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XENONICS HOLDINGS, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations (rounded in thousands)

February 14, 2014



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.

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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.


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Source: Edgar Glimpses


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