**UNITEDSTATES****SECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 
| **ý** | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                      |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                        |
|       | **for  the quarterly period ended March 31, 2004.**                                                                                                                                         |
|       |                                                                                                                                                                                        |
|       |                                                                                                                                                                                        |
| **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.**

(Exact name of small business issuer asspecified in its charter)

 
| **Delaware**                                                     |   | **75-2520896**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |   | (I.R.S.  Employer Identification No.) |

 

**2175 Old Concord Road SE, Suite 200, Smyrna, Georgia  30080**

(Address of principal executive offices)

 

**(678) 305-7211**

(Issuer’s telephone number)

 

Check whether the issuer (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days Yes ýNo o

 

Check whether theregistrant filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Exchange Act after distribution of securities under a planconfirmed by a court. Yes ý No o

 

The Company has2,322,862 shares of Common Stock, par value $0.01 per share, outstanding as ofMarch 31, 2004.

 

Transitional SmallBusiness Disclosure Format (Check one): Yes o No ý

 

 

----

 

**XPONENTIAL, INC.**

** **

**INDEX**

 
| **PART I  -   FINANCIAL INFORMATION** |                                                                                                                                                                                                                              |
|-------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                            |                                                                                                                                                                                                                              |   |
| **Item 1**                                      | Consolidated Financial Statements                                                                                                                                                                                                 |   |
|                                            |                                                                                                                                                                                                                              |   |
|                                            | Consolidated Balance Sheets  as of March 31, 2004 and June 30, 2003                                                                                                                                                               |   |
|                                            |                                                                                                                                                                                                                              |   |
|                                            | Consolidated  Statements of Operations for the Nine Months Ended March 31, 2004, the Two  Months Ended August 31, 2002, the Seven Months and Nine Months Ended March  31, 2003 and the Three Months Ended March 31, 2004 and 2003 |   |
|                                            |                                                                                                                                                                                                                              |   |
|                                            | Consolidated  Statements of Cash Flows for the Nine Months Ended March  31, 2004, the Two Months Ended August 31,  2002, and the Seven Months and Nine Months Ended March 31, 2003                                           |   |
|                                            |                                                                                                                                                                                                                              |   |
|                                            | Notes to  Consolidated Financial Statements                                                                                                                                                                                       |   |
|                                            |                                                                                                                                                                                                                              |   |
| **Item 2**                                      | Management’s  Discussion and Analysis or Plan of Operation                                                                                                                                                                   |   |
|                                            |                                                                                                                                                                                                                              |   |
| **Item 3**                                      | Controls and  Procedures                                                                                                                                                                                                          |   |
|                                            |                                                                                                                                                                                                                              |   |
| **PART  II  -   OTHER INFORMATION**   |                                                                                                                                                                                                                              |
|                                            |                                                                                                                                                                                                                              |   |
| **Item  1**                                     | Legal Proceedings                                                                                                                                                                                                                 |   |
|                                            |                                                                                                                                                                                                                              |   |
| **Item 2**                                      | Changes in Securities                                                                                                                                                                                                             |   |
|                                            |                                                                                                                                                                                                                              |   |
| **Item 3**                                      | Defaults Upon  Senior Securities                                                                                                                                                                                                  |   |
|                                            |                                                                                                                                                                                                                              |   |
| **Item 4**                                      | Submission  of Matters to a Vote of Security Holders                                                                                                                                                                              |   |
|                                            |                                                                                                                                                                                                                              |   |
| **Item  5**                                     | Other Information                                                                                                                                                                                                                 |   |
|                                            |                                                                                                                                                                                                                              |   |
| **Item 6**                                      | Exhibits and  Reports on Form 8-K                                                                                                                                                                                                 |   |

 

2

----

 

##### **PART I**.  FINANCIAL INFORMATION

 

**ITEM 1****.**          **FINANCIAL STATEMENTS**

 

**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Consolidated BalanceSheets

(In thousands,except share and per share data)

 
|                                                                                                                                                                |   | **March 31,  2004** |   | **June 30,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|--------------------|--------|
|                                                                                                                                                                |   | **(Unaudited)**     |   |               |   |
| Assets                                                                                                                                                              |   |                |   |               |   |
| Current  assets:                                                                                                                                                    |   |                |   |               |   |
| Cash  and cash equivalents                                                                                                                                          |   | $                   | 800    |               | $      | 220 |   |
| Accounts  receivable                                                                                                                                                |   | 67                  |   | 176                |   |
| Pawn  service charges receivable                                                                                                                                    |   | 483                 |   | 503                |   |
| Pawn  loans                                                                                                                                                         |   | 4,386               |   | 4,571              |   |
| Inventories,  net                                                                                                                                                   |   | 2,740               |   | 2,540              |   |
| Investments,  including $2,500 pledged to secure notes payable                                                                                                      |   | 3,293               |   | 7,725              |   |
| Prepaid  expenses and other current assets                                                                                                                          |   | 309                 |   | 245                |   |
| Total  current assets                                                                                                                                               |   | 12,078              |   | 15,980             |   |
|                                                                                                                                                                |   |                |   |               |   |
| Property  and equipment, net                                                                                                                                        |   | 903                 |   | 889                |   |
| Intangible  assets, net of amortization of $33 and $6 at March 31, 2004 and June 30,  2003, respectively                                                            |   | 46                  |   | 41                 |   |
| Investment  in AIMC (note 8)                                                                                                                                        |   | 2,725               |   | —             |   |
| Other  assets                                                                                                                                                       |   | 221                 |   | 107                |   |
| Total  assets                                                                                                                                                       |   | $                   | 15,973 |               | $      | 17,017 |   |
|                                                                                                                                                                |   |                |   |               |   |
| Liabilities  and Stockholders’ Equity                                                                                                                          |   |                |   |               |   |
| Current  liabilities:                                                                                                                                               |   |                |   |               |   |
| Accounts  payable and accrued liabilities                                                                                                                           |   | $                   | 655    |               | $      | 1,009 |   |
| Current  installments of notes payable                                                                                                                              |   | 3,108               |   | 4,074              |   |
| Total  current liabilities                                                                                                                                          |   | 3,763               |   | 5,083              |   |
| Long  term liabilities                                                                                                                                              |   |                |   |               |   |
| Notes  payable –  net of current portion                                                                                                                  |   | 298                 |   | 396                |   |
| Redeemable  Preferred Stock:                                                                                                                                        |   |                |   |               |   |
| Series  A; par value $0.01; 5% cumulative dividend, liquidation preference $5.00 per  share; 1,071,636  shares issued at  March 31, 2004 and June 30, 2003     |   | 5,358               |   | 5,358              |   |
| Total  long term liabilities                                                                                                                                        |   | 5,656               |   | 5,754              |   |
|                                                                                                                                                                |   |                |   |               |   |
| Total  liabilities                                                                                                                                                  |   | 9,419               |   | 10,837             |   |
|                                                                                                                                                                |   |                |   |               |   |
| Stockholders’  equity:                                                                                                                                         |   |                |   |               |   |
| Preferred  stock – $0.01 par value, 2,500,000 authorized:                                                                                                      |   |                |   |               |   |
| Series  B; 5% cumulative dividend, liquidation preference $5.00 per share  ($2,500,210); 500,042 issued.                                                            |   | 5                   |   | 5                  |   |
| Common  stock  $0.01 par value; authorized  10,000,000 shares, 2,322,862 and 2,079,948 issued and outstanding. March 31,  2004 and June 30, 2003, respectively |   | 23                  |   | 21                 |   |
| Additional  paid-in capital                                                                                                                                         |   | 5,083               |   | 4,206              |   |
| Retained  earnings                                                                                                                                                  |   | 1,236               |   | 190                |   |
| Accumulated  other comprehensive income                                                                                                                             |   | 247                 |   | 1,758              |   |
| Less  treasury stock, at cost; 25,000 common shares at March 31, 2004                                                                                               |   | (40                 | )      | —             |   |
| Total  stockholders’ equity                                                                                                                                    |   | 6,554               |   | 6,180              |   |
|                                                                                                                                                                |   |                |   |               |   |
| Total  liabilities and stockholders’ equity                                                                                                                    |   | $                   | 15,973 |               | $      | 17,017 |   |

 

See accompanying notes to consolidated financialstatements.

 

3

----

 

**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Consolidated Statements of Operations

(Unaudited)

(In thousands,except per share data)

 
|                                                                                                               |   | **Reorganized  Company**                |   | **Predecessor**                        |   | **Reorganized  Company**                 |   |                                    |   |
|--------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                               |   | **Nine  Months  Ended  March 31, 2004** |   | **Two Months  Ended  August 31, 2002** |   | **Seven  Months  Ended  March 31, 2003** |   | **Nine  Months  Ended  March 31, 2003** |   |
| Revenues:                                                                                                          |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Merchandise  sales                                                                                                 |   | $                                       | 10,715 |                                   | $      | 1,578                                    |   | $                                       | 7,497  |   | $ | 9,075 |   |
| Pawn  service charges and related fee income                                                                       |   | 5,102                                   |   | 891                                    |   | 3,196                                    |   | 4,087                                   |   |
| Management  advisory and related fee income                                                                        |   | 301                                     |   | —                                 |   | —                                   |   | —                                  |   |
| Total  revenues                                                                                                    |   | 16,118                                  |   | 2,469                                  |   | 10,693                                   |   | 13,162                                  |   |
|                                                                                                               |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Expenses:                                                                                                          |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Cost  of sales                                                                                                     |   | 8,936                                   |   | 1,075                                  |   | 5,342                                    |   | 6,417                                   |   |
| Store  operating expenses                                                                                          |   | 4,680                                   |   | 896                                    |   | 3,168                                    |   | 4,064                                   |   |
| Corporate  administrative expenses                                                                                 |   | 2,217                                   |   | 336                                    |   | 1,816                                    |   | 2,152                                   |   |
| Depreciation  and amortization                                                                                     |   | 355                                     |   | 63                                     |   | 171                                      |   | 234                                     |   |
| Total  expenses                                                                                                    |   | 16,188                                  |   | 2,370                                  |   | 10,497                                   |   | 12,867                                  |   |
|                                                                                                               |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Operating  income (loss)                                                                                           |   | (70                                     | )      | 99                                     |   | 196                                      |   | 295                                     |   |
|                                                                                                               |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Interest  and dividend income                                                                                      |   | 319                                     |   | —                                 |   | 95                                       |   | 95                                      |   |
| Interest  expense including redeemable preferred stock dividends of $201 for the nine  months ended March 31, 2004 |   | (523                                    | )      | (83                                    | )      | (176                                     | )      | (259                                    | )      |
| Gain  on disposition of assets                                                                                     |   | 5                                       |   | —                                 |   | 6                                        |   | 6                                       |   |
| Reorganization  expenses                                                                                           |   | —                                  |   | (241                                   | )      | —                                   |   | (241                                    | )      |
| Gain  on sale of investments                                                                                       |   | 2,018                                   |   | —                                 |   | 631                                      |   | 631                                     |   |
| Net  income (loss) before extraordinary items and income taxes                                                     |   | 1,749                                   |   | (225                                   | )      | 752                                      |   | 527                                     |   |
| Income  tax provision                                                                                              |   | 613                                     |   | —                                 |   | —                                   |   | —                                  |   |
| Net  income (loss) before extraordinary item                                                                       |   | 1,136                                   |   | 225                                    |   | 752                                      |   | 527                                     |   |
| Extraordinary  item:                                                                                               |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Gain  on debt discharge                                                                                            |   | —                                  |   | 11,810                                 |   | —                                   |   | 11,810                                  |   |
| Net  income                                                                                                        |   | 1,136                                   |   | 11,585                                 |   | 752                                      |   | 12,337                                  |   |
| Preferred  stock dividend requirement                                                                              |   | (94                                     | )      | —                                 |   | (229                                     | )      | (229                                    | )      |
| Net  income allocable to common stockholders                                                                       |   | $                                       | 1,042  |                                   | $      | 11,585                                   |   | $                                       | 523    |   | $ | 12,108 |   |
|                                                                                                               |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Income  (loss) per common share (note 5):                                                                          |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Basic                                                                                                              |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Continuing  operations                                                                                             |   | $                                       | 0.45   |                                   | $      | (0.09                                    | )      | $                                       | 0.25   |   | $ |   | * |
| Extraordinary  item                                                                                                |   | —                                  |   | 4.72                                   |   | —                                   |   |                                    | *      |
|                                                                                                               |   | $                                       | 0.45   |                                   | $      | 4.63                                     |   | $                                       | 0.25   |   | $ |   | * |
| Diluted                                                                                                            |   |                                    |   |                                   |   |                                     |   |                                    |   |
| Continuing  operations                                                                                             |   | $                                       | 0.28   |                                   | $      | (0.09                                    | )      | $                                       | 0.16   |   | $ |   | * |
| Extraordinary  item                                                                                                |   | —                                  |   | 4.72                                   |   |                                     |   |                                    | *      |
|                                                                                                               |   | $                                       | 0.28   |                                   | $      | 4.63                                     |   | $                                       | 0.16   |   | $ |   | * |
|                                                                                                                    |        |                                         |        |                                        |        |                                          |        |                                         |        |  |  |  |  |  |

 

----

* Loss per share forperiod includes periods prior to and after Plan consummation and merger aretherefore not meaningful.

 

See accompanying notes toconsolidated financial statements.

 

4

----

 
|                                                                                                               |   | **Three  Months  Ended  March 31, 2004** |   | **Three  Months  Ended  March 31, 2003** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
|                                                                                                               |   |                                     |   |                                     |   |
| Revenues:                                                                                                          |   |                                     |   |                                     |   |
| Merchandise  sales                                                                                                 |   | $                                        | 3,414  |                                     | $      | 3,203 |   |
| Pawn  service charges and related fee income                                                                       |   | 1,687                                    |   | 1,388                                    |   |
| Management  advisory and related fee income                                                                        |   | 149                                      |   | —                                   |   |
| Total  revenues                                                                                                    |   | 5,250                                    |   | 4,591                                    |   |
|                                                                                                               |   |                                     |   |                                     |   |
| Expenses:                                                                                                          |   |                                     |   |                                     |   |
| Cost  of sales                                                                                                     |   | 2,953                                    |   | 2,288                                    |   |
| Store  operating expenses                                                                                          |   | 1,579                                    |   | 1,386                                    |   |
| Corporate  administrative expenses                                                                                 |   | 776                                      |   | 868                                      |   |
| Depreciation  and amortization                                                                                     |   | 126                                      |   | 73                                       |   |
| Total  expenses                                                                                                    |   | 5,434                                    |   | 4,615                                    |   |
|                                                                                                               |   |                                     |   |                                     |   |
| Operating  (loss)                                                                                                  |   | (184                                     | )      | (24                                      | )      |
|                                                                                                               |   |                                     |   |                                     |   |
| Interest  and dividend income                                                                                      |   | 64                                       |   | 53                                       |   |
| Interest  expense including redeemable preferred stock dividends of $67 for the three  months ended March 31, 2004 |   | (198                                     | )      | (69                                      | )      |
| Gain  on disposition of assets                                                                                     |   | 9                                        |   | —                                   |   |
| Gain  on sale of investments                                                                                       |   | 72                                       |   | 543                                      |   |
| Net income  (loss) before income taxes                                                                             |   | (237                                     | )      | 503                                      |   |
| Income  tax (benefit)                                                                                              |   | (81                                      | )      | —                                   |   |
| Net  income (loss)                                                                                                 |   | (156                                     | )      | 503                                      |   |
|                                                                                                               |   |                                     |   |                                     |   |
| Preferred  stock dividend requirement                                                                              |   | (31                                      | )      | (98                                      | )      |
| Net  income (loss) allocable to common stockholders                                                                |   | $                                        | (187   | )                                        | $      | 405 |   |
|                                                                                                               |   |                                     |   |                                     |   |
| Income  (loss) per common share (note 5):                                                                          |   |                                     |   |                                     |   |
| Basic                                                                                                              |   |                                     |   |                                     |   |
| Continuing  operations                                                                                             |   | $                                        | (0.07  | )                                        | $      | 0.19 |   |
|                                                                                                               |   |                                     |   |                                     |   |
| Diluted                                                                                                            |   |                                     |   |                                     |   |
| Continuing  operations                                                                                             |   | $                                        | (0.07  | )                                        | $      | 0.11 |   |

 

See accompanying notes toconsolidated financial statements.

 

5

----

 

**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Consolidated Statements of Cash Flows

(Unaudited)

 

(In thousands)

 
|                                                                                          |   | **Reorganized  Company**                         |   | **Predecessor**                                  |   | **Reorganized  Company**                          |   |                                             |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|--------------------------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------------|--------|
|                                                                                          |   | **For the  Nine Months  Ended  March 31,  2004** |   | **For the  Two Months  Ended  August 31,  2002** |   | **For the  Seven Months  Ended  March 31,  2003** |   | **For the  Nine Months  Ended  March 31,  2003** |   |
| Cash  flows from operating activities:                                                        |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Net  income                                                                                   |   | $                                                | 1,136  |                                             | $      | 11,585                                            |   | $                                                | 752    |   | $ | 12,337 |   |
| Adjustments  to reconcile net income to net cash (used in) provided by operating  activities: |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Depreciation  and amortization                                                                |   | 355                                              |   | 63                                               |   | 171                                               |   | 234                                              |   |
| Gain  on debt discharge                                                                       |   | —                                           |   | (11,810                                          | )      | —                                            |   | (11,810                                          | )      |
| Gain  on sale of investments                                                                  |   | (2,018                                           | )      | —                                           |   | —                                            |   | —                                           |   |
| Income  tax expense                                                                           |   | 595                                              |   | —                                           |   | —                                            |   | —                                           |   |
| Changes  in operating assets and liabilities, net of effect of acquisition:                   |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Accounts  receivable                                                                          |   | 109                                              |   | (24                                              | )      | 8                                                 |   | (16                                              | )      |
| Net  decrease (increase) in pawn loans                                                        |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Inventories,  net                                                                             |   | (200                                             | )      | 62                                               |   | 440                                               |   | 502                                              |   |
| Prepaid  expenses and other current assets                                                    |   | (182                                             | )      | (3                                               | )      | 25                                                |   | 22                                               |   |
| Accounts  payable and accrued liabilities                                                     |   | (354                                             | )      | (56                                              | )      | 132                                               |   | 76                                               |   |
| Net  cash (used in) provided by operating activities                                          |   | (559                                             | )      | (183                                             | )      | 1,528                                             |   | 1,345                                            |   |
|                                                                                          |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Cash  flows from investing activities:                                                        |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Pawn  loans made, net                                                                         |   | 205                                              |   | (459                                             | )      | (233                                              | )      | (692                                             | )      |
| Proceeds  from sale of investments                                                            |   | 8,200                                            |   | —                                           |   | 871                                               |   | 871                                              |   |
| Purchase  of investments                                                                      |   | (6,010                                           | )      | —                                           |   | —                                            |   | —                                           |   |
| Cash  acquired in merger (1)                                                                  |   | —                                           |   | —                                           |   | 2,565                                             |   | 2,565                                            |   |
| Purchases  of property and equipment                                                          |   | (338                                             | )      | —                                           |   | (304                                              | )      | (304                                             | )      |
| Net  cash provided by (used in) investing activities                                          |   | 2,057                                            |   | (459                                             | )      | 2,899                                             |   | 2,440                                            |   |
|                                                                                          |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Cash  flows from financing activities:                                                        |   |                                             |   |                                             |   |                                              |   |                                             |   |
| (Principal  payments)/borrowings on notes payable                                             |   | (1,065                                           | )      | 455                                              |   | (2,415                                            | )      | (1,960                                           | )      |
| Sale  of common stock                                                                         |   | 281                                              |   | —                                           |   | —                                            |   | —                                           |   |
| Purchase  of treasury stock                                                                   |   | (40                                              | )      | —                                           |   | —                                            |   | —                                           |   |
| Dividends  paid                                                                               |   | (94                                              | )      | —                                           |   | (229                                              | )      | (229                                             | )      |
| Net  cash provided by (used in) financing activities                                          |   | (918                                             | )      | 455                                              |   | (2,644                                            | )      | (2,189                                           | )      |
| Net  increase (decrease) in cash and cash equivalents                                         |   | 580                                              |   | (187                                             | )      | 1,783                                             |   | 1,596                                            |   |
| Cash  and cash equivalents at beginning of period                                             |   | 220                                              |   | 377                                              |   | 190                                               |   | 377                                              |   |
| Cash  and cash equivalents at end of period                                                   |   | $                                                | 800    |                                             | $      | 190                                               |   | $                                                | 1,973  |   | $ | 1,973 |   |
|                                                                                          |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Supplemental  disclosures of cash flow information -                                          |   |                                             |   |                                             |   |                                              |   |                                             |   |
| Cash  paid for interest                                                                       |   | $                                                | 152    |                                             | $      | 83                                                |   | $                                                | 164    |   | $ | 247 |   |

 

----

(1)   Non cash financing activities - Companyacquired CMHI on August 30, 2002 including $2.6 million in cash and $5.1million in marketable securities in exchange for preferred stock.  See note 2 for more complete explanation.

 

See accompanying notes toconsolidated financial statements.

 

6

----

 

**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Notes to Consolidated Financial Statements

(Unaudited)

 

(1)       Basis of Presentation

 

Theaccompanying financial statements have been prepared in accordance with theAmerican Institute of Certified Public Accountants Statement of Position 90-7:“Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”(“SOP 90-7”) and generally accepted accounting principles for interim financialinformation and therefore do not include all disclosures necessary for completefinancial statements.  In the opinion ofmanagement, all adjustments have been made that are necessary for a fairpresentation of the financial position and results of operations as of and forthe periods presented.

 

TheBoard of Directors of the Company determined in May 2002 that it was in theCompany’s best interest to change its fiscal year end from the Saturday nearestJanuary 31 to June 30 to more accurately reflect the Company’s post-bankruptcyoperating results. The results of operations for the interim periods endedMarch 31, 2004 and March 31, 2003 are not necessarily indicative of the resultsthat may be expected for the entire fiscal year or any other interim period.

 

Thefinancial statements should be read in conjunction with the financialstatements for the fiscal year ended June 30, 2003 included in the Company’sForm 10-KSB which has been previously filed with the Securities and ExchangeCommission.

 

Xponential,Inc., formerly PawnMart, Inc. (the “Company”), was incorporated in Delaware onJanuary 13, 1994.  EffectiveFebruary 28, 2003, the Company changed its name to “Xponential, Inc.” TheCompany is a specialty finance and retail enterprise principally engaged inestablishing and operating stores which advance money secured by the pledge oftangible personal property, and buying and selling pre-owned merchandise.  As of March 31, 2004, the Company owned andoperated 27 stores in Georgia, North Carolina, and South Carolina.  The South Carolina store is scheduled toclose in July 2004.

 

OnJuly 9, 2001 the Company filed a voluntary petition for relief under Chapter 11of the United States Bankruptcy Code in the United States Bankruptcy Court forthe Northern District of Texas, Fort Worth Division (the “Bankruptcy Court”) inthe case of PawnMart, Inc., Debtor, Case No. 01-44957-BJH-11.  The Plan of Reorganization was filed on February15, 2002 and was amended on April 3, 2002 (the “Plan”).  A confirmation hearing for the Plan was heldon May 20, 2002 and the Plan was confirmed by order of the Bankruptcy Court asof that date (“Confirmation Date”).  ThePlan became effective on May 31, 2002 (the “Effective Date”).

 

TheCompany successfully emerged from bankruptcy on August 30, 2002 when itconsummated a merger (the “Merger”) with C/M Holdings, Inc. (“CMHI”).  The reorganized Company adopted fresh-startreporting (Note 2) and gave effect to its emergence from bankruptcy andconsummation of the Plan on August 30, 2002, including recognition of certainreorganization expenses associated with the Merger in the Company’s Statementof Operations for the two months ended August 31, 2002.

 

Fresh-startreporting as set forth in SOP 90-7 required that the reorganized Companyrestate its assets and liabilities to reflect their reorganization value, whichapproximates fair value at the date of the reorganization.  In so restating, SOP 90-7 required thereorganized Company to allocate its reorganization value to its assets basedupon their estimated fair value.  Eachliability existing on the Confirmation Date is to be stated at the presentvalue of amounts to be paid, determined using an appropriate discount rate.

 

Thefresh-start reporting reorganization value of approximately $7.6 millionresulted in a net value of approximately $1.9 million to the new common equityholders after allowance for post confirmation liabilities of the reorganized Companyof $5.7 million.  The reorganizationvalue was determined in consideration of several factors and by reliance onvarious valuation methods including discounted cash flow, book value multiplesof comparable companies in its industry, net realizable value of asset salesand other applicable methods.  Thecalculated reorganization value was based on estimates and assumptions about

 

7

----

 

circumstancesin a relatively high-risk investment scenario that have not yet taken place inwhich there are significant economic and competitive uncertainties beyond thecontrol of the reorganized Company.

 

In May 2003, the FASB issued SFAS No. 150, “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity” (“SFAS 150”). This statement was effective for interim periods afterJune 15, 2003 and required that mandatorily redeemable preferred stock beclassified as a liability and related dividends be charged to the Company’sstatement of operations.  Prior to June15, 2003, the charges related to the mandatorily redeemable preferred stockwere not reflected in net income (loss), but were reflected in determining netincome (loss) applicable to common stockholders. At March 31, 2004, the carryingvalue of the Company’s mandatorily redeemable preferred stock was$5,358,000.  The related dividends thatwould have been reflected as interest expense for the three months and sevenmonths ended March 31, 2003 were $67,000 and $156,000, respectively.  Subsequent to the adoption of SFAS 150, theCompany has reflected $67,000 and $201,000 as interest expense for the threemonths and nine months ended March 31, 2004, respectively.

 

(2)       Plan of Reorganization -Fresh-Start Accounting

 

Underthe terms of the Plan, the Company cancelled all equity interests of its commonand preferred stockholders and interests of any holders of options andwarrants.  The Company issued 2,079,948shares of Common Stock to its unsecured creditors in exchange for release of indebtednessand in connection with the Merger of the Company with CMHI, which is owned inpart by Dwayne A. Moyers and Jeffrey A. Cummer, officers and directors of theCompany, issued 1,071,636 shares of Series A Preferred Stock and 500,042 SeriesB Preferred Stock to the former shareholders of CMHI.  At the time of the Merger with CMHI, CMHI did not have anybusiness operations and principally held investments.

 

TheCompany is paying the prepetition priority tax claims over a six year periodfrom the assessment date with interest at 7% per annum in quarterlyinstallments of approximately $35,000 in accordance with the Plan.

 

TheBankruptcy Court confirmed the Plan on May 20, 2002 with an Effective Date ofMay 31, 2002.  The consummation of thePlan was contingent on several material events including consummation of theMerger which occurred on August 30, 2002 which was reported as a materialbusiness combination.

 

TheCompany acquired 100 percent of the outstanding common stock of CMHI on August30, 2002.  The results of CMHI’soperations have been included in the financial statements since the date of theMerger.

 

TheCompany’s reorganization value, computed immediately before the Merger, was$7,567,000.

 

8

----

 

TheCompany adopted fresh-start reporting because holders of existing voting sharesimmediately before confirmation of the Plan received less than 50% of thevoting shares of the emerging entity (all pre-confirmation equity interestswere cancelled), and the reorganization value is less than the postpetitionliabilities and allowed claims, as shown below.

 

Thereorganization value was determined in consideration of several factors and byreliance on various valuation methods including discounting cash flow, bookvalue multiples of comparable companies in the Company’s industry, netrealizable value of asset sales and other applicable methods.  The Company assigned no value to its netoperating loss carryovers in the calculation of its reorganization value due tothe lack of certainty of utilizing the net operating losses based on historicaloperating results and the potential limitations on use resulting from the Plan.

 
|                                                         |   | **(in  thousands)** |   |
|--------------------------------------------------------------|--------|---------------------|--------|
| Postpetition  current liabilities                            |   | $                   | 5,145  |   |
| Liabilities  deferred pursuant to the Plan                   |   | 700                 |   |
| Liabilities  exchanged for equity in the reorganized Company |   | 11,810              |   |
| Total  postpetition liabilities and allowed claims           |   | 17,655              |   |
| Reorganization  value                                        |   | 7,567               |   |
| Excess  of liabilities over reorganization value             |   | $                   | 10,088 |   |

 

Afterconsideration of the Company’s debt capacity, extensive negotiations amongparties in interest, projected earnings before interest and taxes, free cashflow to interest and debt service and other capital considerations, it wasagreed that the Company’s organization capital structure prior to the Merger,is as follows:

 

|                                          |   | **At August  30, 2002** |   |
|-----------------------------------------------|--------|-------------------------|--------|
|                                          |   | **(in  thousands)**     |   |
| Postpetition  current liabilities             |   | $                       | 1,274  |   |
| Notes  payable – priority tax claims (1) |   | 700                     |   |
| Post  confirmation bank line of credit        |   | 3,720                   |   |
| Common  stock                                 |   | 1,873                   |   |
|                                          |   | $                       | 7,567  |   |

 

----

(1)   Approximately $95,000 due in cash and $605,000 payable in quarterinstallments of approximately $100,000 per year at 7% interest per annum.

 

OnAugust 30, 2002, the Company acquired 100 percent of the outstanding commonshares of CMHI pursuant the Plan.

 

Theaggregate purchase price for CMHI was approximately $7.8 million which was paidthrough the issuance of Series A and Series B Preferred Stock valued at $5.3million and $2.5 million, respectively. The value of the Preferred Stock was based on liquidation preferencesand dividend and conversion features.

 

9

----

 

Thefollowing table summarizes the estimated value of the acquired assets andliabilities assumed at the date of the Merger.

 

|                                    |   | **At August  30, 2002** |   |
|-----------------------------------------|--------|-------------------------|--------|
|                                    |   | **(in  thousands)**     |   |
| Current  assets                         |   | $                       | 2,725  |   |
| Property  and equipment, net            |   | 36                      |   |
| Other  assets and marketable securities |   | 5,117                   |   |
| Total  assets acquired                  |   | 7,878                   |   |
| Total  liabilities assumed              |   | 20                      |   |
| Net  assets acquired                    |   | $                       | 7,858  |   |

 

Of the$5.1 million in other assets, $5.0 million are investments in marketablesecurities.

 

Thefollowing is a condensed consolidated balance sheet August 30, 2002(unaudited), which reflects the Merger:

 
| **(in thousands)**                               |   | **Xponential,  Inc.  Reorganized  Balance Sheet  Prior to Merger** |   | **CMHI  Assets  Acquired and  Liabilities  Assumed as of  August 30, 2002** |   | **Reorganized  Balance Sheet  After Merger** |   |
|--------------------------------------------------|--------|--------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|----------------------------------------------|--------|
| Assets                                           |   |                                                               |   |                                                                        |   |                                         |   |
| Current  assets                                  |   | $                                                                  | 6,772  |                                                                        | $      | 2,725                                        |   | $ | 9,497 |   |
| Property  and equipment, net                     |   | 674                                                                |   | 36                                                                          |   | 710                                          |   |
| Other  assets                                    |   | 121                                                                |   | 5,117                                                                       |   | 5,238                                        |   |
| Total  assets                                    |   | $                                                                  | 7,567  |                                                                        | $      | 7,878                                        |   | $ | 15,445 |   |
| Liabilities  and Stockholders’ Equity       |   |                                                               |   |                                                                        |   |                                         |   |
| Current  Liabilities                             |   | $                                                                  | 1,469  |                                                                        | $      | 170                                          | (1)    | $ | 1,639 |   |
| Notes  Payable                                   |   | 4,225                                                              |   | —                                                                      |   | 4,225                                        |   |
|                                             |   | 5,694                                                              |   | 170                                                                         |   | 5,864                                        |   |
|                                             |   |                                                               |   |                                                                        |   |                                         |   |
| Redeemable  Preferred Stock                      |   | —                                                             |   | 5,358                                                                       |   | 5,358                                        |   |
|                                             |   |                                                               |   |                                                                        |   |                                         |   |
| Stockholders’  Equity:                      |   |                                                               |   |                                                                        |   |                                         |   |
| Preferred  Stock                                 |   | —                                                             |   | 5                                                                           |   | 5                                            |   |
| Common  Stock                                    |   | 21                                                                 |   | —                                                                      |   | 21                                           |   |
| Additional  Paid In Capital                      |   | 1,852                                                              |   | 2,345                                                                       |   | 4,197                                        |   |
| Total  liabilities and stockholders’ equity |   | $                                                                  | 7,567  |                                                                        | $      | 7,878                                        |   | $ | 15,445 |   |

 

----

(1)   Includes $150,000 investment banking fee to related parties payable oncompletion of Merger.

 

10

----

 

(3)       Notes Payable

 

*Revolving Credit Facility-*

 

The Company and its wholly-owned subsidiary, PawnMart,Inc. (“PawnMart”) currently have a credit facility with Comerica Bank (the“Bank”) in the amount of $4,000,000 that matures on June 30, 2004 and bearsinterest at 9% per annum (the “Credit Facility”), subject to monthly mandatoryprincipal reductions each in the amount of $100,000 commencing February 1, 2004through and including June 1, 2004. Amounts available under the Credit Facility are limited to certainpercentages of pawn loans, inventories, and pawn service chargesreceivable.  The Credit Facility iscollateralized by substantially all of the unencumbered assets of the Companyand PawnMart.  The Company also pledgedadditional collateral in the form of marketable and other securities to theBank in the amount of $2,500,000. At March 31, 2004, $2,955,000 was outstandingunder the Credit Facility and an additional $845,000 was available pursuant tothe available borrowing base.  Under theterms of the Credit Facility, the Company and PawnMart are required to maintaincertain financial ratios and to comply with certain other covenants.  The Company and PawnMart paid feesassociated with the Credit Facility totaling $80,000 during the nine monthsended March 31, 2004.

 

In April 2004, PawnMart entered into a commitmentagreement for a $4,500,000 senior credit facility with First CapitalCorporation. (the “Senior Credit Facility”) to replace the current CreditFacility with Comerica Bank on more favorable terms.  The Senior Credit Facility will mature three years from closingand will bear interest at a rate of the prevailing prime rate plus 2%.  The Company paid a fee of $15,000 inconnection with the commitment. Although the Company anticipates that thetransaction with First Capital Corporation will be completed, there can be noassurance that the Senior Credit Facility will be funded.

 

(4)       Stock Option Plan 

 

Effective January 1, 2003, the Company adopted thefair value method defined in SFAS No. 123, “Accounting for Stock-BasedCompensation,” in accounting for the Company’s stock option plans. Previouslythe Company applied Accounting Principles Board’s Opinion No. 25 (“APB No.25”), “Accounting for Stock Issued to Employees,” and related Interpretations.SFAS No. 123 indicates that the fair value method is the preferable method ofaccounting, and the Company has elected to apply it for all options granted forthe reorganized Company.  Under APB No.25, compensation costs related to stock options issued pursuant to compensatoryplans are measured based on the difference between the quoted market price ofthe stock at the measurement date (ordinarily the date of grant) and theexercise price and should be charged to expense over the periods during whichthe grantee performs the related services. All stock options outstanding on the Confirmation Date were cancelled inaccordance with the Plan.

 

The Company adopted its 2003 Stock Option Plan (“StockOption Plan”) and 2003 Stock Incentive Plan (“Incentive Plan”) effectiveJanuary 1, 2003.  Under the Stock OptionPlan stock options have been awarded to directors, officers and employees.  These stock options vest either immediatelyor over a period two years from the date certain contingency conditions aresatisfied and expire ten years thereafter. A total of 675,000 shares of common stock are reserved for grant underthe Stock Option Plan and a total of the greater of 325,000 or the number ofshares equal to 5% of the total number of shares of Common Stock outstandingare reserved for issuance under the Incentive Plan.  In February 2003, the Company granted options covering 455,000common shares from the Stock Option Plan of which 299,000 shares wereimmediately exercisable. The remaining options for the grant of 156,000 shareswere contingent upon achieving $500,000 EBITDA for the fiscal year ended June30, 2003, which the Company achieved. These options vest 2/3rds on June 30, 2004 and 1/3rd on June30, 2005.  The $8,000 cost of theseoptions is being amortized over the vesting period described above.  The Company recognized $1,200 and $3,700 ofcompensation expense for options granted during the three month and nine monthperiods ended March 31, 2004, respectively.

 

11

----

 

The Incentive Plan provides an opportunity toemployees of the Company to purchase common shares directly from the Companythrough payroll deductions.  As of March31, 2004, 18,914 shares have been issued under the Incentive Plan.  The following table summarizes the stockoption activity of the reorganized Company from the time it emerged frombankruptcy:

 
|                           |   | **Number of  Options** |   | **Exercise  Price** |   | **Weighted  Average  Price** |   |
|--------------------------------|--------|------------------------|--------|---------------------|--------|------------------------------|--------|
| Outstanding  at June 30, 2003  |   | 455,000                |   | $                   | 1.00   |                         | $      | 1.00 |   |
| Granted                        |   | 30,000                 |   | $                   | 1.60   |                         | $      | 1.60 |   |
| Exercised                      |   | 249,000                |   | $                   | 1.00   |                         | $      | 1.00 |   |
| Outstanding  at March 31, 2004 |   | 236,000                |   | —              |   | $                            | 1.08   |   |
| Exercisable  at March 31, 2004 |   | 80,000                 |   | —              |   | $                            | 1.23   |   |

 

(5)       Weighted Average Sharesand Net Income (Loss) Per Common Share

 

Net income (loss) per common share is calculated asrequired by FASB Statement of Financial Accounting Standards No. 128, “EarningsPer Share” (“Statement No. 128”). Statement No. 128 requires dual presentation of basic and dilutedearnings per share and a reconciliation between the two amounts.  Basic earnings per share excludes dilution,and diluted earnings per share reflects the potential dilution that would occurif securities for the purchase of Common Stock were exercised.  In loss periods, dilutive common equivalentshares are excluded as the effect would be antidilutive.

 

The Company issued 2,079,948 shares of Common Stockupon consummation of the Plan and 500,042 shares of Series B Preferred Stock which is convertible at theoption of the holders into 1,720,130 shares of the Company’s Common Stock.  In loss periods, dilutive common equivalentshares are excluded as the effect would be antidilutive.

 

The reconciliation of basic and diluted weightedaverage common shares and the reconciliation for the basic and diluted earningsper common share for the three months ended March 31, 2003 following consummationof the Plan and the issuance of the new common and convertible preferred stockpursuant to the Plan is as follows:

 
| **For the Three Months Ended  March 31, 2003**  |   | **Net Income  Allocable to  Common  Shareholders** |    | **Shares** |      | **Per Share** |   |
|-------------------------------------------------|--------|----------------------------------------------------|---------|------------|-----------|---------------|--------|
| Basic  earnings per common share                |   | $                                                  | 405,000 |       | 2,079,948 |          | $      | 0.19 |   |
|                                            |   |                                               |    |       |      |          |   |
| Assumed  conversion of Series B Preferred Stock |   | 31,000                                             |    | 1,720,130  |      |          |   |
|                                            |   |                                               |    |       |      |          |   |
| Diluted  earnings per common share              |   | $                                                  | 436,000 |       | 3,800,078 |          | $      | 0.11 |   |

 

12

----

 

The reconciliation of basic and diluted weightedaverage common shares and the reconciliation for the basic and diluted earningsper common share for the nine months ended March 31, 2004 and for the sevenmonths ended March 31, 2003, respectively, following consummation of the Planand the issuance of the new common and convertible preferred stock pursuant tothe Plan is as follows:

 
| **For the Nine Months Ended  March 31, 2004**   |   | **Net Income  Allocable to  Common  Shareholders** |      | **Shares** |      | **Per Share** |   |
|-------------------------------------------------|--------|----------------------------------------------------|-----------|------------|-----------|---------------|--------|
| Basic  earnings per common share                |   | $                                                  | 1,042,000 |       | 2,322,862 |          | $      | 0.45 |   |
|                                            |   |                                               |      |       |      |          |   |
| Assumed  conversion of Series B Preferred Stock |   | 94,000                                             |      | 1,720,130  |      |          |   |
|                                            |   |                                               |      |       |      |          |   |
| Diluted  earnings per common share              |   | $                                                  | 1,136,000 |       | 4,042,992 |          | $      | 0.28 |   |

 
| **For the Seven Months  Ended March 31, 2003**  |   | **Net Income  Allocable to  Common  Shareholders** |    | **Shares** |      | **Per Share** |   |
|-------------------------------------------------|--------|----------------------------------------------------|---------|------------|-----------|---------------|--------|
| Basic  earnings per common share                |   | $                                                  | 523,000 |       | 2,079,948 |          | $      | 0.25 |   |
|                                            |   |                                               |    |       |      |          |   |
| Assumed  conversion of Series B Preferred Stock |   | 74,000                                             |    | 1,720,130  |      |          |   |
|                                            |   |                                               |    |       |      |          |   |
| Diluted  earnings per common share              |   | $                                                  | 597,000 |       | 3,800,078 |          | $      | 0.16 |   |

 

Exercisable stock options for the purchase of 80,000shares of Common Stock for the three and nine months ended March 31, 2004 havebeen excluded from the computation of diluted earnings per share because theyare antidilutive.

 

13

----

 

(6)       Investments inMarketable Securities

 

Marketable equity securities have been categorized asavailable-for-sale and carried at fair value. Unrealized gains and losses for available-for-sale securities areincluded as a component of shareholders’ equity net of tax until realized.  Realized gains and losses on the sale ofsecurities are based on the specific identification method.  The Company continually reviews itsinvestments to determine whether a decline in fair value below the cost basisis other than temporary.  If the declinein the fair value is judged to be other than temporary, the cost basis of thesecurity is written down to fair value and the amount of the write-down isincluded in the consolidated statement of operations.

 

As of March 31, 2004, the Company owned the followingmarketable securities:

 

| **(in thousands)** |   | **Cost** |   | **Unrealized  Gain/(Loss)** |   | **Market  Value** |   |
|--------------------|--------|----------|--------|-----------------------------|--------|-------------------|--------|
|               |   |     |   |                        |   |              |   |
| Stocks             |   | $        | 7      |                        | $      | (6                | )      | $ | 1 |   |
| Bonds              |   | 3,039    |   | 253                         |   | 3,092             |   |
|               |   |     |   |                        |   |              |   |
| Total              |   | $        | 3,046  |                        | $      | 247               |   | $ | 3,293 |   |

 

As of June 30, 2003, the Company owned the followingmarketable securities:

 

| **(in thousands)** |   | **Cost** |   | **Unrealized  Gain** |   | **Market  Value** |   |
|--------------------|--------|----------|--------|----------------------|--------|-------------------|--------|
|               |   |     |   |                 |   |              |   |
| Stocks             |   | $        | 3,415  |                 | $      | 1,686             |   | $ | 5,101 |   |
| Bonds              |   | 2,552    |   | 72                   |   | 2,624             |   |
|               |   |     |   |                 |   |              |   |
| Total              |   | $        | 5,967  |                 | $      | 1,758             |   | $ | 7,725 |   |

 

(7)       Comprehensive Income

 

Comprehensiveincome is as follows:

 
| **(in thousands)**                                                     |   | **For the  Three  Month Period  Ended  March 31, 2004** |   | **For the  Nine Month  Period Ended  March 31, 2004** |   |
|------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                                   |   |                                                    |   |                                                  |   |
| Net  income (loss)                                                     |   | $                                                       | (156   | )                                                     | $      | 1,136 |   |
| Unrealized  gain from available-for-sale securities                    |   | (77                                                     | )      | 231                                                   |   |
| Reclassification  of realized gains included in net income, net of tax |   | (7                                                      | )      | (1,150                                                | )      |
|                                                                   |   |                                                    |   |                                                  |   |
| Comprehensive  income (loss)                                           |   | $                                                       | (240   | )                                                     | $      | 217 |   |

 

14

----

 

(8)       Investment in AIMC

 

InOctober 2003 the Company provided financing to American IronHorse MotorcycleCompany, Inc. (“AIMC”), a Texas corporation, in the amount of $1,000,000.  The note evidencing the financing providedfor interest at the rate of 12% per annum and was payable in monthlyinstallments of interest only until September 30, 2004, when all outstandingprincipal plus accrued interest matured. In connection with the financing the Company also received warrants forthe purchase of 100,000 shares of common stock of AIMC at $15.00 pershare.  Pursuant to the financingarrangement AIMC agreed to retain Xponential Advisors, Inc., a subsidiary ofthe Company, as managers and to pay Xponential Advisors, Inc. a management feeof $5,700 per week for the services of John R. Boudreau and twenty-five (25)shares of common stock of AIMC for each hour worked by Robert W. Schleizer upto a maximum of 24 hours per week under a management agreement.** **On April 1, 2004 John R. Boudreaubecame a full time employee of AIMC and AIMC discontinued paying XponentialAdvisors, Inc. $5,700 per week under the management agreement.  The management agreement will terminate onJuly 31, 2004.  On January 30, 2004, theCompany converted the $1,000,000 note into common stock of AIMC at a rate ofone share for each $6.00 of principal converted, for a total of 166,666shares.  The Company received a $50,000investment fee at the time the financing was provided and an additional $50,000investment fee in connection with the conversion of the $1,000,000 note.  Dwayne A. Moyers, a director and officer ofthe Company, is a director and principal shareholder of AIMC, and Robert W.Schleizer, a director and officer of the Company, is an officer of AIMC.

 

InDecember 2003 the Company participated in the AIMC rights offering bypurchasing 225,000 shares of AIMC common stock for $6.00 per share, totaling$1,350,000.

 

InMarch 2004 the Company entered into a stock purchase and stock option agreementwith a shareholder of AIMC to purchase up to 84,000 shares of AIMC common stockfor $6.00 per share, of which 28,000 shares have been purchased.  The Company has an option to purchase up toan additional 56,000 shares in installments through August 31, 2004 at the sameper share purchase price.

 

AtApril 30, 2004 the Company and its wholly-owned subsidiary Xponential Advisors,Inc. collectively owned 463,248 common shares of AIMC, or approximately a 9.1%ownership interest, exclusive of the warrants to purchase 100,000 shares ofAIMC common stock at $15.00 per share received in connection with thefinancing.

 

As ofApril 30, 2004 directors and officers of the Company, directly and throughaffiliates, own 18.92% of the common stock of AIMC, calculated on a fully dilutedbasis.

 

(9)           Store Closing

 

InMarch 2004, the Company decided to close its South Carolina location due tounfavorable changes in the state’s pawn regulations.  The total revenues for the store for the nine months and threemonths ended March 31, 2004 were $476,000 and $130,000, respectively.  Net operating income for the store for thenine months and three months ended March 31, 2004 did not have a materialeffect on operating income.  Storeclosing expenses are not anticipated to be material.

 

(10)     Restatement of Quarterly Financial Statements

 

Thefinancial statements for the quarters ended September 30, 2003 and December 31,2003 have been restated from amounts previously reported to reflect thecorrection of an understatement of income tax expense related to theutilization of the Company’s net operating loss carryforwards not previouslyrecorded on adoption of fresh-start accounting, as more fully described in Note2.  The restatements increased incometax expense and reduced net income by $540 and $130 for the three months endedSeptember 30, 2003 and December 31, 2003, respectively with a correspondingcredit to paid in capital.  There is noeffect on cash flows of the Company for this restatement.

 

15

----

 

**ITEM 2.**          **MANAGEMENT****’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

 

### *Statements appearing in the following discussion thatare not historical facts are forward-looking statements (“forward-lookingstatements”) 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 thosesections.  Such forward-lookingstatements are necessarily estimates reflecting the best judgment of theCompany’s management based upon current information and involve known andunknown risks, uncertainties and other factors which may cause the actualresults, performance or achievements of the Company, or industry results, to bematerially different from any future results, performance or achievementsexpressed 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 timeto time in filings made by the Company with the Securities and ExchangeCommission.  These risks, uncertaintiesand other factors should not be construed as exhaustive and the Company doesnot undertake, and specifically disclaims any obligation, to update any forward-lookingstatements to reflect occurrences or unanticipated events or circumstancesafter the date of such statements.*

 

*In addition, the followingdiscussion and analysis should be read in conjunction with the Company’sfinancial statements and notes thereto and other financial data included in theCompany’s Form 10-KSB for the fiscal year ended June 30, 2003.*

 

GENERAL

 

Xponential, Inc. (the “Company”) is a specialtyfinance and retail enterprise principally engaged in establishing and operatingstores which advance money secured by the pledge of tangible personal propertyand sell pre-owned merchandise to value-conscious consumers.  The Company generates income throughcollection of a monthly service charge from advancing money to individualsbased primarily upon the estimated resale value of pledged personal propertysuch as jewelry, consumer electronics, tools, musical instruments, automobilesand other miscellaneous items and through profit realized on the retail sale ofthe unredeemed or other purchased pre-owned merchandise.

 

The Company also provides management advisory servicesin conjunction with financing and investments provided to other companies.  In October 2003 the Company providedfinancing to American IronHorse Motorcycle Company, Inc. (“AIMC”), a Texascorporation, in the amount of $1,000,000. The note evidencing the financingprovided for interest at the rate of 12% per annum and was payable in monthlyinstallments of interest only until September 30, 2004, when all outstandingprincipal plus accrued interest matured. In connection with the financing the Company also received warrants forthe purchase of 100,000 shares of common stock of AIMC at $15.00 pershare.  Pursuant to the financingarrangement AIMC agreed to retain Xponential Advisors, Inc., a subsidiary ofthe Company, as managers and to pay Xponential Advisors, Inc. a management feeof $5,700 per week for the services of John R. Boudreau and twenty-five (25)shares of common stock of AIMC for each hour worked by Robert W. Schleizer upto a maximum of 24 hours per week.  OnApril 1, 2004 Mr. Boudreau became a full time employee of AIMC and AIMCdiscontinued paying Xponential Advisors, Inc. $5,700 per week under themanagement agreement.  The managementagreement will terminate on July 31, 2004. On January 30, 2004, the Companyconverted the $1,000,000 note into common stock of AIMC at a rate of one sharefor each $6.00 of principal converted, for a total of 166,666 shares. TheCompany received a $50,000 investment fee at the time the financing wasprovided and an additional $50,000 investment fee in connection with theconversion of the $1,000,000 note.

 

As of April 30, 2004 directors and officers of theCompany, directly and through affiliates, own 18.92% of the common stock of AIMC,calculated on a fully diluted basis.

 

The Company’s total revenues are derived primarilyfrom service charges on loans, proceeds from the sales of merchandise inventoryand management and investment fees. The Company’s pawn loans are generally madeon the pledge of tangible personal property for one month, with an automaticsixty-day extension period.  All pawnloans are collateralized by tangible personal property placed in the possessionof the Company, except for automobile (“car”) title loans.  During the term of an car title loan, theborrower is allowed to maintain possession of the collateral.  Pawn service charges are recognized whenloans are repaid or renewed.  If a loanis not repaid, the principal amount advanced on the loan, exclusive of anyuncollected pawn service charges, becomes the carrying value of the forfeitedcollateral (inventory), which is recovered through subsequent sales.  The Company recognizes losses on unpaid cartitle loans where collateral is not recovered as a cost of sales.

 

16

----

 

The Company filed for protection under the Bankruptcy Code on July 9,2001.  The Company operated as debtor inpossession throughout the bankruptcy proceedings. The Plan was filed onFebruary 15, 2002 and was amended on April 3, 2002.  A confirmation hearing for the Plan was held on May 20, 2002 andthe Plan was confirmed by the Bankruptcy Court as of that date with aneffective date of May 31, 2002.

 

Pursuant to the Plan, the Company issued 2,079,948 shares of CommonStock to its unsecured creditors in exchange for release fromindebtedness.  The Company alsocompleted a merger with C/M Holdings, Inc., a Texas corporation (“CMHI”),whereby the equity holders of CMHI received two new classes of Preferred Stock,1,071,636 shares of Series A Preferred Stock and 500,042 shares of Series BPreferred Stock.  The 500,042 shares ofSeries B Preferred Stock are convertible into 1,720,130 shares of Common Stock,or approximately 45% of the total Common Stock.  The Company also negotiated a post-confirmation credit facilitywith a bank in the amount of $4,500,000. Terms of the Plan are set forth in the Company’s Form 10-KSB for theyear ended June 30, 2003.

 

Selected elements of theCompany’s unaudited statements of operations are shown below for the ninemonths ended March 31, 2004 and March 31, 2003 as a percentage of totalrevenues.  The following table, as wellas the discussion following, should be read in conjunction with the Company’sfinancial statements and notes thereto and other financial data included in theCompany’s Form 10-KSB for the fiscal year ended June 30, 2003.

 
|                                                                      |   | **For the  Nine Months  Ended  March 31, 2004** |   | **For the  Nine Months  Ended  March 31, 2003** |   |
|---------------------------------------------------------------------------|--------|-------------------------------------------------|--------|-------------------------------------------------|--------|
| Merchandise  sales                                                        |   | 65.0                                            | %      | 68.9                                            | %      |
| Pawn  service charges and related fee income                              |   | 32.1                                            |   | 31.1                                            |   |
| Management  advisory and related fee income                               |   | 2.9                                             |   | 0.0                                             |   |
| Total  revenues                                                           |   | 100.0                                           |   | 100.0                                           |   |
|                                                                      |   |                                            |   |                                            |   |
| Cost  of sales                                                            |   | 55.4                                            |   | 48.8                                            |   |
| Store  operating expenses                                                 |   | 29.0                                            |   | 30.9                                            |   |
| Corporate  administrative expenses (excluding gain on debt discharge) (1) |   | 13.8                                            |   | 16.3                                            |   |
| Depreciation  and amortization                                            |   | 2.2                                             |   | 1.8                                             |   |
| Operating  income                                                         |   | (0.4                                            | )      | 2.2                                             |   |
| Interest  and dividend income                                             |   | 2.0                                             |   | 0.7                                             |   |
| Interest  expense (2)                                                     |   | (3.2                                            | )      | (2.0                                            | )      |
| Gain  of sale of investments                                              |   | 12.5                                            |   | 4.8                                             |   |
| Income  tax provision                                                     |   | (3.8                                            | )      | —                                          |   |
| Net  income                                                               |   | 7.1                                             | %      | 5.7                                             | %      |

 

----

(1)   Extraordinarygain on debt discharge of $11,810,000 excluded from calculation.

(2)   Interestexpense for the nine months ended March 31, 2004 includes $201,000 of dividendson redeemable preferred stock in accordance with SFAS 150.  Dividends paid on redeemable preferred stockprior to the June 15, 2003 effective date of SFAS 150, which includes the$157,000 for the nine months ended March 31, 2003, were not reclassified asinterest expense.

 

17

----

 

Selected elements of theCompany’s unaudited statements of operations are shown below for the threemonths ended March 31, 2004 and March 31, 2003 as a percentage of totalrevenues.  The following table, as wellas the discussion following, should be read in conjunction with the Company’sfinancial statements and notes thereto and other financial data included in theCompany’s Form 10-KSB for the fiscal year ended June 30, 2003.

 
|                                         |   | **For the  Three Months  Ended  March 31 2004** |   | **For the  Three Months  Ended  March 31, 2003** |   |
|----------------------------------------------|--------|-------------------------------------------------|--------|--------------------------------------------------|--------|
| Merchandise  sales                           |   | 65.0                                            | %      | 69.8                                             | %      |
| Pawn  service charges and related fee income |   | 32.1                                            |   | 30.2                                             |   |
| Management  advisory and related fee income  |   | 2.9                                             |   | —                                           |   |
| Total  revenues                              |   | 100.0                                           |   | 100.0                                            |   |
|                                         |   |                                            |   |                                             |   |
| Cost  of sales                               |   | 56.2                                            |   | 49.8                                             |   |
| Store  operating expenses                    |   | 30.1                                            |   | 30.2                                             |   |
| Corporate  administrative expenses           |   | 14.8                                            |   | 18.9                                             |   |
| Depreciation  and amortization               |   | 2.4                                             |   | 1.6                                              |   |
| Operating  (loss)                            |   | (3.5                                            | )      | (0.5                                             | )      |
| Interest  and dividend income                |   | 1.2                                             |   | 1.2                                              |   |
| Interest  expense (1)                        |   | (3.8                                            | )      | (1.5                                             | )      |
| Gain  on disposition of assets               |   | 0.2                                             |   | —                                           |   |
| Gain  on sale of investments                 |   | 1.4                                             |   | 11.8                                             |   |
| Income  tax benefit                          |   | 1.5                                             |   | —                                           |   |
| Net  income (loss)                           |   | (3.0                                            | )%     | 11.0                                             | %      |

 

----

(1)  Interest expense for the three months endedMarch 31, 2004 includes $68,000 of dividends on redeemable preferred stock inaccordance with SFAS 150.  Dividendspaid on redeemable preferred stock prior to the June 15, 2003 effective date ofSFAS 150 which includes the $68,000 for the three months ended March 31, 2003were not reclassified as interest expense.

** **

**RESULTSOF OPERATIONS**

 

*Nine Months Ended March 31, 2004 Compared to NineMonths Ended March  31, 2003*

 

Total revenues increased22.5% to $16,118,000 during the nine months ended March 31, 2004 (the “NineMonth 2004 Period”) as compared to $13,162,000 during the nine months endedMarch 31, 2003 (the “Nine Month 2003 Period”). The overall increase was attributable primarily to increases in pawnservice charges, increased merchandise sales and increased jewelry scrapsales.  The 25 stores that remained openfor the full 12 months or more as of March 31, 2004 (the “Comparable Stores”)experienced a net increase in revenues of $2,651,000 or 20.2%.

 

Merchandise salesincreased 18.1% to $10,715,000 during the Nine Month 2004 Period from $9,075,000during the Nine Month 2003 Period primarily due to more aggressive discountingon merchandise sales and increased jewelry scrap sales.  Sales in Comparable Stores for the NineMonth 2004 Period increased $1,424,000 or 15.7%.

 

Pawn servicecharges increased $1,015,000 or 24.8% to $5,102,000 during the Nine Month 2004Period from $4,087,000 during the Nine Month 2003 Period primarily due toincreased pawn service charges for the Nine Month 2004 Period.  Pawn service charges from Comparable Storesincreased $926,000 or 22.7% for the Nine Month 2004 Period as compared to theNine Month 2003 Period.

 

In March 2004, theCompany decided to close its store in South Carolina due to an unfavorablechange in regulations effective January 2004 affecting car title loans.  The impact on the Company’s ability torecover defaulted collateral under the new regulations made the viability ofoperating one store in that market unfeasible. Store closing costs and impact on the Company’s operations areinsignificant.

 

The Company earned management advisory and investmentfees totaling $301,000 during the Nine Month 2004 Period related to financingprovided to AIMC.

 

Cost of sales increased 39.3% to $8,936,000 during theNine Month 2004 Period from $6,417,000 during the Nine Month 2003 Periodprimarily due to increased costs associated with the recovery and sale of carson defaulted car title loans, write offs of defaulted car title loans,increased merchandise sales and higher related costs resulting fromaggressively discounting sales prices. Cost of sales as a percentage of merchandise sales increased to 83.4%

 

18

----

 

from 70.7% for the NineMonth 2004 Period as compared to the Nine Month 2003 Period. The cost of salesrelated to recovery and sale of recovered cars and for car title loan writeoffs totaled $1,541,000 during the Nine Months 2004 Period as compared to$268,000 during the Nine Month 2003 Period. Cost of sales for merchandise other than cars as a percentage of merchandisesales for the Nine Month 2004 Period were 73.0% as compared to 68.8% during theNine Month 2003 Period.

 

Store operating expenses increased to $4,680,000 forthe Nine Month 2004 Period from $4,064,000 during the Nine Month 2003 Periodprimarily due to increased personnel expenses for additional car title andcompliance personnel.  On a ComparableStore basis, store operating expenses were 28.2% of total revenues during theNine Month 2004 Period compared to 29.6% of total revenues during the Nine Month2003 Period primarily due to lower personnel and occupancy costs as apercentage of total revenue.

 

Corporateadministrative expenses increased 2.9% to $2,217,000 during the Nine Month 2004Period from $2,152,000 during the Nine Month 2003 Period primarily due to costsrelated to additional personnel. Corporate administrative expenses decreased to 13.8% of total revenuesduring the Nine Month 2004 Period as compared to 16.3% during the Nine Month2003 Period.

 

Interest expenseincreased $264,000 from $259,000 during the Nine Month 2004 Period as comparedto the Nine Month 2003 Period primarily due to the reclassification ofdividends as interest expense on redeemable preferred stock issued inconjunction with the Plan in accordance with SFAS 150.

 

The Company alsorecognized a gain of $2,018,000 on the sale of securities during the Nine Month2004 Period primarily due to the sale of its holdings in Sanders Morris HarrisGroup, Inc. for $4,998,000 in July 2003 which resulted in a $1,630,000 gain.

 

*Three Months Ended March 31, 2004 Compared to ThreeMonths Ended March 31, 2003*

 

Total revenues increased14.4% to $5,250,000 during the three months ended March 31, 2004 (the “ThreeMonth 2004 Period”) as compared to $4,591,000 during the three months endedMarch 31, 2003 (the “Three Month 2003 Period”).  The overall increase was attributable primarily to increases inpawn service charges, increased merchandise sales and increased jewelry scrapsales.  Stores that remained open forthe full 12 months or more as of March 31, 2004 (the “Comparable Stores”)experienced a net increase in revenues of $556,000 or 12.1%.

 

Merchandise salesincreased 6.6% to $3,414,000 during the Three Month 2004 Period from $3,203,000during the Three Month 2003 Period primarily due to more aggressive discountingon merchandise sales and increased jewelry scrap sales.  Sales in Comparable Stores for the ThreeMonth 2004 Period increased $148,000 or 4.6%.

 

Pawn servicecharges increased $299,000 or 21.5% to $1,687,000 during the Three Month 2004Period from $1,388,000 during the Three Month 2003 Period primarily due toincreased pawn service charges for the Three Month 2004 Period.  Pawn service charges from Comparable Storesincreased $250,000 or 18.0% for the Three Month 2004 Period as compared to theThree Month 2003 Period.

 

The Company earned management and investments feestotaling $149,000 during the Three Month 2004 Period related to financingprovided to AIMC.

 

Cost of sales increased 29.1% to $2,953,000 during theThree Month 2004 Period from $2,288,000 during the Three Month 2003 Periodprimarily due to increased costs associated with the recovery and sale of carsrecovered on defaulted car title loans, write offs of defaulted car titleloans, increased merchandise sales and higher related costs resulting fromaggressively discounting off sales prices. Cost of sales as a percentage of merchandise sales increased to 86.5%from 71.4% for the Three Month 2004 Period as compared to the Three Month 2003Period. The cost of sales related to disposing of recovered cars and for cartitle loan write offs totaled $738,000 during the Three Month 2004 Periodcompared to $97,000 during the Three Month 2003 Period.  Excluding the effect cost of sales relatedto defaulted title pawn loans, the Company’s cost of sales for the Three Month2004 Period was 71.4% as compared to 69.4% during the Three Month 2003 Period.

 

Store operating expensesincreased to $1,579,000 for the Three Month 2004 Period from $1,386,000 duringthe Three Month 2003 Period primarily due to increased personnel expenses foradditional car title and compliance

 

19

----

 

personnel.  On a Comparable Store basis, store operatingexpenses were 28.6% of total revenues during the Three Month 2004 Periodcompared to 30.0% of total revenues during the Three Month 2003 Periodprimarily due to lower personnel and occupancy costs as a percentage of totalrevenue.

 

Corporateadministrative expenses decreased 10.6% to $776,000 during the Three Month 2004Period from $868,000 during the Three Month 2003 Period primarily due toreduced costs related to incentive compensation.  Corporate administrative expenses decreased to 14.8% of totalrevenues during the Three Month 2004 Period as compared to 18.9% during theThree Month 2003 Period.  Corporateadministrative expenses did not increase at the same rate as revenues increasedduring the comparable period.

 

Interest expenseincreased $129,000 from $69,000 during the Three Month 2004 Period as comparedto the Three Month 2003 Period primarily due to the reclassification ofdividends as interest expense on redeemable preferred stock issued inconjunction with the Plan in accordance with SFAS 150.

 

LIQUIDITY AND CAPITALRESOURCES

 

The Company’s operations and growth have been financedwith funds provided by the Merger in conjunction with the Plan, bank borrowingsand funds generated from operations.

 

Under the terms of the Plan, the Company cancelled allequity interests as of the Confirmation Date, which included all common andpreferred shareholder interests, and interests of any holders of options orwarrants, and issued 2,079,948 shares of Common Stock to its unsecuredcreditors in exchange for cancellation of indebtedness upon completion of theMerger on August 30, 2002.  The equityholders of CMHI received 1,071,636 shares of Series A Preferred Stock and500,042 shares of Series B Preferred Stock. The Series B Preferred Stock is convertible at a ratio of approximately3.44 shares of Common Stock for each share of Series B Preferred Stock to atotal of 1,720,130 shares of Common Stock. As a result of the Merger, the Company received $2,565,000 in cash and$5,084,000 in marketable securities.

 

The Company and PawnMartcurrently have a credit facility with Comerica Bank (the “Bank”) in the amountof $4,000,000 that matures on June 30, 2004 and bears interest at 9% per annum(the “Credit Facility”), subject to monthly mandatory principal reductions eachin the amount of $100,000 commencing February 1, 2004 through and includingJune 1, 2004.  Amounts available underthe Credit Facility are limited to certain percentages of pawn loans,inventories, and pawn service charges receivable.  The Credit Facility is collateralized by substantially all of theunencumbered assets of the Company and PawnMart.  The Company also pledged additional collateral in the form ofmarketable and other securities to the Bank in the amount of $2,500,000. AtMarch 31, 2004, $2,955,000 was outstanding under the Credit Facility and anadditional $845,000 was available pursuant to the available borrowingbase.  Under the terms of the CreditFacility, the Company and PawnMart are required to maintain certain financialratios and to comply with certain other covenants.  The Company and PawnMart paid fees associated with the CreditFacility totaling $80,000 during the nine months ended March 31, 2004.

 

In April 2004 PawnMartentered into a commitment agreement for a $4,500,000 senior credit facilitywith First Capital Corporation (the “Senior Credit Facility”) to replace thecurrent Credit Facility with Comerica Bank on more favorable terms. The SeniorCredit Facility will mature three years from closing and will bear interest ata rate of the prevailing prime rate plus 2%. The Company paid a $15,000 fee in connection with the commitment.  Although the Company anticipates that thetransaction with First Capital Corporation will be completed, there can be noassurance that the Senior Credit Facility will be funded.

 

As of March 31, 2004 the Company’s sources ofliquidity were $800,000 in cash and cash equivalents, $3,293,000 in marketablesecurities of which $2,500,000 are pledged as collateral for the CreditFacility, $67,000 in trade accounts receivable, $483,000 in pawn servicecharges receivable, $4,386,000 in pawn loan receivables and $2,740,000 ininventories.

 

The Company’s profitability and liquidity is affectedby the amount of loans outstanding, which is controlled in part by theCompany’s lending decisions.  TheCompany is able to influence the frequency of forfeiture of collateral byincreasing or decreasing the amount loaned in relation to the sales value ofthe pledged property.  Tighter creditdecisions generally result in smaller loans in relation to the estimated salesvalue of the pledged property and can thereby decrease the Company’s aggregateloan balance and, consequently, decrease pawn service charges.

 

20

----

 

Additionally, lower loansin relation to the pledged property’s estimated sales value tend to slightlyincrease loan redemptions and improve the Company’s liquidity.  Conversely, providing higher loans inrelation to the estimated sales value of the pledged property can result in anincrease in the Company’s pawn service charge income.  Higher average loan balances can also result in a slight increasein loan forfeitures, which increases the quantity of goods on hand and, unlessthe Company increases inventory turnover, reduces the Company’s liquidity.

 

The Company believes it has sufficient working capitalto fund its current operations for the fiscal year ending June 30, 2004.  The Company’s ability to expand through theacquisition of new stores and other businesses will be dependent on its abilityto replace its existing Credit Facility. Management believes the new Senior Credit Facility will close in May2004. In the event a new credit facility is unavailable, the Company hassufficient working capital on hand as of March 31, 2004 to pay off the CreditFacility.

 

The Series A Preferred Stock must be redeemed for cashat $5.00 per share by the Company beginning April 30, 2005 in amounts of atleast $500,000 per year.  Each April 30thereafter through 2009 an additional 100,000 shares must be redeemed for cashat $5.00 per share.  On April 30, 2010any unredeemed shares must be redeemed for cash at $5.00 per share plus anyaccrued and unpaid dividends.

 

# **ITEM 3.  CONTROLS** AND PROCEDURES

 

Under the supervision of, and with the participationof management, including the Chief Executive Officer and Chief FinancialOfficer, the Company has evaluated its disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of1934, as amended) as of the end of the period covered by this report asrequired by Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of1934, as amended.  Based on thisevaluation, the Company has concluded that its disclosure controls andprocedures were operating effectively as designed.  As required, the Company will continue to evaluate theeffectiveness of these controls and procedures on a quarterly basis.

 

There were no changes in the Company’s internalcontrols over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)of the Securities Exchange Act of 1934, as amended) during its most recentlycompleted fiscal quarter that have materially affected, or are reasonablylikely to materially affect, the Company’s internal controls over financialreporting.

 

21

----

 

**PART II****. OTHER INFORMATION**

 

**ITEM 1.**          **LEGAL****PROCEEDINGS** - None

 

**ITEM 2.**          **CHANGES****IN SECURITIES -**None

 

**ITEM3.**          **DEFAULTS****UPONSENIOR SECURITIES -**None

 

**ITEM4.**          **SUBMISSION****OF MATTERS TO A VOTE OF SECURITY HOLDERS** - None

 

**ITEM 5.**          **OTHER****INFORMATION**

 

On January 26, 2004 theCompany filed a Registration Statement on Form SB-2 offering $20,000,000 inoriginal principal amount of 8% Limited Recourse Secured ConvertibleSubordinated Notes due 2014.

 

The Company hasundertaken steps to achieve a listing on the OTC Bulletin Board.  Although the Company is confident that itwill achieve such listing, no assurance can be given that the Company will besuccessful in such efforts.

 

**ITEM 6.**          **EXHIBITS****AND REPORTSON FORM 8-K**

 

**(a)**           **Exhibits**

 
| **Number** |   | **Description**                                                                                                                                       |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                  |
| 31.1       |   | 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 * |
|       |   |                                                                                                                                                  |
| 32.2       |   | 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 * |

 

----

*        Filedherewith.

 

**(b)**           **Reports on Form 8-K**

 

On February 19, 2004 theCompany filed a Form 8-K reporting the resignation of John R. Boudreau as adirector of the Company effective February 12, 2004.

 

On March 12, 2004 theCompany filed a Form 8-K reporting the resignation of John R. Boudreau asPresident and Chief Executive Officer and the appointment of Dwayne A. Moyersas Chief Executive Officer of the Company effective March 5, 2004.

 

22

----

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|         | XPONENTIAL, INC. (Registrant) |
|--------------|-------------------------------|
|         |                          |   |
|         |                          |   |
| May 17, 2004 | By:                           |  /s/ Dwayne  A. Moyers |
|         |                          | Dwayne A. Moyers, Chief |
|         |                          | Executive Officer |
|         |                          |   |
| May 17, 2004 | By:                           |  /s/ Robert  W. Schleizer |
|         |                          | Robert W. Schleizer, Executive Vice |
|         |                          | President and Chief Financial Officer |

 

23

----

 

**EXHIBIT INDEX**

 
| **Number** |   | **Description**                                                                                                                                     |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                |
| 31.1       |   | 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 |
|       |   |                                                                                                                                                |
| 32.2       |   | 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 |

 

24

----