingencies (Note 12)

    

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 December 31, 2013 and September 30, 2013; 24,976,000 shares issued and outstanding as of December 31, 2013 and September 30, 2013

     25,000        25,000   

Additional paid-in capital

     26,947,000        26,879,000   

Accumulated deficit

     (27,855,000     (27,253,000
  

 

 

   

 

 

 

Total Shareholders’ Equity

     (883,000     (349,000
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 2,077,000      $ 2,314,000   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

1


Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Three months ended  
     December 31,  
     2013     2012  

Rounded in thousands, except per share amounts

   (unaudited)  

Revenues

   $ 63,000      $ 157,000   

Cost of goods sold

     37,000        74,000   
  

 

 

   

 

 

 

Gross profit

     26,000        83,000   

Selling, general and administrative

     415,000        416,000   

Research and development

     127,000        119,000   
  

 

 

   

 

 

 

Income (loss) from operations

     (516,000     (452,000

Other income/(expense):

    

Interest (expense)

     (84,000     (40,000
  

 

 

   

 

 

 

Income (loss) before provision for income taxes

     (600,000     (492,000

Income tax provision

     2,000        2,000   
  

 

 

   

 

 

 

Net income (loss)

   $ (602,000   $ (494,000
  

 

 

   

 

 

 

Net income (loss) per share:

    

Basic and fully-diluted

   $ (0.02   $ (0.02

Weighted average shares outstanding:

    

Basic and fully-diluted

     24,976,000        24,976,000   

See notes to unaudited condensed consolidated financial statements.

 

2


Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Three months ended  
     December 31,  
     2013     2012  

Rounded in thousands

   (unaudited)  

Cash flows from operating activities:

  

Net income (loss)

   $ (602,000   $ (494,000

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation

     4,000        3,000   

Amortization of debt discount

     18,000        3,000   

Changes in operating assets and liabilities:

    

Accounts receivable

     30,000        48,000   

Inventories

     27,000        (56,000

Other current assets

     8,000        14,000   

Accounts payable

     116,000        159,000   

Accrued expenses

     43,000        (43,000

Accrued payroll and related taxes

     (13,000     (27,000
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (369,000     (393,000
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from notes payable

     200,000        75,000   
  

 

 

   

 

 

 

Net cash provided by financing activities

     200,000        75,000   
  

 

 

   

 

 

 

Net (decrease) increase in cash

     (169,000     (318,000

Cash, beginning of period

     220,000        367,000   
  

 

 

   

 

 

 

Cash, end of period

   $ 51,000      $ 49,000   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid during the period for income taxes

   $ —        $ —     

Cash paid during the period for interest

   $ —        $ 17,000   

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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, 2013 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. GOING CONCERN

The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At this time the Company has not yet received pending substantial purchase orders for its products to cover its operating costs and meet its obligations as they become due, which raises doubt about its ability to continue as a going concern.

The future of the Company as an operating business will depend on its ability to (1) obtain purchase orders and ship its products, (2) collect for sales in a timely manner, (3) continue to exercise tight cost controls to conserve cash and attain profitable operations, and (4) obtain sufficient financing as may be required to sustain its operations.

The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. If the Company is unable to obtain adequate revenues and financing, it could be forced to cease operations.

 

3. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued amended accounting guidance on the presentation of comprehensive income. The amended guidance requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions were effective for the Company’s financial statements for the fiscal year beginning October 1, 2012 and the Company elected to present net income and other comprehensive income in two separate but consecutive statements. The adoption of the amended guidance did not have a significant impact on the Company’s financial statements and related disclosures.

In December 2011, the FASB issued an amendment to accounting guidance on the presentation of offsetting of derivatives, and financial assets and liabilities. The amended guidance requires quantitative disclosures regarding the gross amounts and their location within the statement of financial position. The provisions are effective for the Company’s financial statements for the fiscal year beginning October 1, 2013. The adoption of the amended guidance will not have a significant impact on the Company’s financial statements and related disclosures.

 

4


Table of Contents
4. EARNINGS (LOSS) PER SHARE

Earnings (loss) per share is computed by dividing the income (loss) 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 Company’s common share equivalents consist of stock options and warrants.

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 vested stock options and warrants outstanding were greater than the average stock price for the period. For the three months ended December 31, 2013, the number of vested stock options and warrants excluded was 7,187,000. For the three months ended December 31, 2012, the number of stock options and warrants excluded was 6,154,000.

 

5. ACCOUNTS RECEIVABLE SOLD TO RELATED PARTY

The Company sells, without recourse, selected receivables to a stockholder of the Company. For the quarter ended December 31, 2013 the aggregate amount of the receivables sold was $60,000. Receivables are sold at a 2% discount and the purchaser receives all cash collections.

 

6. INVENTORIES

Inventories were comprised of :

 

     December 31,     September 30,  
     2013     2013  
     (unaudited)        

Raw materials

   $ 1,054,000      $ 920,000   

Work in process

     87,000        89,000   

Finished goods

     466,000        625,000   
  

 

 

   

 

 

 

Total

     1,607,000        1,634,000   

Less: Current portion

     (1,127,000     (1,154,000
  

 

 

   

 

 

 

Long-term portion

   $ 480,000      $ 480,000   
  

 

 

   

 

 

 

 

7. 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.

 

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%.

 

5


Table of Contents

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 with 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 an amendment to 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. Because the debt discount had already been fully amortized, for the three months ended December 31, 2012 the Company did not record any amortization. For the three months ended December 31, 2011 the Company recorded amortization of $21,000.

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 $0.40 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.

On March 19, 2012 the Company agreed (1) to reduce the exercise price of warrants to purchase a total of 525,000 shares of the Company’s common stock from $0.40 to $0.285 per share and (2) to extend the expiration date of those warrants from July 15, 2014 to July 15, 2017. As a result, the Company recognized additional compensation expense of $26,000 for the year ended September 30, 2012.

On March 19, 2012 the Company borrowed $500,000 under the terms of a promissory note. Repayment of the promissory note is secured by a first lien security interest in all of the Company’s assets and is due no later than December 31, 2012, subject to earlier repayment upon the Company’s receipt of purchase orders. A total of $50,000 of interest must be paid on the loan.

On May 22, 2012 the Company borrowed an additional $500,000 under the terms of a promissory note. Repayment of the promissory note is due no later than December 31, 2012, subject to earlier repayment upon the Company’s receipt of purchase orders. A total of $50,000 of interest was prepaid on the loan and will be amortized over the term of the loan.

On October 15, 2012 the Company and the holders of the promissory notes totaling $525,000, agreed to amend the maturity dates to October 15, 2013. In conjunction with the amendment, the Company granted and issued 525,000 warrants with an exercise price of $0.285 and valued the warrants at $94,000 using the Black-Scholes option-pricing model with the following assumptions: the market price was $0.23, the volatility was estimated at 114%, the life of the warrants was 5 years, the risk free rate was 0.67% and the dividend yield was 0%. The value assigned to the warrants issued in conjunction with the amendment of the notes payable was recorded as a debt discount and is being amortized over the one year extended life of the notes. The Company evaluated the amendment under ASC 470, “Debt - Modification and Extinguishment,” and concluded that the extension and additional warrants resulted in significant and consequential changes to the economic substance of the debt and thus resulted in an extinguishment of the debt. The extinguishment of the debt had an insignificant impact on the condensed statement of operations for the period ended December 31, 2012.

On December 20, 2012 the Company and the holders of the two promissory notes totaling $1,000,000 agreed to amend the due dates to January 15, 2013. The Company evaluated the amendment under ASC 470-50, Debt-Modification and Extinguishment, and concluded that the amendment was not significant and was therefore treated as a debt modification.

On December 20, 2012 the Company borrowed $75,000 under the terms of promissory notes with interest at an annual rate of 13%. Repayments of the promissory notes are secured by a first lien security interest in all of the Company’s assets and were due no later than January 15, 2013.

 

6


Table of Contents

On January 23, 2013, the Company entered into an Agreement dated as of January 22, 2013 and closed the transactions contemplated by the Agreement. Pursuant to the Agreement:

 

    The maturity date of the two $500,000 loans to the Company, and secured by substantially all of the Company’s assets, was extended from January 15, 2013 to October 31, 2013 and the interest rate on each loan was increased to 13% per annum. In conjunction with the amendment, the Company granted and issued 400,000 warrants with an exercise price of $0.14 and valued the warrants at $49,000 using the Black-Scholes option-pricing model with the following assumptions: the market price was $0.15, the volatility was estimated at 137%, the life of the warrants was 5 years, the risk free rate was 0.76% and the dividend yield was 0%. The value assigned to the warrants issued in conjunction with the amendment of the notes payable will be amortized over the one year extended life of the notes. The Company evaluated the amendment under ASC 470-50, Debt-Modification and Extinguishment, and concluded that the amendment was not significant and was therefore treated as a debt modification;

 

    The Company repaid in full the $75,000 promissory notes, and

 

    The Company borrowed additional funds in the aggregate principal amount of $450,000, for which repayment is secured by substantially all of the assets of the Company, and bears interest at the rate of 13% per annum, and are repayable in full on October 31, 2013. In connection with the notes payable transaction, the Company granted and issued 450,000 warrants with an exercise price of $0.14 and valued the warrants at $55,000 using the Black-Scholes option-pricing model and the following assumptions: the market price was $0.15, the volatility was estimated at 137%, the life of the warrants was 5 years, the risk free rate was 0.76% and the dividend yield of 0%. The value assigned to the warrants issued in conjunction with the notes payable was recorded as debt discount and is being amortized over the nine-month life of the notes.

On October 31, 2013, the due dates for the principal balances for all of these loans were extended to December 15, 2013 pursuant to an agreement between the Company and the holders of the promissory notes.

On December 10, 2013 the Company and the holders of the unsecured promissory notes for $525,000 agreed to amend the due date to October 15, 2014. In conjunction with the amendment, the Company granted and issued 262,500 warrants with an exercise price of $0.12 and valued the warrants at $18,000 using the Black-Scholes option-pricing model with the following assumptions: the market price was $0.08, the volatility was estimated at 139%, the life of the warrants was 5 years, the risk free rate was 1.51% and the dividend yield of 0%. The value assigned for the warrants issued in conjunction with the amendment of the notes payable will be amortized over the one year extended life of the notes. The Company evaluated the amendment under ASC 470, “Debt - Modification and Extinguishment,” and concluded that the extension and additional warrants resulted in significant and consequential changes to the economic substance of the debt and thus resulted in an extinguishment of the debt.

On December 10, 2013, the Company and the holders of the secured promissory notes for $1,450,000 agreed to amend the due dates for the principal balances for these loans to October 15, 2014 pursuant to an agreement between the Company and the holders of the promissory notes. In conjunction with the agreement, the Company modified the term and the exercise price of existing warrants held by all of the holders of these promissory notes and granted and issued 725,000 new warrants with an exercise price of $0.12 and valued the warrants at $50,000 using the Black-Scholes option-pricing model with the following assumptions: the market price was $0.08, the volatility was estimated at 139%, the life of the warrants was 5 years, the risk free rate was 151% and the dividend yield was 0%. The value assigned for the warrants issued in conjunction with the amendment of the notes payable will be amortized over the one year extended life of the notes. The Company evaluated the amendment under ASC 470-50, Debt-Modification and Extinguishment, and concluded that the amendment was not significant and was therefore treated as a debt modification.

 

7


Table of Contents

On December 10, 2013 the Company borrowed $200,000 under the terms of promissory notes with interest at an annual rate of 18%. Repayment of the promissory notes is secured by a first lien security interest in all of the Company’s assets and was due no later than January 31, 2014. The note holders also expect the Company will raise an additional $200,000 from other investors in January 2014. The note holders of the additional $200,000 loans will extend the due dates for these new loans to October 15, 2014 if the Company closes the new $200,000 debt financing by January 31, 2014 and agrees to a prepayment schedule based the Company’s cash flow. The Company did not raise the additional $200,000 by January 31, 2014. Therefore, the $200,000 borrowed on December 10, 2013 became due on January 31, 2014.

 

Notes Payable    December 31,
2013
     September 30,
2013
 

Secured note payable maturing on December 15, 2014 bearing interest at 13% per annum

   $ 500,000       $ —     

Secured note payable maturing on December 15, 2014, bearing interest at 13% per annum

     450,000         —     

Secured note payable maturing on December 15, 2014 bearing interest at 13% per annum

     500,000         —     

Secured note payable maturing on January 31, 2014 bearing interest at 18% per annum, net of debt discount of $63,000 at December 31, 2013

     137,000         —     

Unsecured notes payable, maturing in December 15, 2014, bearing interest at 13% per annum

     525,000         —     
  

 

 

    

 

 

 

Total short-term debt obligations

   $ 2,112,000       $ —     
  

 

 

    

 

 

 

Secured note payable maturing on December 15, 2014 bearing interest at 13% per annum, net of debt discount of $3,000 at September 30, 2013

   $ —         $ 497,000   

Secured note payable maturing on December 15, 2014, bearing interest at 13% per annum, net of debt discount of $5,000 at September 30, 2013

     —           445,000   

Secured note payable maturing on December 15, 2014 bearing interest at 13% per annum, net of debt discount of $3,000 at September 30, 2013

     —           497,000   

Unsecured notes payable, maturing in December 15, 2013, bearing interest at 13% per annum, net of debt discount of $2,000 at September 30, 2013

     —           523,000   
  

 

 

    

 

 

 

Total long-term debt obligations

   $ —         $ 1,962,000   
  

 

 

    

 

 

 

 

8


Table of Contents
9. 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 Company’s 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.

In December 2004, the Company’s 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. There were no options granted in the three months ended December 31, 2013 and 2012.

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 Company’s historical experiences.

 

9


Table of Contents

A summary of the Company’s stock option activity as of December 31, 2013, and changes during the three months then ended is presented below:

 

     Stock
Options
     Weighted
Average
Exercise Price
     Weighted
Average
Contractual
Term (Years)
     Aggregate
Intrinsic Value *
 

Outstanding at October 1, 2013

     2,305,000       $ 0.18         4.39      

Granted

     —           —           

Exercised

     —           —           

Forfeited, Expired or Cancelled

     —           —           
  

 

 

          

Outstanding at December 31, 2013

     2,305,000       $ 0.18         4.39       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2013

     —           —           —         $ —  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

* 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 $0.14 at December 31, 2013.

None of the outstanding stock options were vested as of December 31, 2013.

There was no compensation expense related to outstanding options for the three months ended December 31, 2013 and 2012.

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 December 31, 2013 and 2012, 7,187,000 and 5,349,000 warrants were outstanding and 7,187,000 and 5,349,000 warrants were vested, respectively.

There was no compensation expense related to outstanding warrants for the three months ended December 31, 2013 and 2012.

 

10. 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 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 of December 31, 2013 and September 30, 2013, 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 December 31, 2013, the Company does not expect any material changes to unrecognized tax positions within the next twelve months.

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 Company’s 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 three months ended December 31, 2013, deferred income tax assets and the corresponding valuation allowance increased by $177,000.

 

10


Table of Contents

The Company’s 2014 provision for income taxes primarily relates to state taxes. The difference between the Company’s 2014 effective rate and statutory rate is primarily due to the use of federal net operating losses to offset taxable income. The difference between the Company’s 2013 effective rate and statutory rate is primarily due to the utilization of net operating losses.

 

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s cash and cash equivalents are measured at fair value in the Company’s 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.

 

12. COMMITMENTS AND CONTINGENCIES

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 Company’s consolidated financial position or results of operations.

 

13. 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 of December 10, 2009. 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 December 31, 2013, the Company determined that no such impairment indicators exist.

 

14. SUBSEQUENT EVENTS

Management has evaluated all activity through the date that the consolidated financial statements were issued and concluded that the only subsequent event that occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements is the update of the status of raising an additional $200,000 by January 31, 2014 and the due date of the $200,000 borrowed on December 31, 2013 as described in Note 8 above.

 

11


Table of Contents
ITEM 2. Management’s 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 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 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.

Results of Operations

Three-months ended December 31, 2013 compared to the three-months ended December 31, 2012

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 December 31, 2013 were $63,000 compared to revenues of $157,000 for the quarter ended December 31, 2012. In the quarter ended December 31, 2013, 73% of revenues were from sales of our NightHunter products to the military (U.S. Army, U.S. Marines and military distributors) and 27% were from sales of SuperVision units. In the quarter ended December 31, 2012, 45% of revenues were to the military market and 55% were from sales of SuperVision units.

Cost of Goods and Gross Profit: Cost of goods consists of the cost of manufacturing our NightHunter and SuperVision products.

The gross profit percentages were 40% and 53% for the quarters ended December 31, 2013 and 2012, respectively. The gross profit percentage for the quarter ended December 31, 2012 was positively impacted by the sales mix.

Selling, General and Administrative: Selling, general and administrative expenses decreased by $1,000 to $415,000 for the quarter ended December 31, 2013 as compared to $416,000 for the quarter ended December 31, 2012.

Research & Development: Research and development expenses increased by $8,000 to $127,000 for the quarter ended December 31, 2013 compared to $119,000 for the quarter ended December 31, 2012.

 

12


Table of Contents

Other Income (Expense): For the quarter ended December 31, 2013 interest and other expenses were $84,000 compared to $40,000 of interest and other expenses for the quarter ended December 31, 2012. The increase of $44,000 is attributed to interest expense for additional notes payable, including $18,000 of amortization of debt discount.

Net Income (Loss): Lower revenues in the current quarter accounted for the net loss of $602,000 compared to the net loss of $494,000 for the quarter ended December 31, 2012.

Liquidity and Capital Resources

As of December 31, 2013, the Company had negative working capital of $1,763,000 and a current ratio of 0.4 to 1 as compared to working capital of $730,000 and a current ratio of 2.0 to 1 as of September 30, 2013. Current liabilities at December 31, 2013 include notes payable of $2,175,000 as described in Note 8 of the unaudited condensed financial statements.

Our net loss of $602,000 for the three months ended December 31, 2013 negatively impacted cash. Significant sources of cash provided by operating activities during the first three months of the current year included a decrease in accounts receivable of $30,000, an increase in accounts payable of $116,000, a decrease in inventories of $27,000 and an increase in accrued expenses of $43,000 offset by a decrease in accrued payroll and related taxes of $13,000. Cash used in operating activities totaled $369,000 for the three months ended December 31, 2013.

Based on the amount of working capital that we had on hand on December 31, 2013 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.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable

 

ITEM 4. Controls and Procedures

The Company’s 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 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 December 31, 2013, 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.

 

13


Table of Contents

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

 

14


Table of Contents

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: February 14, 2014     By:  

/s/ Alan P. Magerman

Alan P. Magerman

Chairman of the Board

Chief Executive Officer

Date: February 14, 2014     By:  

/s/ Richard S. Kay

Richard S. Kay

Chief Financial Officer

 

15