**UNITEDSTATES****SECURITIESAND 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  December 31, 2003.**                                 |

 
| **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 as specified inits 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 all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days Yes ý No o

 

Check whether the registrant filed all documents and reports requiredto be filed by Section 12, 13 or 15(d) of the Exchange Act afterdistribution of securities under a plan confirmed by a court. Yes ý No o

 

The Company has 2,322,922 shares of Common Stock, par value $0.01 pershare, outstanding as of December 31, 2003.

 

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

 

 

----

 

**XPONENTIAL, INC.**

 

**INDEX**

 
| **PART I  -   FINANCIAL INFORMATION** |                                                                                                                                                                                                             |
|-------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                            |                                                                                                                                                                                                             |   |
| **Item 1**                                      | Financial Statements                                                                                                                                                                                             |   |
|                                            |                                                                                                                                                                                                             |   |
|                                            | Consolidated Balance Sheets  as of December 31, 2003 and June 30, 2003                                                                                                                                 |   |
|                                            |                                                                                                                                                                                                             |   |
|                                            | Consolidated  Statements of Operations for the Two Months Ended August 31, 2002, the  Four Months Ended December 31, 2002, and the Six Months Ended  December 31, 2002 and December 31, 2003 |   |
|                                            |                                                                                                                                                                                                             |   |
|                                            | Consolidated Statements of  Operations for the Three Months Ended December 31, 2002, and the Three  Months Ended December 31, 2003                                                                     |   |
|                                            |                                                                                                                                                                                                             |   |
|                                            | Consolidated  Statements of Cash Flows for the Two Months Ended August 31, 2002, the  Four Months Ended December 31, 2002, and the Six Months Ended  December 31, 2002 and December 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)

 
|                                                                                                                                                                                                                            |   | **December 31,  2003** |   | **June 30,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|-------------------------|--------|
|                                                                                                                                                                                                                            |   | **(Unaudited)**             |   |                    |   |
| Assets                                                                                                                                                                                                                          |   |                        |   |                    |   |
| Current  assets:                                                                                                                                                                                                                |   |                        |   |                    |   |
| Cash  and cash equivalents                                                                                                                                                                                                      |   | $                           | 1,015  |                    | $      | 220 |   |
| Accounts  receivable                                                                                                                                                                                                            |   | 338                         |   | 176                     |   |
| Pawn  service charges receivable                                                                                                                                                                                                |   | 608                         |   | 503                     |   |
| Pawn  loans                                                                                                                                                                                                                     |   | 5,535                       |   | 4,571                   |   |
| Inventories,  net                                                                                                                                                                                                               |   | 2,705                       |   | 2,540                   |   |
| Investments  – ($2,500 restricted; see note 3)                                                                                                                                                                             |   | 3,037                       |   | 7,725                   |   |
| Prepaid  expenses and other current assets                                                                                                                                                                                      |   | 371                         |   | 245                     |   |
| Total  current assets                                                                                                                                                                                                           |   | 13,609                      |   | 15,980                  |   |
|                                                                                                                                                                                                                            |   |                        |   |                    |   |
| Property  and equipment, net                                                                                                                                                                                                    |   | 977                         |   | 889                     |   |
| Intangible  assets, net of amortization of $20 and $6 at December 31, 2003 and  June 30, 2003, respectively                                                                                                           |   | 95                          |   | 41                      |   |
| Other  investments (note 8)                                                                                                                                                                                                     |   | 2,613                       |   | —                  |   |
| Other  assets                                                                                                                                                                                                                   |   | 95                          |   | 107                     |   |
| Total  assets                                                                                                                                                                                                                   |   | $                           | 17,389 |                    | $      | 17,017 |   |
|                                                                                                                                                                                                                            |   |                        |   |                    |   |
| Liabilities  and Stockholders’ Equity                                                                                                                                                                                      |   |                        |   |                    |   |
| Current  liabilities:                                                                                                                                                                                                           |   |                        |   |                    |   |
| Accounts  payable and accrued liabilities                                                                                                                                                                                       |   | $                           | 873    |                    | $      | 1,009 |   |
| Current  installments of notes payable                                                                                                                                                                                          |   | 3,921                       |   | 4,074                   |   |
| Total  current liabilities                                                                                                                                                                                                      |   | 4,794                       |   | 5,083                   |   |
| Long  term liabilities                                                                                                                                                                                                          |   |                        |   |                    |   |
| Notes  payable –  net of current portion                                                                                                                                                                              |   | 327                         |   | 396                     |   |
| Redeemable  Preferred Stock:                                                                                                                                                                                                    |   |                        |   |                    |   |
| Preferred  stock – Series A; par value $0.01; 5% cumulative dividend, liquidation preference  $5.00 per share; 1,071,636 shares issued and outstanding at December 31,  2003 and June 30, 2003                   |   | 5,358                       |   | 5,358                   |   |
| Total  long term liabilities                                                                                                                                                                                                    |   | 5,685                       |   | 5,754                   |   |
|                                                                                                                                                                                                                            |   |                        |   |                    |   |
| Total  liabilities                                                                                                                                                                                                              |   | 10,479                      |   | 10,837                  |   |
|                                                                                                                                                                                                                            |   |                        |   |                    |   |
| Stockholders’  equity:                                                                                                                                                                                                     |   |                        |   |                    |   |
| Preferred  stock – $0.01 par value, 2,500,000 authorized:                                                                                                                                                                  |   |                        |   |                    |   |
| Preferred  stock – Series B; 5% cumulative dividend, liquidation preference $5.00 per  share ($2,500,210); 500,042 issued at December 31, 2003 and  June 30, 2003                                                |   | 5                           |   | 5                       |   |
| Common  stock  $0.01 par value; authorized  10,000,000 shares, 2,347,922 and 2,322,922 issued and outstanding,  respectively as of December 31, 2003; and 2,079,948 issued and  outstanding as of June 30, 2003. |   | 23                          |   | 21                      |   |
| Additional  paid-in capital                                                                                                                                                                                                     |   | 4,488                       |   | 4,206                   |   |
| Retained  earnings                                                                                                                                                                                                              |   | 2,099                       |   | 190                     |   |
| Accumulated  other comprehensive income                                                                                                                                                                                         |   | 335                         |   | 1,758                   |   |
| Less  treasury stock, at cost; 25,000 common shares at December 31, 2003                                                                                                                                                   |   | (40                         | )      | —                  |   |
| Total  stockholders’ equity                                                                                                                                                                                                |   | 6,910                       |   | 6,180                   |   |
|                                                                                                                                                                                                                            |   |                        |   |                    |   |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                |   | $                           | 17,389 |                    | $      | 17,017 |   |

 

See accompanyingnotes to consolidated financial statements.

 

3

----

 

**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Consolidated Statementsof Operations(Unaudited)

(In thousands, except pershare data)

 
|                                                                                                                          |   | **Reorganized  Company**                       |   | **Predecessor**                             |   | **Reorganized  Company**                         |   |                                           |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|---------|
|                                                                                                                          |   | **Six Months  Ended  December 31,  2003** |   | **Two Months  Ended August 31,  2002** |   | **Four  Months  Ended  December 31,  2002** |   | **Six Months  Ended  December 31,  2002** |    |
|                                                                                                                          |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Revenues:                                                                                                                     |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Merchandise  sales                                                                                                            |   | $                                              | 7,301  |                                        | $      | 1,578                                            |   | $                                              | 4,204   |   | $ | 5,782 |   |
| Pawn  service charges and related fee income                                                                                  |   | 3,415                                          |   | 891                                         |   | 1,896                                            |   | 2,787                                          |    |
| Management  advisory and related fee income                                                                                   |   | 152                                            |   | —                                      |   | —                                           |   | —                                         |    |
| Total  revenues                                                                                                               |   | 10,868                                         |   | 2,469                                       |   | 6,100                                            |   | 8,569                                          |    |
|                                                                                                                          |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Expenses:                                                                                                                     |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Cost  of sales                                                                                                                |   | 5,983                                          |   | 1,075                                       |   | 3,053                                            |   | 4,128                                          |    |
| Store  operating expenses                                                                                                     |   | 3,101                                          |   | 896                                         |   | 1,786                                            |   | 2,682                                          |    |
| Corporate  administrative expenses                                                                                            |   | 1,441                                          |   | 336                                         |   | 947                                              |   | 1,283                                          |    |
| Depreciation  and amortization                                                                                                |   | 229                                            |   | 63                                          |   | 99                                               |   | 162                                            |    |
| Total  expenses                                                                                                               |   | 10,754                                         |   | 2,370                                       |   | 5,885                                            |   | 8,255                                          |    |
|                                                                                                                          |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Operating  income                                                                                                             |   | 114                                            |   | 99                                          |   | 215                                              |   | 314                                            |    |
|                                                                                                                          |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Interest  and dividend income                                                                                                 |   | 255                                            |   | —                                      |   | 41                                               |   | 41                                             |    |
| Interest  expense including redeemable preferred stock dividends of $134,000 for the  six months ended December 31, 2003 |   | (325                                           | )      | (83                                         | )      | (107                                             | )      | (190                                           | )       |
| Gain  (loss) on disposition of assets                                                                                         |   | (4                                             | )      | —                                      |   | 5                                                |   | 5                                              |    |
| Reorganization  expenses                                                                                                      |   | —                                         |   | (241                                        | )      | —                                           |   | (241                                           | )       |
| Gain  on sale of investments                                                                                                  |   | 1,946                                          |   | —                                      |   | 88                                               |   | 88                                             |    |
| Net  income (loss) before extraordinary items and taxes                                                                       |   | 1,986                                          |   | (225                                        | )      | 242                                              |   | 17                                             |    |
| Extraordinary  items:                                                                                                         |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Gain  on debt discharge                                                                                                       |   | —                                         |   | 11,810                                      |   | —                                           |   | 11,810                                         |    |
| Net  income before taxes                                                                                                      |   | 1,986                                          |   | 11,585                                      |   | 242                                              |   | 11,827                                         |    |
| Income  tax provision                                                                                                         |   | (18                                            | )      | —                                      |   | —                                           |   | —                                         |    |
| Net  income                                                                                                                   |   | 1,968                                          |   | 11,585                                      |   | 242                                              |   | 11,827                                         |    |
| Preferred  stock dividend requirement                                                                                         |   | (63                                            | )      | —                                      |   | (131                                             | )      | (131                                           | )       |
| Net  income allocable to common stockholders                                                                                  |   | $                                              | 1,905  |                                        | $      | 11,585                                           |   | $                                              | 111     |   | $ | 11,696 |   |
|                                                                                                                          |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Income  (loss) per common share (note 5):                                                                                     |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Basic                                                                                                                         |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Continuing  Operations                                                                                                        |   | $                                              | 0.90   |                                        | $      | (0.09                                            | )      | $                                              | 0.05    |   | $ |   | *  |
| Extraordinary  Items                                                                                                          |   | —                                         |   | 4.72                                        |   | —                                           |   |                                           | *  |
|                                                                                                                          |   | $                                              | 0.90   |                                        | $      | 4.63                                             |   | $                                              | 0.05    |   | $ |   | *  |
| Diluted                                                                                                                       |   |                                           |   |                                        |   |                                             |   |                                           |    |
| Continuing  Operations                                                                                                        |   | $                                              | 0.51   |                                        | $      | (0.09                                            | )      | $                                              | 0.04    |   | $ |   | *  |
| Extraordinary  Items                                                                                                          |   | —                                         |   | 4.72                                        |   | —                                           |   |                                           | *  |
|                                                                                                                          |   | $                                              | 0.51   |                                        | $      | 4.63                                             |   | $                                              | 0.04    |   | $ |   | *  |

 

----

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

See accompanyingnotes to consolidated financial statements.

 

4

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**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Consolidated Statementsof Operations(Unaudited)

(In thousands, except pershare data)

 
|                                                                                                                           |   | **Three  Months  Ended  December 31,  2003** |   | **Three  Months  Ended  December 31,  2002** |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                                                                                           |   |                                              |   |                                              |   |
| Revenues:                                                                                                                      |   |                                              |   |                                              |   |
| Merchandise  sales                                                                                                             |   | $                                                 | 3,980  |                                              | $      | 3,274 |   |
| Pawn  service charges and related fee income                                                                                   |   | 1,761                                             |   | 1,462                                             |   |
| Management  advisory and related fee income                                                                                    |   | 143                                               |   | —                                            |   |
| Total  revenues                                                                                                                |   | 5,884                                             |   | 4,736                                             |   |
|                                                                                                                           |   |                                              |   |                                              |   |
| Expenses:                                                                                                                      |   |                                              |   |                                              |   |
| Cost  of sales                                                                                                                 |   | 3,301                                             |   | 2,381                                             |   |
| Store  operating expenses                                                                                                      |   | 1,583                                             |   | 1,336                                             |   |
| Corporate  administrative expenses                                                                                             |   | 800                                               |   | 720                                               |   |
| Depreciation  and amortization                                                                                                 |   | 118                                               |   | 76                                                |   |
| Total  expenses                                                                                                                |   | 5,802                                             |   | 4,513                                             |   |
|                                                                                                                           |   |                                              |   |                                              |   |
| Operating  income                                                                                                              |   | 82                                                |   | 223                                               |   |
|                                                                                                                           |   |                                              |   |                                              |   |
| Interest  and dividend income                                                                                                  |   | 155                                               |   | 14                                                |   |
| Interest  expense including redeemable preferred stock dividends of $67,000 for the  three months ended December 31, 2003 |   | (164                                              | )      | (69                                               | )      |
| Gain  (loss) on disposition of assets                                                                                          |   | (7                                                | )      | —                                            |   |
| Gain  on sale of investments                                                                                                   |   | 315                                               |   | 88                                                |   |
| Net  income before income taxes and extraordinary items                                                                        |   | 381                                               |   | 256                                               |   |
|                                                                                                                           |   |                                              |   |                                              |   |
| Income  tax provision                                                                                                          |   | —                                            |   | —                                            |   |
| Net  income                                                                                                                    |   | 381                                               |   | 256                                               |   |
|                                                                                                                           |   |                                              |   |                                              |   |
| Preferred  stock dividend requirement                                                                                          |   | (31                                               | )      | (98                                               | )      |
|                                                                                                                           |   |                                              |   |                                              |   |
| Net  income allocable to common stockholders                                                                                   |   | $                                                 | 350    |                                              | $      | 158 |   |
|                                                                                                                           |   |                                              |   |                                              |   |
| Income  per common share (note 5):                                                                                             |   |                                              |   |                                              |   |
| Basic                                                                                                                          |   |                                              |   |                                              |   |
| Continuing  Operations                                                                                                         |   | $                                                 | 0.16   |                                              | $      | 0.08 |   |
| Extraordinary  Items                                                                                                           |   | —                                            |   | —                                            |   |
|                                                                                                                           |   | $                                                 | 0.16   |                                              | $      | 0.08 |   |
| Diluted                                                                                                                        |   |                                              |   |                                              |   |
| Continuing  Operations                                                                                                         |   | $                                                 | 0.10   |                                              | $      | 0.05 |   |
| Extraordinary  Items                                                                                                           |   | —                                            |   | —                                            |   |
|                                                                                                                           |   | $                                                 | 0.10   |                                              | $      | 0.05 |   |

 

See accompanyingnotes to consolidated financial statements.

 

5

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**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Consolidated Statementsof Cash Flows(Unaudited)

 
|                                                                                          |   | **Reorganized  Company**                                |   | **Predecessor**                                       |   | **Reorganized  Company**                                 |   |                                                          |   |
|-----------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|-------------------------------------------------------|--------|----------------------------------------------------------|--------|---------------------------------------------------------------|--------|
| **(In thousands)**                                                                            |   | **For the  Six Months  Ended  December 31,  2003** |   | **For the  Two Months  Ended  August 31,  2002** |   | **For the  Four Months  Ended  December 31,  2002** |   | **For the  Six  Months  Ended  December 31,  2002** |   |
| Cash  flows from operating activities:                                                        |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| Net income                                                                                    |   | $                                                       | 1,968  |                                                  | $      | 11,585                                                   |   | $                                                             | 242    |   | $ | 11,827 |   |
| Adjustments  to reconcile net income to net cash (used in) provided by operating  activities: |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| Depreciation  and amortization                                                                |   | 229                                                     |   | 63                                                    |   | 99                                                       |   | 162                                                           |   |
| Gain  on debt discharge                                                                       |   | —                                                  |   | (11,810                                               | )      | —                                                   |   | (11,810                                                       | )      |
| Gain  on sale of investments                                                                  |   | (1,946                                                  | )      | —                                                |   | —                                                   |   | —                                                        |   |
| Changes  in operating assets and liabilities, net of effect of acquisition:                   |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| Accounts  receivable                                                                          |   | (162                                                    | )      | (24                                                   | )      | (19                                                      | )      | (43                                                           | )      |
| Net  decrease (increase) in pawn service charges receivable                                   |   | (105                                                    | )      | (45                                                   | )      | (70                                                      | )      | (115                                                          | )      |
| Inventories,  net                                                                             |   | (165                                                    | )      | 62                                                    |   | 158                                                      |   | 220                                                           |   |
| Prepaid  expenses and other current assets                                                    |   | (168                                                    | )      | (3                                                    | )      | (67                                                      | )      | (70                                                           | )      |
| Accounts  payable and accrued liabilities                                                     |   | (136                                                    | )      | (56                                                   | )      | (70                                                      | )      | (126                                                          | )      |
| Net  cash (used in) provided by operating activities                                          |   | (485                                                    | )      | (228                                                  | )      | 273                                                      |   | 45                                                            |   |
|                                                                                          |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| Cash  flows from investing activities:                                                        |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| Pawn  loans made, net                                                                         |   | (964                                                    | )      | (414                                                  | )      | (640                                                     | )      | (1,054                                                        | )      |
| Proceeds  from sale of investments                                                            |   | 7,809                                                   |   | —                                                |   | —                                                   |   | —                                                        |   |
| Purchase  of investments                                                                      |   | (5,205                                                  | )      | —                                                |   | (220                                                     | )      | (220                                                          | )      |
| Cash  acquired in merger (1)                                                                  |   | —                                                  |   | —                                                |   | 2,565                                                    |   | 2,565                                                         |   |
| Purchases  of property and equipment                                                          |   | (317                                                    | )      | —                                                |   | (164                                                     | )      | (164                                                          | )      |
| Net  cash provided by (used in) investing activities                                          |   | 1,323                                                   |   | (414                                                  | )      | 1,541                                                    |   | 1,127                                                         |   |
|                                                                                          |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| Cash  flows from financing activities:                                                        |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| (Principal payments)/borrowings on notes payable                                              |   | (222                                                    | )      | 455                                                   |   | (562                                                     | )      | (107                                                          | )      |
| Sale  of common stock                                                                         |   | 282                                                     |   | —                                                |   | —                                                   |   | —                                                        |   |
| Purchase  of treasury stock                                                                   |   | (40                                                     | )      | —                                                |   | —                                                   |   | —                                                        |   |
| Dividends  paid                                                                               |   | (63                                                     | )      | —                                                |   | (131                                                     | )      | (131                                                          | )      |
| Net  cash provided by (used in) financing activities                                          |   | (43                                                     | )      | 455                                                   |   | (693                                                     | )      | (238                                                          | )      |
| Net  increase (decrease) in cash and cash equivalents                                         |   | 795                                                     |   | (187                                                  | )      | 1,121                                                    |   | 934                                                           |   |
| Cash  and cash equivalents at beginning of period                                             |   | 220                                                     |   | 377                                                   |   | 190                                                      |   | 377                                                           |   |
| Cash  and cash equivalents at end of period                                                   |   | $                                                       | 1,015  |                                                  | $      | 190                                                      |   | $                                                             | 1,311  |   | $ | 1,311 |   |
|                                                                                          |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| Supplemental  disclosures of cash flow information -                                          |   |                                                    |   |                                                  |   |                                                     |   |                                                          |   |
| Cash paid for interest                                                                        |   | $                                                       | 288    |                                                  | $      | 83                                                       |   | $                                                             | 102    |   | $ | 185 |   |

 

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(1)   Non cash financing activities - Company acquired CMHI on August 30,2002 including $2.6 million in cash and $5.1 million in marketable securitiesin exchange for preferred stock.  Seenote 2 for more complete explanation.

 

See accompanyingnotes to consolidated financial statements.

 

6

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**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Notes toConsolidated 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 postbankruptcy operating results. The results of operations for the interim periodsended December 31, 2003 and December 31, 2002 are not necessarilyindicative of the results that may be expected for the entire fiscal year orany other interim period.

 

Thefinancial statements should be read in conjunction with the financialstatements for the fiscal year ended June 30, 2003 included in theCompany’s Form 10-KSB which has been previously filed with the Securities andExchange Commission.

 

Xponential,Inc., formerly PawnMart, Inc. (the “Company”), was incorporated in Delaware onJanuary 13, 1994.  Effective February 28,2003, the Company changed its name to “Xponential, Inc.” The Company is aspecialty finance and retail enterprise principally engaged in establishing andoperating stores which advance money secured by the pledge of tangible personalproperty, and buying and selling pre-owned merchandise.  As of December 31, 2003, the Companyowned and operated 27 stores located in Georgia, North Carolina, and SouthCarolina.

 

OnJuly 9, 2001 the Company filed a voluntary petition for relief underChapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in theUnited States Bankruptcy Court for the Northern District of Texas, Fort WorthDivision (the “Bankruptcy Court”) in the case of *PawnMart, Inc., Debtor*, Case No. 01-44957-BJH-11.  The Company operated as debtor in possessionthroughout the bankruptcy proceedings. The Plan of Reorganization was filed on February 15, 2002 and wasamended on April 3, 2002 (the “Plan”). A confirmation hearing for the Plan was held on May 20, 2002 and thePlan was confirmed by order of the Bankruptcy Court as of that date(“Confirmation Date”).  The Plan becameeffective 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 ofcertain reorganization expenses associated with the Merger in the Company’sStatement of Operations for the two months ended August 31, 2002.

 

Freshstart reporting 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 reorganizedCompany of $5.7 million.  Thereorganization value was determined in consideration of several factors and byreliance on various valuation methods including discounted cash flow,

 

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book value multiples ofcomparable companies in its industry, net realizable value of  asset sales and other applicablemethods.  The calculated reorganizationvalue was based on estimates and assumptions about circumstances in arelatively high-risk investment scenario that have not yet taken place in whichthere are significant economic and competitive uncertainties beyond the controlof 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’s statement of operations.  Prior to June 15, 2003, the chargesrelated to the mandatorily redeemable preferred stock were not reflected in netincome (loss), but were reflected in determining net income (loss) applicableto common stockholders. At December 31, 2003, the carrying value of theCompany’s mandatorily redeemable preferred stock was $5,358,000.  The related dividends that would have beenreflected as interest expense for the three months and six months endedDecember 31, 2002 were $67,000 and $89,000.  Subsequent to theadoption of SFAS 150, the Company has reflected $67,000 and $134,000 asinterest expense for the three months and six months ended December 31,2003, respectively.

 

(2)       Plan of Reorganization –Fresh Start Accounting

 

Underthe terms of the Plan, the Company cancelled all equity interests of its commonand preferred shareholders 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 ofindebtedness and in connection with the Merger of the Company with CMHI, whichis owned in part by Dwayne A. Moyers and Jeffrey A. Cummer, officers anddirectors of the Company, issued 1,071,636 shares of Series A Preferred Stockand 500,042 Series B Preferred Stock to the former shareholders of CMHI.  At the time of the Merger, CMHI did not haveany business 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 and was reported as a materialbusiness combination.

 

TheCompany acquired 100 percent of the outstanding common stock of CMHI onAugust 30, 2002.  The results ofCMHI’s operations have been included in the financial statements since the dateof the Merger.

 

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

 

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 was less than the postpetitionliabilities and allowed claims, as shown below.

 

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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 Mergerwas as follows:

 

AtAugust 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  |   |

 

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

 

OnAugust 30, 2002, the Company acquired 100 percent of the outstandingcommon shares 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.

 

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

 

AtAugust 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 theMerger:

 
| **(in thousands)**                               |   | **Xponential,  Inc.  Reorganized  Balance Sheet  Prior to Merger** |   | **CMHI  Assets  Acquired and  Liabilities  Assumed as  of 8/30/2002** |   | **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 |   |

 

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(1)   Includes $150,000 investment banking fee torelated parties payable on completion of Merger.

 

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(3)       Notes Payable

 

*Revolving Credit Facility-*

 

TheCompany negotiated a post-confirmation credit facility with Comerica Bank (the“Bank”) in the amount of $4,000,000 that matures on June 30, 2004 andbears interest at 9% per annum (the “Credit Facility”), subject to monthlymandatory principal reductions each in the amount of $100,000 commencingFebruary 1, 2004 through and including June 1, 2004.  Amounts available under the Credit Facilityare limited to certain percentages of pawn loans, inventories, and pawn servicecharges receivable.  The Credit Facilityis collateralized by substantially all of the unencumbered assets of theCompany.  The Company also pledgedadditional collateral in the form of marketable and other securities to theBank in the amount of $2,500,000. At December 31, 2003, $3,853,000 wasoutstanding under the Credit Facility and an additional $147,000 was availableto the Company pursuant to the available borrowing base.  Under the terms of the Credit Facility, theCompany is required to maintain certain financial ratios and comply withcertain other covenants.  The Companywas in compliance with these covenants as of December 31, 2003.  The Company paid fees associated with theCredit Facility totaling $80,000 in the first two quarters of Fiscal 2004,defined as its fiscal year ended June 30, 2004.

 

(4)       Stock Option Plan 

 

EffectiveJanuary 1, 2003, the Company adopted the fair value method defined in SFASNo. 123, “Accounting for Stock-Based Compensation,” in accounting for theCompany’s stock option plans. Previously the Company applied AccountingPrinciples Board’s Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issuedto Employees” and related Interpretations. SFAS No. 123 indicates that the fairvalue method is the preferable method of accounting, and the Company haselected to apply it for all options granted by the reorganized Company.  Under APB No. 25, compensation costs relatedto stock options issued pursuant to compensatory plans are measured based onthe difference between the quoted market price of the stock at the measurementdate (ordinarily the date of grant) and the exercise price and should becharged to expense over the periods during which the grantee performs therelated services.  All outstanding stockoptions were cancelled in accordance with the Plan, which was confirmed on May20, 2002.

 

TheCompany adopted its 2003 Stock Option Plan (“Stock Option Plan”) and 2003 StockIncentive Plan (“Incentive Plan”) effective January 1, 2003.  Under the Stock Option Plan stock optionshave 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 covering455,000 common shares under 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 endedJune 30, 2003 which the Company did achieve.  These options vest 66 2/3% on June 30, 2004 and 33 1/3% onJune 30, 2005.  The $8,000 cost ofthese options is being amortized over the vesting period described above.   The Company recognized $1,200 and $2,400 ofcompensation expense for options granted during the three month and six monthperiods ended December 31, 2003, respectively.  The Incentive Plan provides an opportunity to employees of theCompany to purchase common shares directly from the Company through payrolldeductions at book value at the time of the contribution which will change to adiscount of market value once the Company’s common stock is publiclytraded.  As of December 31, 2003,18,914 shares have been issued under the Incentive Plan.

 

Thefollowing table summarizes the stock option activity of the reorganized Companyfrom the time it emerged from bankruptcy:

 

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|                                   |   | **Number of  Options** |   | **Exercise  Price** |   | **Weighted  Average  Price** |   |
|----------------------------------------|--------|------------------------|--------|---------------------|--------|------------------------------|--------|
| Outstanding  at August 30, 2002   |   | —                 |   | —              |   | —                       |   |
| Granted                                |   | 455,000                |   | $                   | 1.00   |                         | $      | 1.00 |   |
| Exercised                              |   | —                 |   | —              |   | —                       |   |
| Forfeited                              |   | —                 |   | —              |   | —                       |   |
| 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 |   |
| Forfeited                              |   | —                 |   | —              |   | —                       |   |
| Outstanding  at December 31, 2003 |   | 236,000                |   |                |   | $                            | 1.08   |   |
| Exercisable  at December 31, 2003 |   | 80,000                 |   |                |   | $                            | 1.23   |   |

 

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

 

Netincome (loss) per common share is calculated as required by FASB Statement ofFinancial Accounting Standards No. 128, “Earnings Per Share” (“Statement No.128”).  Statement No. 128 requires dualpresentation of basic and diluted earnings per share and a reconciliationbetween the two amounts.  Basic earningsper share excludes dilution, and diluted earnings per share reflects thepotential dilution that would occur if securities for the purchase of CommonStock were exercised.  In loss periods,dilutive common equivalent shares are excluded as the effect would beantidilutive.

 

TheCompany issued 2,079,948 shares of Common Stock upon consummation of the Planand  500,042 shares of Series BPreferred Stock which is convertible at the option of the holders into1,720,130 shares of the Company’s Common Stock.

 

Thereconciliation of basic and diluted weighted average common shares and thereconciliation for the basic and diluted earnings per common share for thethree months ended December 31, 2003 and 2002, respectively, followingconsummation of the Plan and the issuance of the new common and convertiblepreferred stock pursuant to the Plan is as follows:

 

| **For the Three Months Ended   December 31, 2003** |   | **Net Income  Allocable to  Common  Shareholders** |    | **Shares** |      | **Per Share** |   |
|---------------------------------------------------------|--------|----------------------------------------------------|---------|------------|-----------|---------------|--------|
|                                                    |   |                                               |    |       |      |          |   |
| Basic  earnings per common share                        |   | $                                                  | 350,000 |       | 2,160,939 |          | $      | 0.16 |   |
|                                                    |   |                                               |    |       |      |          |   |
| Effect  of conversion of preferred stock - Series B     |   | 31,000                                             |    | 1,720,130  |      |          |   |
|                                                    |   |                                               |    |       |      |          |   |
| Diluted  earnings per common share                      |   | $                                                  | 381,000 |       | 3,881,069 |          | $      | 0.10 |   |

 

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| **For the Three Months Ended   December 31, 2002** |   | **Net Income  Allocable to  Common  Shareholders** |    | **Shares** |      | **Per Share** |   |
|---------------------------------------------------------|--------|----------------------------------------------------|---------|------------|-----------|---------------|--------|
|                                                    |   |                                               |    |       |      |          |   |
| Basic  earnings per common share                        |   | $                                                  | 158,000 |       | 2,079,948 |          | $      | 0.08 |   |
|                                                    |   |                                               |    |       |      |          |   |
| Effect  of conversion of preferred stock - Series B     |   | 31,000                                             |    | 1,720,130  |      |          |   |
|                                                    |   |                                               |    |       |      |          |   |
| Diluted  earnings per common share                      |   | $                                                  | 189,000 |       | 3,800,078 |          | $      | 0.05 |   |

 

Thereconciliation of basic and diluted weighted average common shares and thereconciliation for the basic and diluted earnings per common share for the sixmonths ended December 31, 2003 and for the four months endedDecember 31, 2002, respectively, following consummation of the Plan andthe issuance of the new common and convertible preferred stock pursuant to thePlan is as follows:

 

| **For the Six Months Ended   December 31, 2003** |   | **Net Income  Allocable to  Common  Shareholders** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|-------------------------------------------------------|--------|----------------------------------------------------|------------|------------|------------|---------------|------------|
|                                                  |   |                                               |       |       |       |          |       |
| Basic  earnings per common share                      |   | $                                                  | 1,905,000  |       | 2,120,444  |          | $          | 0.90 |   |
|                                                  |   |                                               |       |       |       |          |       |
| Effect  of conversion of preferred stock - Series B   |   | 63,000                                             |       | 1,720,130  |       |          |       |
|                                                  |   |                                               |       |       |       |          |       |
| Diluted  earnings per common share                    |   | $                                                  | 1,968,000  |       | 3,840,574  |          | $          | 0.51 |   |

 

| **For the Four Months Ended   December 31, 2002** |   | **Net Income  Allocable to  Common  Shareholders** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|--------------------------------------------------------|--------|----------------------------------------------------|------------|------------|------------|---------------|------------|
|                                                   |   |                                               |       |       |       |          |       |
| Basic  earnings per common share                       |   | $                                                  | 111,000    |       | 2,079,948  |          | $          | 0.05 |   |
|                                                   |   |                                               |       |       |       |          |       |
| Effect  of conversion of preferred stock - Series B    |   | 43,000                                             |       | 1,720,130  |       |          |       |
|                                                   |   |                                               |       |       |       |          |       |
| Diluted  earnings per common share                     |   | $                                                  | 154,000    |       | 3,800,078  |          | $          | 0.04 |   |

 

Allstock options outstanding have been excluded from the computation because theyare antidilutive.

 

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(6)       Investments inMarketable Securities

 

Marketableequity securities have been categorized as available-for-sale and carried atfair value.  Unrealized gains and lossesfor available-for-sale securities are included as a component of shareholders’equity net of tax until realized. Realized gains and losses on the sale of securities are based on thespecific identification method.  TheCompany continually reviews its investments to determine whether a decline infair value below the cost basis is other than temporary.  If the decline in the fair value is judgedto be other than temporary, the cost basis of the security is written down tofair value and the amount of the write-down is included in the consolidatedstatement of operations.

 

As ofDecember 31, 2003, the Company owned the following marketable securities:

 

| **(in thousands)** |   | **Cost** |   | **Unrealized    Gain/(Loss)** |   | **Market  Value** |   |
|--------------------|--------|----------|--------|-------------------------------|--------|-------------------|--------|
|               |   |     |   |                          |   |              |   |
| Stocks             |   | $        | 7      |                          | $      | (6                | )      | $ | 1 |   |
| Bonds              |   | 2,695    |   | 341                           |   | 3,036             |   |
|               |   |     |   |                          |   |              |   |
| Total              |   | $        | 2,702  |                          | $      | 335               |   | $ | 3,037 |   |

 

As of June 30, 2003,the Company owned the following marketable 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  December 31,  2003** |   | **For the Six  Month Period  Ended  December 31,  2003** |   |
|-----------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|
|                                                                              |   |                                                             |   |                                                          |   |
| Net income                                                                        |   | $                                                                | 381    |                                                          | $      | 1,968 |   |
| Unrealized gain from  available for sale securities                               |   | 389                                                              |   | 523                                                           |   |
| Reclassification  of realized gains previously recognized in comprehensive income |   | (315                                                             | )      | (1,946                                                        | )      |
|                                                                              |   |                                                             |   |                                                          |   |
| Comprehensive Income                                                              |   | $                                                                | 455    |                                                          | $      | 545 |   |

 

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(8)       Other Investments

 

InOctober 2003 the Company provided financing for American IronHorseMotorcycle Company, Inc. (“AIMC”), a Texas corporation, in the amount of$1,000,000.  The financing provides forinterest to the Company at the rate of 12% per annum payable monthly.  The Company received a $50,000 investmentfee at the time the financing was provided and is entitled to receive anadditional $50,000 investment fee upon conversion of the note.  The Company exercised its right to convertthe note into 166,666 common shares (one share for each $6.00 of principalconverted) in January 2004.  TheCompany has classified the note receivable from AIMC as a long term investmentbecause the holding period of the investment is expected to exceed one year.The Company also received warrants to purchase 100,000 shares of AIMC commonstock at $15.00 per share in connection with the financing.  Dwayne A. Moyers, a director and officer ofthe Company, is a director and principal shareholder of AIMC.  Additionally, John R. Boudreau and Robert W.Schleizer, each a director and officer of the Company, are serving as interimPresident and Chief Financial Officer and Secretary, respectively, pursuant toa Management Agreement between Xponential Advisors, Inc., a wholly-ownedsubsidiary of the Company, and AIMC. For the services of Messrs. Boudreau and Schleizer, Xponential Advisors,Inc. receives a management fee of $5,700 per week plus 25 shares of commonstock of AIMC for each hour worked by Robert W. Schleizer, up to a maximum of24 hours per week.

 

InDecember 2003, the Company participated in the AIMC rights offering bypurchasing 3,000 shares of AIMC common stock under its basic subscriptionrights for $6.00 per share, totaling $18,000, and 222,000 shares of AIMC commonstock under the over subscription rights for $6.00 per share, totaling$1,332,000.  After conversion of its$1,000,000 note and the purchase of shares noted herein, the Company’sownership interest in AIMC, combined with that of its wholly-owned subsidiary,Xponential Advisors, Inc., increased to approximately 9.08% of AIMC commonstock.

 

(9)       Subsequent Events

 

InJanuary 2004, the Company filed a Registration Statement on Form SB-2offering $20,000,000 in original principal amount of 8% Limited RecourseSecured Convertible Subordinated Notes due 2014.  The net proceeds of the offering will be utilized to pay down theCompany’s existing line of credit, for acquisitions, and for working capitalpurposes.

 

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

 

*Statementsappearing in the following discussion that are not historical facts are forward-lookingstatements (“forward-looking statements”) within the meaning ofSection 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended, which areintended to be covered by the safe harbors created by those sections.  Such forward-looking statements arenecessarily estimates reflecting the best judgment of the Company’s managementbased upon current information and involve known and unknown risks, uncertaintiesand other factors which may cause the actual results, performance orachievements of the Company, or industry results, to be materially differentfrom any future results, performance or achievements expressed or implied bysuch forward-looking statements.  Suchrisks, uncertainties and other factors, include, but are not limited to, thoseset forth and those appearing from time to time in filings made by the Companywith the Securities and Exchange Commission. These risks, uncertainties and other factors should not be construed asexhaustive and the Company does not undertake, and specifically disclaims anyobligation, to update any forward-looking statements to reflect occurrences orunanticipated events or circumstances after 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 specialty finance and retail enterprise principally engaged inestablishing and operating stores which advance money secured by the pledge oftangible personal property and sell pre-owned merchandise to value-consciousconsumers.  The Company generates incomethrough collection of a monthly service charge from advancing money toindividuals based primarily upon the estimated resale value of pledged personalproperty such as jewelry, consumer electronics, tools, musical instruments,automobiles and other miscellaneous items and through profit realized on theretail sale of the unredeemed or other purchased pre-owned merchandise.

 

The Company also providesmanagement advisory services in conjunction with financing and investmentsprovided to other companies.  InOctober 2003 the Company provided financing for American IronHorseMotorcycle Company, Inc. (“AIMC”), a Texas corporation, in the amount of$1,000,000.  The financing provides forinterest to the Company at the rate of 12% per annum payable monthly.  On January 30, 2004 Xponentialconverted the entire principal amount of the note into 166,666 shares of CommonStock of the Company.  The Companyreceived a $50,000 investment fee at the time the financing was provided and isentitled to receive an additional $50,000 investment fee at maturity orconversion of the note.  Dwayne A.Moyers, a director and officer of the Company, is a director and principalshareholder of AIMC.  John R. Boudreau,a director and officer of the Company, is serving as interim President of AIMC,and Robert W. Schleizer, a director and officer of the Company, is serving asthe Chief Financial Officer and Secretary of AIMC, pursuant to a managementagreement between Xponential Advisors, Inc. and AIMC.  For the services of Messrs. Boudreau and Schleizer, XponentialAdvisors, Inc. receives a management fee of $5,700 per week plus 25 shares ofcommon stock of AIMC for each hour worked by Mr. Schleizer, up to a maximum of24 hours per week.

 

The Company’s totalrevenues are derived primarily from service charges on loans, proceeds from thesales of merchandise inventory and management and investment fees. TheCompany’s pawn loans are generally made on the pledge of tangible personalproperty for one month, with an automatic sixty-day extension period.  All pawn loans are collateralized bytangible personal property placed in the possession of the Company, except forautomobile title loans.  During the termof an automobile title loan, the borrower is allowed to maintain possession ofthe collateral.  Pawn service chargesare recognized when loans are repaid or renewed.  If a loan is not repaid, the principal amount advanced on theloan, exclusive of any uncollected pawn service charges, becomes the carryingvalue of the forfeited collateral (inventory), which is recovered throughsubsequent sales.

 

The Company filed forprotection under the Bankruptcy Code on July 9, 2001.  The Company operated as debtor in possessionthroughout the bankruptcy proceedings. The Plan was filed on February 15,2002 and was amended on April 3, 2002. A confirmation hearing for the Plan was held on May 20, 2002 and thePlan was confirmed by the Bankruptcy Court as of that date with an effectivedate of May 31, 2002.

 

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Pursuant to the Plan, theCompany issued 2,079,948 shares of Common Stock to its unsecured creditors inexchange for release from indebtedness. The Company also completed a merger with C/M Holdings, Inc., a Texas corporation(“CMHI”), whereby the equity holders of CMHI received two new classes ofPreferred Stock, 1,071,636 shares of Series A Preferred Stock and 500,042shares of Series B Preferred Stock.  The500,042 shares of Series B Preferred Stock are convertible into 1,720,130shares of Common Stock, or approximately 45% of the total Common Stock.  The Company also negotiated apost-confirmation credit facility with a bank in the original amount of$4,500,000 (which has subsequently been reduced to $4,000,000).  Terms of the Plan are set forth in the Company’sForm 10-KSB for the year ended June 30, 2003.

 

Selected elements of theCompany’s unaudited statements of operations are shown below for the threemonths ended December 31, 2003 and December 31, 2002 as a percentageof total revenues.  The following table,as well as the discussion following, should be read in conjunction with theCompany’s financial statements and notes thereto and other financial dataincluded in the Company’s Form 10-KSB for the fiscal year ended June 30,2003.

 

|                                                                             |   | **For the  Six Months  Ended  December 31,  2003** |   | **For the  Six Months  Ended  December 31,  2002** |   |
|----------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                             |   |                                                    |   |                                                    |   |
| Merchandise  sales                                                               |   | 67.2                                                    | %      | 67.5                                                    | %      |
| Pawn  service charges and related fee income                                     |   | 31.4                                                    |   | 32.5                                                    |   |
| Management  advisory and related fee Income                                      |   | 1.4                                                     |   | —                                                  |   |
| Total  revenues                                                                  |   | 100.0                                                   |   | 100.0                                                   |   |
|                                                                             |   |                                                    |   |                                                    |   |
| Cost  of sales                                                                   |   | 55.1                                                    |   | 48.2                                                    |   |
| Store operating expenses                                                         |   | 28.5                                                    |   | 31.3                                                    |   |
| Corporate  administrative expenses  (excluding  gain on debt discharge) (1) |   | 13.3                                                    |   | 15.0                                                    |   |
| Depreciation  and amortization                                                   |   | 2.1                                                     |   | 1.9                                                     |   |
| Total  Expenses                                                                  |   | 99.0                                                    |   | 96.4                                                    |   |
| Operating  Income                                                                |   | 1.0                                                     |   | 3.6                                                     |   |
| Interest  and dividend income                                                    |   | 2.3                                                     |   | 0.5                                                     |   |
| Interest  expense (2)                                                            |   | (3.0                                                    | )      | (2.2                                                    | )      |
| Gain  on disposition of assets                                                   |   | —                                                  |   | 0.1                                                     |   |
| Gain  on sale of investments                                                     |   | 17.9                                                    |   | 1.0                                                     |   |
| Income  tax provision                                                            |   | (0.2                                                    | )      | —                                                  |   |
| Net  income                                                                      |   | 18.0                                                    | %      | 3.0                                                     | %      |

 

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| (1) |   | Extraordinary gain on  debt discharge of $11,810,000 excluded from calculation.                                                                                                                                                                                                                                                                                                                                                                              |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Interest expense for  the Six Month Period Ended December 31, 2003 includes $134,000 of  dividends on redeemable preferred stock in accordance with SFAS 150.  Dividends paid on redeemable preferred  stock prior to the June 15, 2003 effective date of SFAS 150, which  includes the $89,000 and $89,000 for the Four Month and Six Month Periods  ended December 31, 2002, respectively, were not reclassified as interest  expense. |

 

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|                                                                             |   | **For the  Three Months Ended  December 31,  2003** |   | **For the  Three Months Ended  December 31, 2002** |   |
|----------------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|---------------------------------------------------------|--------|
| Merchandise  sales                                                               |   | 67.6                                                          | %      | 69.1                                                    | %      |
| Pawn  service charges and related fees                                           |   | 29.9                                                          |   | 30.9                                                    |   |
| Management  advisory and related fee income                                      |   | 2.4                                                           |   | —                                                  |   |
| Total  revenues                                                                  |   | 100.0                                                         |   | 100.0                                                   |   |
|                                                                             |   |                                                          |   |                                                    |   |
| Cost  of sales                                                                   |   | 56.1                                                          |   | 50.3                                                    |   |
| Store  operating expenses                                                        |   | 26.9                                                          |   | 28.2                                                    |   |
| Corporate  administrative expenses  (excluding  gain on debt discharge) (1) |   | 13.6                                                          |   | 15.2                                                    |   |
| Depreciation and amortization                                                    |   | 2.0                                                           |   | 1.6                                                     |   |
| Total  Expenses                                                                  |   | 98.6                                                          |   | 95.3                                                    |   |
| Operating  Income                                                                |   | 1.4                                                           |   | 4.7                                                     |   |
| Interest  and dividend income                                                    |   | 2.6                                                           |   | 0.3                                                     |   |
| Interest  expense                                                                |   | (2.8                                                          | )      | (1.5                                                    | )      |
| (Loss) on disposition of assets                                                  |   | (0.1                                                          | )      | —                                                  |   |
| Gain  on sale of investments                                                     |   | 5.4                                                           |   | 1.9                                                     |   |
| Net  income (loss                                                                |   | 6.5                                                           | %      | 5.4                                                     | %      |

 

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

(2) Interest expense forthe Three Month Period Ended December 31, 2003 includes $68,000 ofdividends on 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$68,000 for the Three Month Period ended December 31, 2002, were notreclassified as interest expense.

 

RESULTS OF OPERATIONS

 

*SixMonths Ended December 31, 2003 Compared to Six Months EndedDecember 31, 2002*

 

Total revenues increased 23.9% to $10,868,000 during the six monthsended December 31, 2003 (the “Six Month 2004 Period”) as compared to$8,569,000 during the six months ended December 31, 2002 (the “Six Month2003 Period”).  The overall increase wasattributable primarily to increases in pawn service charges on car loans, moreaggressive discounting on merchandise sales and increased jewelry scrapsales.  Stores that remained open forthe full 12 months or more as of December 31, 2003 (the “ComparableStores”) experienced a net increase in revenues of $2,045,000 or 23.9%.

 

Merchandise salesincreased 26.3% to $7,301,000 during the Six Month 2004 Period from $5,782,000during the Six Month 2003 Period primarily due to more aggressive discountingon merchandise sales and increased jewelry scrap sales.  Sales in Comparable Stores for the Six Month2004 Period increased $1,277,000 or 21.7%.

 

Pawn service charges andrelated fee income increased $628,000 or 22.5% to $3,415,000 during the SixMonth 2004 Period from $2,787,000 during the Six Month 2003 Period primarilydue to increased pawn service charges on car loans for the Six Month 2004Period.  Pawn service charges fromComparable Stores increased $626,000 or 23.5% for the Six Month 2004 Period ascompared to the Six Month 2003 Period.

 

The Company earnedmanagement and investments fees totaling $152,000 during the Six Month 2004Period related to financing provided to AIMC.

 

Cost of sales increased44.9% to $5,983,000 during the Six Month 2004 Period from $4,128,000 during theSix Month 2003 Period primarily due to increased sales and to higher productcosts resulting from a combination of discounting sales prices and an increasein the Company’s title pawn business. Cost of sales as a percentage of merchandise sales increased to 81.9%from 74.2% for the Six Month 2004 Period as

 

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compared to the Six Month2003 Period. The Company experienced losses on car sales of $518,000 during theSix Month 2004 Period as compared to $75,000 during the Six Month 2003 Period. The increase in losses on car sales isprimarily due to the increased repossessions related to the 232% increase incar loans from the prior year comparable period. Excluding the effect of carsales, the Company’s cost of sales for the Six Month 2004 Period were 73.7% ascompared to 68.5% during the Six Month 2003 Period.

 

Store operating expensesincreased to $3,101,000 for the Six Month 2004 Period from $2,682,000 duringthe Six Month 2003 Period primarily due to increased personnel expenses foradditional car title and compliance personnel.   On a Comparable Store basis, store operating expenses were 28.5%of total revenues during the Six Month 2004 Period compared to 31.3% of totalrevenues during the Six Month 2003 Period.

 

Corporate administrativeexpenses increased 12.3% to $1,441,000 during the Six Month 2004 Period from$1,283,000 during the Six Month 2003 Period primarily due to costs related toadditional personnel.  Corporateadministrative expenses decreased to 13.3% of total revenues during the SixMonth 2004 Period as compared to 15.0% during the Six Month 2003 Period.

 

Interest expenseincreased $135,000 from $190,000 during the Six Month 2004 Period as comparedto the Six Month 2003 Period primarily due to the reclassification of dividendsas interest expense on preferred stock issued in conjunction with the Plan inaccordance with SFAS 150.

 

The Company alsorecognized a gain of $1,946,000 on the sale of securities during the Six Month2004 Period primarily due to the sale of its holdings in Sanders MorrisHoldings Group, Inc. for approximately $5,000,000 in July 2003 whichresulted in a $1,632,000 gain.

 

*ThreeMonths Ended December 31, 2003 Compared to Three Months EndedDecember 31, 2002*

 

Total revenues increased 24.2% to $5,884,000 during the three monthsended December 31, 2003 (the “Three Month 2004 Period”) as compared to$4,736,000 during the three months ended December 31, 2002 (the “ThreeMonth 2003 Period”).  The overallincrease was attributable primarily to increases in pawn service charges on carloans, more aggressive discounting on merchandise sales and increased jewelryscrap sales.  Stores that remained openfor the full 12 months or more as of December 31, 2003 (the “ComparableStores”) experienced a net increase in revenues of $960,000 or 20.3%.

 

Merchandise salesincreased 21.6% to $3,980,000 during the Three Month 2004 Period from$3,274,000 during the Three Month 2003 Period primarily due to more aggressivediscounting on merchandise sales and increased jewelry scrap sales.  Sales in Comparable Stores for the ThreeMonth 2004 Period increased $602,000 or 18.4%.

 

Pawn service chargesincreased $299,000 or 20.5% to $1,761,000 during the Three Month 2004 Periodfrom $1,462,000 during the Three Month 2003 Period primarily due to increasedpawn service charges on car loans for the Three Month 2004 Period.  Pawn service charges from Comparable Storesincreased $297,000 or 21.3% for the Three Month 2004 Period as compared to theThree Month 2003 Period.

 

The Company earnedmanagement and investments fees totaling $143,000 during the Three Month 2004Period related to financing provided to AIMC.

 

Cost of sales increased38.6% to $3,301,000 during the Six Month 2004 Period from $2,381,000 during theSix Month 2003 Period primarily due to increased sales and to higher productcosts resulting from a combination of discounting sales prices and an increasein the Company’s title pawn business. Cost of sales as a percentage of merchandise sales increased to 82.9%from 72.7% for the Six Month 2004 Period as compared to the Six Month 2003Period. The Company experienced losses on car sales of $289,000 during theThree Month 2004 Period as compared to $40,000 during the Three Month 2003Period. The increase in losses on car sales is primarily due to the increasedrepossessions related to the 232% increase in car loans from the prior yearcomparable period. Excluding the effect of car sales, the Company’s cost ofsales for the Three Month 2004 Period were 74.2% as compared to 69.8% duringthe Three Month 2003 Period.

 

Store operating expensesincreased to $1,583,000 for the Three Month 2004 Period from $1,336,000 duringthe Three Month 2003 Period primarily due to increased personnel expenses foradditional car title and compliance personnel.   On a Comparable Store basis, store operating expenses were 26.6%of total revenues during the Three Month 2004 Period compared to 28.2% of totalrevenues during the Three

 

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Month 2003 Periodprimarily due to lower personnel and occupancy costs as a percentage of totalrevenue.

 

Corporate administrativeexpenses increased 11.1% to $800,000 during the Three Month 2004 Period from$720,000 during the Three Month 2003 Period primarily due to costs related toadditional personnel.  Corporateadministrative expenses decreased to 13.6% of total revenues during the Three Month2004 Period as compared to 15.2% during the Three Month 2003 Period.  Corporate administrative expenses did notincrease at the same rate as revenues increased during the comparable period.

 

Interest expenseincreased $95,000 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 preferred stock issued in conjunction with thePlan in accordance with SFAS 150.

 

The Company alsorecognized a gain of $315,000 on the sale of securities during the Three Month2004 Period.

 

 

LIQUIDITY AND CAPITALRESOURCES

 

The Company’s operationsand growth have been financed with funds provided by the Merger in conjunctionwith the Plan, bank borrowings and funds generated from operations.

 

Under the terms of thePlan, the Company cancelled all equity interests as of the Confirmation Date,which included all common and preferred shareholder interests, and interests ofany holders of options or warrants, and issued 2,079,948 shares of Common Stockto its unsecured creditors in exchange for cancellation of indebtedness uponcompletion of the Merger on August 30, 2002.  The equity holders of CMHI received 1,071,636 shares of Series APreferred Stock and 500,042 shares of Series B Preferred Stock.  The Series B Preferred Stock is convertibleat a ratio of approximately 3.44 shares of Common Stock for each share ofSeries B Preferred Stock to a total of 1,720,130 shares of Common Stock.  As a result of the Merger, the Companyreceived $2,565,000 in cash and $5,084,000 in marketable securities.

 

The Company negotiated apost-confirmation credit facility with Comerica Bank (the “Bank”) in the amountof $4,000,000 that matures on June 30, 2004 and bears interest at 9% perannum (the “Credit Facility”), subject to monthly mandatory principalreductions 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 theCompany.  The Company also pledgedadditional collateral in the form of marketable and other securities to theBank in the amount of $2,500,000. At December 31, 2003, $3,853,000 wasoutstanding under the Credit Facility and an additional $147,000 was availableto the Company pursuant to the available borrowing base.  Under the terms of the Credit Facility, theCompany is required to maintain certain financial ratios and comply withcertain other covenants.  The Companywas in compliance with these covenants as of December 31, 2003.   During the Six Month Fiscal 2004 Period theCompany paid fees associated with the Credit Facility totaling $80,000.

 

As of December 31,2003 the Company’s sources of liquidity were $1,015,000 in cash and cashequivalents, $537,000 in marketable securities, $338,000 in trade accountsreceivable, $608,000 in pawn service charges receivable, $5,535,000 in pawnloan receivables and $2,705,000 in inventories.

 

The Company’sprofitability and liquidity is affected by the amount of loans outstanding,which is controlled in part by the Company’s lending decisions.  The Company is able to influence thefrequency of forfeiture of collateral by increasing or decreasing the amountloaned in relation to the sales value of the pledged property.  Tighter credit decisions generally result insmaller loans in relation to the estimated sales value of the pledged propertyand can thereby decrease the Company’s aggregate loan balance and,consequently, decrease pawn service charges. Additionally, lower loans in relation to the pledged property’sestimated sales value tend to slightly increase loan redemptions and improvethe Company’s liquidity.  Conversely,providing higher loans in relation to the estimated sales value of the pledgedproperty can result in an increase in the Company’s pawn service charge income.  Higher average loan balances can also resultin a slight increase in loan forfeitures, which increases the quantity of goodson hand and, unless the Company increases inventory turnover, reduces theCompany’s liquidity.

 

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The Company believes ithas sufficient working capital to fund its current operations for the fiscalyear ended June 30, 2004.  TheCompany’s ability to expand through the acquisition of new stores and otherbusinesses will be dependent on its ability to replace its existing CreditFacility with a new borrowing agreement. The Company’s current lender has indicated that it will not renew theloan on terms acceptable to the Company. In the event a new credit facility is unavailable, the Company hassufficient working capital on hand as of December 31, 2003 to pay off theCredit Facility.

 

The Series A PreferredStock must be redeemed for cash at $5.00 per share by the Company beginningApril 30, 2005 in amounts of at least $500,000 per year.  Each April 30 thereafter through 2009an additional 100,000 shares must be redeemed for cash at $5.00 per share.  On April 30, 2010 any unredeemed sharesmust be redeemed for cash at $5.00 per share plus any accrued and unpaiddividends.

 

**ITEM 3****.  CONTROLS AND PROCEDURES**

 

Under the supervision of, and with the participation of management,including the Chief Executive Officer and Chief Financial Officer, the Companyhas evaluated its disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) asof the end of the period covered by this report as required by Rules 13a-15(b)and 15d-15(b) of the Securities Exchange Act of 1934, as amended.  Based on this evaluation, the Company hasconcluded that its disclosure controls and procedures were operatingeffectively as designed.  As required,the Company will continue to evaluate the effectiveness of these controls andprocedures on a quarterly basis.

 

There were no changes in the Company’s internal controls over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities andExchange Act of 1934, as amended) during its most recently completed fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal controls over financial reporting.

 

**PART II.  OTHERINFORMATION**

 

**ITEM1.****  LEGALPROCEEDINGS** - None

 

**ITEM2.****  CHANGESIN SECURITIES -**None

 

**ITEM3.****  DEFAULTSUPON SENIOR SECURITIES -**None

 

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

 

**ITEM5.****  OTHERINFORMATION**

 

OnJanuary 26, 2004, the Company filed a Registration Statement on Form SB-2offering $20,000,000 in original principal amount of 8% Limited RecourseSecured Convertible Subordinated Notes due 2014.

 

**ITEM 6.****  EXHIBITS AND REPORTS ON 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 * |

 

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| 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 * |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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| * |   | Filed herewith. |
|---|--------|-----------------|

 

**(b)****           Reports on Form 8-K**-none

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                   | XPONENTIAL, INC.  (Registrant) |
|------------------------|--------------------------------|
|                   |                           |
| February 16, 2004 | By:                            |  /s/ John R. Boudreau |
|                   |                           | John R. Boudreau,  President and Chief |
|                   |                           | Executive Officer |
|                   |                           |   |
| February 16, 2004 | By:                            |  /s/ Robert W. Schleizer |
|                   |                           | Robert W. Schleizer,  Executive Vice |
|                   |                           | President and Chief  Financial Officer |

 

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**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 |

 

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