##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the quarterly period ended September 30, 2005.
 o
    
    TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for
the transition period from ___ to ___.
 Commission File No. 1-13919
 Xponential, Inc.
  Delaware
    
    75-2520896(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 6400 Atlantic Boulevard, Suite 190, Norcross, Georgia 30080
 (678) 720-0660
 þ o
 o þ
 þ o
  o þ




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XPONENTIAL, INC.
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1
    
    Consolidated Financial StatementsConsolidated Balance Sheets as of September 30 and June 30, 2005
    
    
    3Consolidated Statements of Operations for the Three Months Ended September 30, 2005 and 2004
    
    
    4Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    12Item 3
    
    Controls and Procedures
    
    
    15PART II  OTHER INFORMATIONItem 5
    
    Other Information
    
    
    16Item 6
    
    Exhibits
    
    
    16Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 18 U.S.C. Section 1350Certification of CFO Pursuant to Section 18 U.S.C. Section 1350
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 XPONENTIAL, INC. AND SUBSIDIARIES
 
   September 30,2005
    
    
    June 30, 2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    713
    
    
    $
    407Accounts receivable
    
    
    481
    
    
    
    336Pawn service charges receivable
    
    
    511
    
    
    
    541Pawn loans
    
    
    4,641
    
    
    
    4,919Inventories, net
    
    
    5,614
    
    
    
    4,329Investments
    
    
    5,376
    
    
    
    4,677Prepaid expenses and other current assets
    
    
    255
    
    
    
    276Total current assets
    
    
    17,591
    
    
    
    15,485Property and equipment, net
    
    
    1,234
    
    
    
    848Intangible assets, net of amortization of $78 and $76 at September 30, 2005 and June 30, 2005, respectively
    
    
    
    
    
    
    2Bond issuance costs, net of amortization of $49 and $22 at September 30, 2005 and June 30, 2005, respectively
    
    
    1,073
    
    
    
    849Investment in American IronHorse Motorcycle Company, Inc.
    
    
    4,836
    
    
    
    4,836Other assets, net of amortization of $40 and $25 at September 30, 2005 and June 30, 2005, respectively
    
    
    164
    
    
    
    200Total assets
    
    $
    24,898
    
    
    $
    22,220Liabilities and Stockholders EquityCurrent liabilities:Current installments of notes payable
    
    $
    865
    
    
    $
    860Accounts payable and accrued expenses
    
    
    347
    
    
    
    413Accrued payroll and payroll taxes
    
    
    235
    
    
    
    334Deferred revenue
    
    
    78
    
    
    
    70Revolving credit facility
    
    
    1,052
    
    
    
    546Total current liabilities
    
    
    2,577
    
    
    
    2,223Long term notes payable:8% limited recourse convertible notes, net of discount of $71 and $55 at September 30, 2005
and June 30,
2005, respectively
    
    
    11,481
    
    
    
    8,771Other long term notes payable
    
    
    201
    
    
    
    294Total long term notes payable
    
    
    11,682
    
    
    
    9,065Commitments and contingenciesRedeemable
preferred stock  Series A; par value $0.01; 5% cumulative dividend, liquidation preference
$5.00 per share; 971,632 shares issued at September 30, 2005 and June 30, 2005, respectively
    
    
    4,358
    
    
    
    4,358Total long term liabilities
    
    
    16,040
    
    
    
    13,423Total liabilities
    
    
    18,617
    
    
    
    15,646Stockholders equity:Preferred
stock  Series B; 5% cumulative dividend, liquidation preference $5.00 per share
($2,500,210);
500,042 issued at September 30, 2005 and June 30, 2005, respectively
    
    
    5
    
    
    
    5Common stock $0.01 par value; authorized 10,000,000 shares, issued 2,380,804 as of September
30, 2005
and June 30, 2005, respectively
    
    
    24
    
    
    
    24Additional paid-in capital
    
    
    5,579
    
    
    
    5,631Retained earnings
    
    
    529
    
    
    
    756Accumulated other comprehensive income
    
    
    184
    
    
    
    198Less treasury stock, at cost; 25,000 common shares at September 30, 2005 and June 30, 2005,
respectively
    
    
    (40
    )
    
    
    (40
    )Total stockholders equity
    
    
    6,281
    
    
    
    6,574Total liabilities and stockholders equity
    
    $
    24,898
    
    
    $
    22,220
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XPONENTIAL, INC. AND SUBSIDIARIES
 
    Three Months Ended
    
    
    Three Months EndedSeptember 30, 2005
    
    
    September 30, 2004Revenues:Merchandise sales
    
    $
    3,097
    
    
    $
    3,032Pawn service charges
    
    
    1,600
    
    
    
    1,571Other
    
    
    
    
    
    
    42Total revenues
    
    
    4,697
    
    
    
    4,645Cost of sales
    
    
    2,348
    
    
    
    2,330Gross profit
    
    
    2,349
    
    
    
    2,315Expenses:Store operating expenses
    
    
    1,518
    
    
    
    1,421Corporate administrative expenses
    
    
    696
    
    
    
    682Depreciation and amortization
    
    
    104
    
    
    
    109Total expenses
    
    
    2,318
    
    
    
    2,212Operating income
    
    
    31
    
    
    
    103Interest and dividend income
    
    
    115
    
    
    
    41Interest expense including Series A preferred
dividends of $61 and $67 for the three months
ended September 30, 2005 and 2004, respectively
    
    
    (348
    )
    
    
    (150
    )Loss on futures contracts
    
    
    (66
    )
    
    
    Gain on investments
    
    
    1
    
    
    
    211Net income (loss) before taxes
    
    
    (267
    )
    
    
    205Income tax provision (benefit)
    
    
    (70
    )
    
    
    93Net income (loss)
    
    
    (197
    )
    
    
    112Preferred stock dividend requirement
    
    
    (31
    )
    
    
    (31
    )Net income (loss) allocable to common stockholders
    
    $
    (228
    )
    
    $
    81Income (loss) per common share (note 5):Basic
    
    $
    (0.10
    )
    
    $
    0.03Diluted
    
    $
    (0.10
    )
    
    $
    0.03
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XPONENTIAL, INC. AND SUBSIDIARIES
 
   For the
    
    
    For theThree Months Ended
    
    
    Three Months Ended(In thousands)
    
    September 30, 2005
    
    
    September 30, 2004Cash flows from operating activities:Net income (loss)
    
    $
    (197
    )
    
    $
    112Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization
    
    
    104
    
    
    
    109Gain on sale of investments
    
    
    (1
    )
    
    
    (211
    )Deferred income tax expense (benefit) related to
bankruptcy
    
    
    (70
    )
    
    
    93Non-cash interest expense
    
    
    41
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (145
    )
    
    
    10Pawn service charges receivable
    
    
    30
    
    
    
    25Inventories, net
    
    
    (1,285
    )
    
    
    (447
    )Prepaid expenses and other current assets
    
    
    21
    
    
    
    17Accounts payable and accrued liabilities
    
    
    (157
    )
    
    
    (2
    )Net cash used in operating activities
    
    
    (1,659
    )
    
    
    (294
    )Cash flows from investing activities:Pawn loans made
    
    
    (4,596
    )
    
    
    (3,886
    )Pawn loans redeemed
    
    
    1,712
    
    
    
    1,634Inventory acquired from loan forfeitures
    
    
    3,162
    
    
    
    2,480Proceeds from sale of investments
    
    
    
    
    
    
    1,393Purchase of investments
    
    
    (709
    )
    
    
    (1,511
    )Purchases of property and equipment
    
    
    (484
    )
    
    
    (118
    )Other assets
    
    
    20
    
    
    
    Net cash used in investing activities
    
    
    (895
    )
    
    
    (8
    )Cash flows from financing activities:Borrowings on notes payable
    
    
    4,205
    
    
    
    1,886Principal payments on notes payable
    
    
    (3,787
    )
    
    
    (1,623
    )Convertible note offering proceeds
    
    
    2,724
    
    
    
    Convertible note offering costs
    
    
    (251
    )
    
    
    Dividends paid
    
    
    (31
    )
    
    
    (31
    )Net cash provided by financing activities
    
    
    2,860
    
    
    
    232Net increase (decrease) in cash and cash equivalents
    
    
    306
    
    
    
    (70
    )Cash and cash equivalents at beginning of period
    
    
    407
    
    
    
    206Cash and cash equivalents at end of period
    
    $
    713
    
    
    $
    136Supplemental
disclosures of cash flow information  Cash paid for interest
    
    $
    288
    
    
    $
    130
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XPONENTIAL, INC. AND SUBSIDIARIES
 
   Basis of Presentation
      Notes Payable
 Revolving Credit Facility-
  8% Limited Recourse Convertible Notes-
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Notes Payable (continued)
  Equity
  Stock Option Plan, Stock Incentive Plan and Stock Purchase Plan
   Weighted AverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at June 30, 2003
    
    
    455,000
    
    
    $
    1.00Granted
    
    
    30,000
    
    
    
    1.60Exercised
    
    
    (249,000
    )
    
    $
    1.02Forfeited
    
    
    (30,000
    )
    
    
    1.00Outstanding at June 30, 2004
    
    
    206,000
    
    
    $
    1.09Granted
    
    
    20,000
    
    
    
    1.56Exercised
    
    
    (2,000
    )
    
    
    1.00Forfeited
    
    
    (4,000
    )
    
    
    1.00Outstanding at June 30, 2005
    
    
    220,000
    
    
    
    1.13Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Exercisable at September 30, 2005
    
    
    220,000
    
    
    
    1.13
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Stock Option Plan, Stock Incentive Plan and Stock Purchase Plan (continued)
  Weighted Average Shares and Net Income Per Common Share
   Net Loss AllocableFor the Three Months Ended
    
    to CommonSeptember 30, 2005
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
    
    $
    (228,000
    )
    
    
    2,380,804
    
    
    $
    (0.10
    )
 For the Three Months Ended
    
    Net Income AllocableSeptember 30, 2004
    
    to Common Shareholders
    
    
    Shares
    
    
    Per ShareBasic earnings per common share
    
    $
    81,000
    
    
    
    2,344,206
    
    
    $
    0.03Assuming conversion -Series B
preferred stock
    
    
    31,000
    
    
    
    1,720,130Diluted earnings per common share
    
    $
    112,000
    
    
    
    4,064,336
    
    
    $
    0.03
   Investments in Marketable Securities
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Investments in Marketable Securities (continued)
  Unrealized(in thousands)
    
    Cost
    
    
    Gain/(Loss)
    
    
    Market ValueStocks
    
    $
    7
    
    
    $
    (6
    )
    
    $
    1Bonds
    
    
    5,185
    
    
    
    190
    
    
    
    5,375Total
    
    $
    5,192
    
    
    $
    184
    
    
    $
    5,376
  Unrealized(in thousands)
    
    Cost
    
    
    Gain/(Loss)
    
    
    Market ValueStocks
    
    $
    7
    
    
    $
    (6
    )
    
    $
    1Bonds
    
    
    4,472
    
    
    
    204
    
    
    
    4,676Total
    
    $
    4,479
    
    
    $
    198
    
    
    $
    4,677
 Derivative Instruments
  Comprehensive Income
  For the Three Month
    
    
    For the Three MonthPeriod Ended
    
    
    Period Ended(in thousands)
    
    September 30, 2005
    
    
    September 30, 2004Net income (loss)
    
    $
    (197
    )
    
    $
    112Unrealized gain from available for sale securities
    
    
    (79
    )
    
    
    (5
    )Reclassification of realized gain (loss) included
in net income
    
    
    65
    
    
    
    (211
    )Comprehensive loss
    
    $
    (211
    )
    
    $
    (104
    )
 Investment in American IronHorse Motorcycle Company, Inc.
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Investment in American IronHorse Motorcycle Company, Inc. (continued)
  As of
    
    
    As ofSeptember 30, 2005
    
    
    December 31, 2004(in thousands)
    
    (Unaudited)
    
    
    (Unaudited)Current assets
    
    $
    39,971
    
    
    $
    30,039Current liabilities
    
    
    22,616
    
    
    
    14,207Total assets
    
    $
    44,559
    
    
    $
    34,555Total liabilities
    
    
    31,996
    
    
    
    25,358Stockholders equity
    
    $
    12,563
    
    
    $
    9,197
 For the
    
    
    For theNine Months Ended
    
    
    Year EndedSeptember 30, 2005
    
    
    December 31, 2004(in thousands)
    
    (Unaudited)
    
    
    (Unaudited)Total revenue
    
    $
    82,294
    
    
    $
    65,019Net income (loss)
    
    $
    3,350
    
    
    $
    (1,247
    )
 Operating Segment Information
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Operating Segment Information (continued)
 Investment,Management andThree Months Ended September 30, 2005
    
    Pawn Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    3,097
    
    
    $
    
    
    
    $
    3,097Pawn service charges and related fee income
    
    
    1,600
    
    
    
    
    
    
    
    1,600Total Revenue
    
    
    4,697
    
    
    
    
    
    
    
    4,697Expenses:Cost of sales
    
    
    2,348
    
    
    
    
    
    
    
    2,348Store operating expenses
    
    
    1,518
    
    
    
    
    
    
    
    1,518Corporate administrative expenses
    
    
    474
    
    
    
    222
    
    
    
    696Depreciation and amortization
    
    
    104
    
    
    
    
    
    
    
    104Operating income (loss)
    
    
    253
    
    
    
    (222
    )
    
    
    31Interest and dividend income
    
    
    
    
    
    
    115
    
    
    
    115Interest expense
    
    
    (53
    )
    
    
    (295
    )
    
    
    (348
    )Loss on change of futures contracts value
    
    
    (66
    )
    
    
    
    
    
    
    (66
    )Gain on sale of marketable securities
    
    
    
    
    
    
    1
    
    
    
    1Net income (loss) before taxes
    
    $
    134
    
    
    $
    (401
    )
    
    $
    (267
    )Total Assets
    
    $
    12,562
    
    
    $
    12,336
    
    
    $
    24,898
 Investment,Management andThree Months Ended September 30, 2004
    
    Pawn Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    3,032
    
    
    $
    
    
    
    $
    3,032Pawn service charges and related fee income
    
    
    1,571
    
    
    
    
    
    
    
    1,571Management advisory and related fee income
    
    
    
    
    
    
    42
    
    
    
    42Total Revenue
    
    
    4,603
    
    
    
    42
    
    
    
    4,645Expenses:Cost of sales
    
    
    2,330
    
    
    
    
    
    
    
    2,330Store operating expenses
    
    
    1,421
    
    
    
    
    
    
    
    1,421Corporate administrative expenses
    
    
    432
    
    
    
    250
    
    
    
    682Depreciation and amortization
    
    
    109
    
    
    
    
    
    
    
    109Operating income (loss)
    
    
    311
    
    
    
    (208
    )
    
    
    103Interest and dividend income
    
    
    1
    
    
    
    40
    
    
    
    41Interest expense
    
    
    (72
    )
    
    
    (78
    )
    
    
    (150
    )Gain on sale of marketable securities
    
    
    
    
    
    
    211
    
    
    
    211Net income (loss) before taxes
    
    $
    240
    
    
    $
    (35
    )
    
    $
    205Total Assets
    
    $
    9,443
    
    
    $
    6,333
    
    
    $
    15,776
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Statements appearing in the following discussion that are not historical facts are
forward-looking statements (forward-looking statements) within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which are intended to be covered by the safe harbors created by those sections. Such
forward-looking statements are necessarily estimates reflecting the best judgment of the Companys
management based upon current information and involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks, uncertainties and other
factors, include, but are not limited to, those set forth and those appearing from time to time in
filings made by the Company with the Securities and Exchange Commission. These risks,
uncertainties and other factors should not be construed as exhaustive and the Company does not
undertake, and specifically disclaims any obligation, to update any forward-looking statements to
reflect occurrences or unanticipated events or circumstances after the date of such statements.
 In addition, the following discussion and analysis should be read in conjunction with the
Companys financial statements and notes thereto and other financial data included in the Companys
Form 10-KSB for the fiscal year ended June 30, 2005.
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For the
    
    For theThree Months Ended
    
    Three Months EndedSeptember 30, 2005
    
    September 30, 2004Merchandise sales
    
    
    65.9
    %
    
    
    65.3
    %Pawn service charges and related fee income
    
    
    34.1
    
    
    
    33.8Management advisory fees and related fee income
    
    
    0.0
    
    
    
    0.9Total revenues
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    50.0
    
    
    
    50.2Store operating expenses
    
    
    32.3
    
    
    
    30.6Corporate administrative expenses
    
    
    14.8
    
    
    
    14.6Depreciation and amortization
    
    
    2.2
    
    
    
    2.4Operating income
    
    
    0.7
    
    
    
    2.2Interest and dividend income
    
    
    2.4
    
    
    
    1.0Interest expense
    
    
    7.4
    
    
    
    3.2Gain (loss) on sale of marketable securities
    
    
    (1.4
    )
    
    
    4.4Net income (loss) before income taxes
    
    
    (5.7
    )%
    
    
    4.4
    %Income tax benefit (provision)
    
    
    1.5
    
    
    
    (2.0
    )Net income (loss)
    
    
    (4.2
    )%
    
    
    2.4
    %
  Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
     13




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14




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ITEM 3. CONTROLS AND PROCEDURES
   15




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PART II
 
 ITEM 5. OTHER INFORMATION
 Recent Sales of Unregistered Securities
  Original Issuance Date
    
    Principal Amount11/02/05
    
    $
    100,00011/02/05
    
    $
    50,00011/03/05
    
    $
    12,00011/04/05
    
    $
    50,00011/08/05
    
    $
    25,00011/08/05
    
    $
    100,00011/10/05
    
    $
    85,000
     
 ITEM 6. EXHIBITS
 Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended *31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended *32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
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Number
    
    Description32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
 
 *
    
    Filed herewith. 17




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SIGNATURES
  XPONENTIAL, INC. (Registrant)November 14, 2005
    
    By:
    
    /s/ Robert W. SchleizerRobert W. Schleizer, Executive VicePresident and Chief Financial Officer
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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended31.2
    
    Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended32.1
    
    Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002