**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

**FORM10-QSB/A**

**(AmendmentNo. 1)**

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

 

**CommissionFile No. 1-13919**

 
| **Xponential,  Inc.**                                                     |
|---------------------------------------------------------------------------|
| (Exact name of small  business issuer as specified in its charter)        |
|                                                                      |   |   |
| **Delaware**                                                              | ** ** | **75-2520896** |
| (State or other  jurisdiction of  incorporation or organization)          |   | (I.R.S. Employer  Identification No.) |
|                                                                      |   |   |
| **6400  Atlantic Blvd., Suite 190,  Norcross,  Georgia  30071** |
| (Address of principal  executive offices)                                 |
|                                                                      |   |   |
| **(678)  720-0660**                                                       |
| (Issuer’s telephone  number)                                         |

 

Checkwhether 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

 

Checkwhether the registrant filed all documents and reports required to be filed bySection 12, 13 or 15(d) of the Exchange Act after distribution ofsecurities under a plan confirmed by a court. Yes ý No o

 

TheCompany has 2,322,862 shares of Common Stock, par value $0.01 per share,outstanding as of March 31, 2004.

 

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

 

 

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**EXPLANATORYNOTE**

 

An income tax provision was recorded to account forincome taxes as required American Institute of Certified Public AccountantsStatement of Position 90-7 for entities which emerge from bankruptcy.  Income tax expense was increased to $681,000from $18,000 for the nine months ended March 31, 2004 as a result of thecorrection of the error.  Certainfootnote disclosures have also been amended to account for the additionalincome tax expense.  This amendmentreclassifies amounts between additional paid in capital and retained earningsat March 31, 2004 for the effect of recording income taxes for the tenmonths ended June 30, 2003 and includes a restatement for income taxexpense of $194,000 and $286,000 for the three and seven months endedMarch 31, 2003, respectively.  SeeNote 10 for a description of the restatement.

 

2

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**XPONENTIAL,INC.**

 

**INDEX**

 
| **PART I  -  FINANCIAL INFORMATION** | ** **                                                                                                                                                                                                                                            |
|------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                           |                                                                                                                                                                                                                                                  |   |
| **Item 1**                                     | Consolidated Financial  Statements                                                                                                                                                                                                                    |   |
|                                           |                                                                                                                                                                                                                                                  |   |
|                                           | Consolidated Balance Sheets  as of March 31, 2004 and June 30, 2003                                                                                                                                                                         |   |
|                                           |                                                                                                                                                                                                                                                  |   |
|                                           | Consolidated  Statements of Operations for the Nine Months Ended March 31, 2004, the  Two Months Ended August 31, 2002, the Seven Months and Nine Months Ended  March 31, 2003 and the Three Months Ended March 31, 2004 and 2003 |   |
|                                           |                                                                                                                                                                                                                                                  |   |
|                                           | Consolidated  Statements of Cash Flows for the Nine Months Ended March  31, 2004, the  Two Months Ended August 31, 2002, and the Seven Months and Nine Months  Ended March 31, 2003                                                    |   |
|                                           |                                                                                                                                                                                                                                                  |   |
|                                           | Notes to  Consolidated Financial Statements                                                                                                                                                                                                           |   |
|                                           |                                                                                                                                                                                                                                                  |   |
| **Item  2**                                    | Management’s  Discussion and Analysis or Plan of Operation                                                                                                                                                                                       |   |

 

3

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

 

**XPONENTIAL,INC. AND SUBSIDIARIES**

Consolidated Balance Sheets

(In thousands, except share and per sharedata)

 
| ** **                                                                                                                                                             | ** ** | **March 31, 2004** | ** ** | **June 30, 2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                             | ** ** | **(Unaudited)**         | ** ** | **(As restated)**      | ** ** |
| ** **                                                                                                                                                             | ** ** | **(As restated)**       | ** ** | ** **             | ** ** |
| Assets                                                                                                                                                                 |       |                    |       |                   |       |
| Current  assets:                                                                                                                                                       |       |                    |       |                   |       |
| Cash and  cash equivalents                                                                                                                                             |       | $                       | 800        |                   | $          | 220 |   |
| Accounts  receivable                                                                                                                                                   |       | 67                      |       | 176                    |       |
| Pawn service  charges receivable                                                                                                                                       |       | 483                     |       | 503                    |       |
| Pawn loans                                                                                                                                                             |       | 4,386                   |       | 4,571                  |       |
| Inventories,  net                                                                                                                                                      |       | 2,740                   |       | 2,540                  |       |
| Investments,  including $2,500 pledged to secure notes payable                                                                                                         |       | 3,293                   |       | 7,725                  |       |
| Prepaid  expenses and other current assets                                                                                                                             |       | 309                     |       | 245                    |       |
| Total  current assets                                                                                                                                                  |       | 12,078                  |       | 15,980                 |       |
|                                                                                                                                                                   |       |                    |       |                   |       |
| Property and  equipment, net                                                                                                                                           |       | 903                     |       | 889                    |       |
| Intangible  assets, net of amortization of $33 and $6 at March 31, 2004 and  June 30, 2003, Respectively                                                     |       | 46                      |       | 41                     |       |
| Investment  in AIMC (note 8)                                                                                                                                           |       | 2,725                   |       | —                 |       |
| Other assets                                                                                                                                                           |       | 221                     |       | 107                    |       |
| Total assets                                                                                                                                                           |       | $                       | 15,973     |                   | $          | 17,017 |   |
|                                                                                                                                                                   |       |                    |       |                   |       |
| Liabilities  and Stockholders’ Equity                                                                                                                             |       |                    |       |                   |       |
| Current  liabilities:                                                                                                                                                  |       |                    |       |                   |       |
| Accounts  payable and accrued liabilities                                                                                                                              |       | $                       | 655        |                   | $          | 1,009 |   |
| Current  installments of notes payable                                                                                                                                 |       | 3,108                   |       | 4,074                  |       |
| Total  current liabilities                                                                                                                                             |       | 3,763                   |       | 5,083                  |       |
| Long term  liabilities                                                                                                                                                 |       |                    |       |                   |       |
| Notes  payable – net of current portion                                                                                                                           |       | 298                     |       | 396                    |       |
| Redeemable  Preferred Stock:                                                                                                                                           |       |                    |       |                   |       |
| Series A;  par value $0.01; 5% cumulative dividend, liquidation preference $5.00 per  share; 1,071,636 shares issued at March 31, 2004 and June 30, 2003     |       | 5,358                   |       | 5,358                  |       |
| Total long  term liabilities                                                                                                                                           |       | 5,656                   |       | 5,754                  |       |
|                                                                                                                                                                   |       |                    |       |                   |       |
| Total  liabilities                                                                                                                                                     |       | 9,419                   |       | 10,837                 |       |
|                                                                                                                                                                   |       |                    |       |                   |       |
| Stockholders’  equity:                                                                                                                                            |       |                    |       |                   |       |
| Preferred  stock - $0.01 par value, 2,500,000 authorized:                                                                                                              |       |                    |       |                   |       |
| Series B; 5%  cumulative dividend, liquidation preference $5.00 per share ($2,500,210);  500,042 issued.                                                               |       | 5                       |       | 5                      |       |
| Common stock  $0.01 par value; authorized 10,000,000 shares, 2,322,862 and 2,079,948 issued  and outstanding. March 31, 2004 and June 30, 2003, respectively |       | 23                      |       | 21                     |       |
| Additional  paid-in capital                                                                                                                                            |       | 5,352                   |       | 4,403                  |       |
| Retained  earnings (accumulated deficit)                                                                                                                               |       | 967                     |       | (7                     | )          |
| Accumulated  other comprehensive income                                                                                                                                |       | 247                     |       | 1,758                  |       |
| Less  treasury stock, at cost; 25,000 common shares at March 31, 2004                                                                                             |       | (40                     | )          | —                 |       |
| Total  stockholders’ equity                                                                                                                                       |       | 6,554                   |       | 6,180                  |       |
|                                                                                                                                                                   |       |                    |       |                   |       |
| Total  liabilities and stockholders’ equity                                                                                                                       |       | $                       | 15,973     |                   | $          | 17,017 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

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**XPONENTIAL,INC. AND SUBSIDIARIES**

 

Consolidated Statements ofOperations

(Unaudited)

 
| ** **                                                                                                              | ** ** | **Reorganized  Company**                    | ** ** | **Predecessor**                             | ** ** | **Reorganized  Company**                     | ** ** | ** **                                  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                              | ** ** | **Nine Months  Ended  March 31, 2004** | ** ** | **Two Months  Ended  August 31, 2002** | ** ** | **Seven Months  Ended  March 31, 2003** | ** ** | **Nine Months  Ended  March 31, 2003** | ** ** |
| ** **                                                                                                              | ** ** | **(As restated)**                           | ** ** | ** **                                  | ** ** | **(As restated)**                            | ** ** | **(As restated)**                           | ** ** |
| Revenues:                                                                                                               |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Merchandise  sales                                                                                                      |       | $                                           | 10,715     |                                        | $          | 1,578                                        |       | $                                           | 7,497      |   | $ | 9,075 |   |
| Pawn service  charges and related fee income                                                                            |       | 5,102                                       |       | 891                                         |       | 3,196                                        |       | 4,087                                       |       |
| Management  advisory and related fee income                                                                             |       | 301                                         |       | —                                      |       | —                                       |       | —                                      |       |
| Total  revenues                                                                                                         |       | 16,118                                      |       | 2,469                                       |       | 10,693                                       |       | 13,162                                      |       |
|                                                                                                                    |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Expenses:                                                                                                               |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Cost of  sales                                                                                                          |       | 8,936                                       |       | 1,075                                       |       | 5,342                                        |       | 6,417                                       |       |
| Store operating  expenses                                                                                               |       | 4,680                                       |       | 896                                         |       | 3,168                                        |       | 4,064                                       |       |
| Corporate  administrative expenses                                                                                      |       | 2,217                                       |       | 336                                         |       | 1,816                                        |       | 2,152                                       |       |
| Depreciation  and amortization                                                                                          |       | 355                                         |       | 63                                          |       | 171                                          |       | 234                                         |       |
| Total  expenses                                                                                                         |       | 16,188                                      |       | 2,370                                       |       | 10,497                                       |       | 12,867                                      |       |
| Operating  income (loss)                                                                                                |       | (70                                         | )          | 99                                          |       | 196                                          |       | 295                                         |       |
|                                                                                                                    |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Interest and  dividend income                                                                                           |       | 319                                         |       | —                                      |       | 95                                           |       | 95                                          |       |
| Interest  expense including redeemable preferred stock dividends of $201 for the nine  months ended March 31, 2004 |       | (523                                        | )          | (83                                         | )          | (176                                         | )          | (259                                        | )          |
| Gain on  disposition of assets                                                                                          |       | 5                                           |       | —                                      |       | 6                                            |       | 6                                           |       |
| Reorganization  expenses                                                                                                |       | —                                      |       | (241                                        | )          | —                                       |       | (241                                        | )          |
| Gain on sale  of investments                                                                                            |       | 2,018                                       |       | —                                      |       | 631                                          |       | 631                                         |       |
| Net income  (loss) before extraordinary items and income taxes                                                          |       | 1,749                                       |       | (225                                        | )          | 752                                          |       | 527                                         |       |
| Income tax  provision                                                                                                   |       | 681                                         |       | —                                      |       | 286                                          |       | 286                                         |       |
| Net income  (loss) before extraordinary item                                                                            |       | 1,068                                       |       | (225                                        | )          | 466                                          |       | 241                                         |       |
| Extraordinary  item:                                                                                                    |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Gain on debt  discharge                                                                                                 |       | —                                      |       | 11,810                                      |       | —                                       |       | 11,810                                      |       |
| Net income                                                                                                              |       | 1,068                                       |       | 11,585                                      |       | 466                                          |       | 12,051                                      |       |
| Preferred  stock dividend requirement                                                                                   |       | (94                                         | )          | —                                      |       | (229                                         | )          | (229                                        | )          |
| Net income  allocable to common stockholders                                                                            |       | $                                           | 974        |                                        | $          | 11,585                                       |       | $                                           | 237        |   | $ | 11,822 |   |
|                                                                                                                    |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Income  (loss) per common share (note 5):                                                                               |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Basic                                                                                                                   |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Continuing  operations                                                                                                  |       | $                                           | 0.42       |                                        | $          | (0.09                                        | )          | $                                           | 0.11       |   | $ |   | * |
| Extraordinary  item                                                                                                     |       | —                                      |       | 4.72                                        |       | —                                       |       |                                        | *          |
|                                                                                                                    |       | $                                           | 0.42       |                                        | $          | 4.63                                         |       | $                                           | 0.11       |   | $ |   | * |
| Diluted                                                                                                                 |       |                                        |       |                                        |       |                                         |       |                                        |       |
| Continuing  operations                                                                                                  |       | $                                           | 0.26       |                                        | $          | (0.09                                        | )          | $                                           | 0.08       |   | $ |   | * |
| Extraordinary  item                                                                                                     |       | —                                      |       | 4.72                                        |       |                                         |       |                                        | *          |
|                                                                                                                    |       | $                                           | 0.26       |                                        | $          | 4.63                                         |       | $                                           | 0.08       |   | $ |   | * |

 

----

*Loss per share for period includes periods prior toand after Plan consummation and merger are therefore not meaningful.

 

See accompanying notes to consolidatedfinancial statements

 

5

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(Inthousands, except per share data)

 
| ** **                                                                                                              | ** ** | **Three Months  Ended  March 31, 2004** | ** ** | **Three Months  Ended  March 31, 2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                                              | ** ** | **(As restated)**                            | ** ** | **(As restated)**                            | ** ** |
| Revenues:                                                                                                               |       |                                         |       |                                         |       |
| Merchandise  sales                                                                                                      |       | $                                            | 3,414      |                                         | $          | 3,203 |   |
| Pawn service  charges and related fee income                                                                            |       | 1,687                                        |       | 1,388                                        |       |
| Management  advisory and related fee income                                                                             |       | 149                                          |       | —                                       |       |
| Total  revenues                                                                                                         |       | 5,250                                        |       | 4,591                                        |       |
|                                                                                                                    |       |                                         |       |                                         |       |
| Expenses:                                                                                                               |       |                                         |       |                                         |       |
| Cost of  sales                                                                                                          |       | 2,953                                        |       | 2,288                                        |       |
| Store  operating expenses                                                                                               |       | 1,579                                        |       | 1,386                                        |       |
| Corporate  administrative expenses                                                                                      |       | 776                                          |       | 868                                          |       |
| Depreciation  and amortization                                                                                          |       | 126                                          |       | 73                                           |       |
| Total  expenses                                                                                                         |       | 5,434                                        |       | 4,615                                        |       |
|                                                                                                                    |       |                                         |       |                                         |       |
| Operating  (loss)                                                                                                       |       | (184                                         | )          | (24                                          | )          |
|                                                                                                                    |       |                                         |       |                                         |       |
| Interest and  dividend income                                                                                           |       | 64                                           |       | 53                                           |       |
| Interest  expense including redeemable preferred stock dividends of $67 for the three  months ended March 31, 2004 |       | (198                                         | )          | (69                                          | )          |
| Gain on  disposition of assets                                                                                          |       | 9                                            |       | —                                       |       |
| Gain on sale  of investments                                                                                            |       | 72                                           |       | 543                                          |       |
| Net income  (loss) before income taxes                                                                                  |       | (237                                         | )          | 503                                          |       |
| Income tax  (provision) benefit                                                                                         |       | 58                                           |       | (194                                         | )          |
| Net income  (loss)                                                                                                      |       | (179                                         | )          | 309                                          |       |
|                                                                                                                    |       |                                         |       |                                         |       |
| Preferred  stock dividend requirement                                                                                   |       | (31                                          | )          | (98                                          | )          |
| Net income  (loss) allocable to common stockholders                                                                     |       | $                                            | (210       | )                                            | $          | 211 |   |
|                                                                                                                    |       |                                         |       |                                         |       |
| Income  (loss) per common share (note 5):                                                                               |       |                                         |       |                                         |       |
| Basic                                                                                                                   |       |                                         |       |                                         |       |
| Continuing  operations                                                                                                  |       | $                                            | (0.09      | )                                            | $          | 0.10 |   |
|                                                                                                                    |       |                                         |       |                                         |       |
| Diluted                                                                                                                 |       |                                         |       |                                         |       |
| Continuing  operations                                                                                                  |       | $                                            | (0.09      | )                                            | $          | 0.06 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

6

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**XPONENTIAL,INC. AND SUBSIDIARIES**

 

Consolidated Statements ofCash Flows

(Unaudited)

 
| ** **                                                                                    | ** ** | **Reorganized  Company**                              | ** ** | **Predecessor**                                       | ** ** | **Reorganized Company**                                | ** ** | ** **                                            | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|
| **(In thousands)**                                                                            | ** ** | **For the  Nine Months  Ended  March 31,  2004** | ** ** | **For the  Two Months  Ended  August 31,  2002** | ** ** | **For the  Seven Months  Ended  March 31,  2003** | ** ** | **For the  Nine Months  Ended  March 31,  2003** | ** ** |
| ** **                                                                                    | ** ** | **(As restated)**                                     | ** ** | ** **                                            | ** ** | **(As restated)**                                      | ** ** | **(As restated)**                                     | ** ** |
| Cash flows  from operating activities:                                                        |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| Net income                                                                                    |       | $                                                     | 1,068      |                                                  | $          | 11,585                                                 |       | $                                                     | 466        |   | $ | 12,051 |   |
| Adjustments  to reconcile net income to net cash (used in) provided by operating  activities: |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| Depreciation  and amortization                                                                |       | 355                                                   |       | 63                                                    |       | 171                                                    |       | 234                                                   |       |
| Gain on debt  discharge                                                                       |       | —                                                |       | (11,810                                               | )          | —                                                 |       | (11,810                                               | )          |
| Gain on sale  of investments                                                                  |       | (2,018                                                | )          | —                                                |       | —                                                 |       | —                                                |       |
| Deferred  income tax expense                                                                  |       | 663                                                   |       | —                                                |       | 286                                                    |       | 286                                                   |       |
| Changes in  operating assets and liabilities, net of effect of acquisition:                   |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| Accounts  receivable                                                                          |       | 109                                                   |       | (24                                                   | )          | 8                                                      |       | (16                                                   | )          |
| Net decrease  (increase) in pawn loans                                                        |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| Inventories,  net                                                                             |       | (200                                                  | )          | 62                                                    |       | 440                                                    |       | 502                                                   |       |
| Prepaid  expenses and other current assets                                                    |       | (182                                                  | )          | (3                                                    | )          | 25                                                     |       | 22                                                    |       |
| Accounts  payable and accrued liabilities                                                     |       | (354                                                  | )          | (56                                                   | )          | 132                                                    |       | 76                                                    |       |
| Net cash  (used in) provided by operating activities                                          |       | (559                                                  | )          | (183                                                  | )          | 1,528                                                  |       | 1,345                                                 |       |
| Cash flows  from investing activities:                                                        |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| Pawn loans  made, net                                                                         |       | 205                                                   |       | (459                                                  | )          | (233                                                   | )          | (692                                                  | )          |
| Proceeds  from sale of investments                                                            |       | 8,200                                                 |       | —                                                |       | 871                                                    |       | 871                                                   |       |
| Purchase of  investments                                                                      |       | (6,010                                                | )          | —                                                |       | —                                                 |       | —                                                |       |
| Cash  acquired in merger (1)                                                                  |       | —                                                |       | —                                                |       | 2,565                                                  |       | 2,565                                                 |       |
| Purchases of  property and equipment                                                          |       | (338                                                  | )          | —                                                |       | (304                                                   | )          | (304                                                  | )          |
| Net cash  provided by (used in) investing activities                                          |       | 2,057                                                 |       | (459                                                  | )          | 2,899                                                  |       | 2,440                                                 |       |
|                                                                                          |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| Cash flows  from financing activities:                                                        |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| (Principal  payments)/borrowings on notes payable                                             |       | (1,065                                                | )          | 455                                                   |       | (2,415                                                 | )          | (1,960                                                | )          |
| Sale of  common stock                                                                         |       | 281                                                   |       | —                                                |       | —                                                 |       | —                                                |       |
| Purchase of  treasury stock                                                                   |       | (40                                                   | )          | —                                                |       | —                                                 |       | —                                                |       |
| Dividends  paid                                                                               |       | (94                                                   | )          | —                                                |       | (229                                                   | )          | (229                                                  | )          |
| Net cash  provided by (used in) financing activities                                          |       | (918                                                  | )          | 455                                                   |       | (2,644                                                 | )          | (2,189                                                | )          |
| Net increase  (decrease) in cash and cash equivalents                                         |       | 580                                                   |       | (187                                                  | )          | 1,783                                                  |       | 1,596                                                 |       |
| Cash and  cash equivalents at beginning of period                                             |       | 220                                                   |       | 377                                                   |       | 190                                                    |       | 377                                                   |       |
| Cash and  cash equivalents at end of period                                                   |       | $                                                     | 800        |                                                  | $          | 190                                                    |       | $                                                     | 1,973      |   | $ | 1,973 |   |
|                                                                                          |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| Supplemental  disclosures of cash flow information -                                          |       |                                                  |       |                                                  |       |                                                   |       |                                                  |       |
| Cash paid  for interest                                                                       |       | $                                                     | 152        |                                                  | $          | 83                                                     |       | $                                                     | 164        |   | $ | 247 |   |

 

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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 accompanying notes to consolidatedfinancial statements.

 

7

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**XPONENTIAL,INC. AND SUBSIDIARIES**

 

Notes to ConsolidatedFinancial Statements

(Unaudited)

 

(1)                      Basis of Presentation

 

The accompanying financialstatements have been prepared in accordance with the American Institute ofCertified Public Accountants Statement of Position 90-7: “Financial Reportingby Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) andgenerally accepted accounting principles for interim financial information andtherefore do not include all disclosures necessary for complete financialstatements.  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 for theperiods presented.

 

The Board of Directors ofthe Company determined in May 2002 that it was in the Company’s best interestto change its fiscal year end from the Saturday nearest January 31 toJune 30 to more accurately reflect the Company’s post-bankruptcy operatingresults. The results of operations for the interim periods ended March 31,2004 and March 31, 2003 are not necessarily indicative of the results thatmay be expected for the entire fiscal year or any other interim period. 

 

The financial statementsshould be read in conjunction with the financial statements for the fiscal yearended June 30, 2003 included in the Company’s Form 10-KSB and Form 10KSB/Awhich have been previously filed with the Securities and ExchangeCommission.  

 

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

 

On July 9, 2001 theCompany filed a voluntary petition for relief under Chapter 11 of the UnitedStates Bankruptcy Code in the United States Bankruptcy Court for the NorthernDistrict of Texas, Fort Worth Division (the “Bankruptcy Court”) in the case of Xponential,Inc., Debtor, Case No. 01-44957-BJH-11. 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”).

 

The Company successfullyemerged from bankruptcy on August 30, 2002 when it consummated 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.

 

Fresh-start reporting as setforth in SOP 90-7 required that the reorganized Company restate its assets andliabilities to reflect their reorganization value, which approximates fairvalue at the date of the reorganization. In so restating, SOP 90-7 required the reorganized Company to allocateits reorganization value to its assets based upon their estimated fairvalue.  Each liability existing on theConfirmation Date is to be stated at the present value of amounts to be paid,determined using an appropriate discount rate. 

 

The fresh-start reportingreorganization value of approximately $7.6 million resulted in a net value of approximately$1.9 million to the new common equity holders after allowance for postconfirmation liabilities of the reorganized Company of $5.7 million.  The reorganization value was determined inconsideration of several factors and by reliance on various valuation methodsincluding discounted cash flow, book value multiples of comparable companies inits industry, net realizable value of asset sales and other applicablemethods.  The calculated reorganizationvalue was based on estimates and assumptions about 

 

8

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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 issuedSFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity” (“SFAS 150”).  This statement was effective for interimperiods after June 15, 2003 and required that mandatorily redeemablepreferred stock be classified as a liability and related dividends be chargedto the Company’s statement of operations. Prior to June 15, 2003, the charges related to the mandatorily redeemablepreferred stock were not reflected in net income (loss), but were reflected indetermining net income (loss) applicable to common stockholders. AtMarch 31, 2004, the carrying value of the Company’s mandatorily redeemablepreferred stock was $5,358,000.  Therelated dividends that would have been reflected as interest expense for thethree months and seven months ended March 31, 2003 were $67,000 and$156,000, respectively.  Subsequent tothe adoption of SFAS 150, the Company has reflected $67,000 and $201,000 asinterest expense for the three months and nine months ended March 31,2004, respectively.

 

(2)           Plan of Reorganization - Fresh-StartReporting

 

Under the terms of the Plan,the Company cancelled all equity interests of its common and preferredstockholders and interests of any holders of options and warrants.  The Company issued 2,079,948 shares of CommonStock to its unsecured creditors in exchange for release of indebtedness and inconnection with the Merger of the Company with CMHI, which is owned in part byDwayne A. Moyers and Jeffrey A. Cummer, officers and directors of the Company,issued 1,071,636 shares of Series A Preferred Stock and 500,042 Series BPreferred Stock to the former shareholders of CMHI.  At the time of the Merger with CMHI, CMHI didnot have any business operations and principally held investments.

 

The Company is paying theprepetition priority tax claims over a six year period from the assessment datewith interest at 7% per annum in quarterly installments of approximately$35,000 in accordance with the Plan.

 

The Bankruptcy Courtconfirmed the Plan on May 20, 2002 with an Effective Date of May 31, 2002.  The consummation of the Plan was contingenton several material events including consummation of the Merger which occurredon August 30, 2002 which was reported as a material businesscombination.  

 

The Company acquired 100percent of the outstanding common stock of CMHI on August 30, 2002.  The results of CMHI’s operations have beenincluded in the financial statements since the date of the Merger.   

 

The Company’s reorganizationvalue, computed immediately before the Merger, was $7,567,000. 

 

9

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The Company adoptedfresh-start reporting because holders of existing voting shares immediatelybefore confirmation of the Plan received less than 50% of the voting shares ofthe emerging entity (all pre-confirmation equity interests were cancelled), andthe reorganization value is less than the postpetition liabilities and allowedclaims, as shown below.     

 

The reorganization value wasdetermined in consideration of several factors and by reliance on variousvaluation methods including discounting cash flow, book value multiples ofcomparable companies in the Company’s industry, net realizable value of assetsales and other applicable methods.  TheCompany assigned no value to its net operating loss carryovers in thecalculation of its reorganization value due to the lack of certainty ofutilizing the net operating losses based on historical operating results andthe 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     |   |

 

After consideration of theCompany’s debt capacity, extensive negotiations among parties in interest,projected earnings before interest and taxes, free cash flow to interest anddebt service and other capital considerations, it was agreed that the Company’sorganization capital structure prior to the Merger, is as follows:

 

At August 30, 2002

(in thousands)

 

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

 

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

 

 

On August 30, 2002, theCompany acquired 100 percent of the outstanding common shares of CMHI pursuantthe Plan. 

 

The aggregate purchase pricefor CMHI was approximately $7.8 million which was paid through the issuance ofSeries A and Series B Preferred Stock valued at $5.3 million and $2.5 million,respectively.  The value of the PreferredStock was based on liquidation preferences and dividend and conversion features.  

 

10

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The following tablesummarizes the estimated value of the acquired assets and liabilities assumedat the date of the Merger.

 

At August 30, 2002

(in thousands)

 

| Current  assets                         |   | $     | 2,725  |   |
|-----------------------------------------|--------|-------|--------|--------|
| Property and  equipment, net            |   | 36    |   |
| Other assets  and marketable securities |   | 5,117 |   |
| Total assets  acquired                  |   | 7,878 |   |
| Total  liabilities assumed              |   | 20    |   |
| Net assets  acquired                    |   | $     | 7,858  |   |

 

Of the $5.1 million in otherassets, $5.0 million are investments in marketable securities.

 

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

 

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

 

11

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(3)           Notes Payable

 

*Revolving Credit Facility-*

 

The Company and itswholly-owned subsidiary, PawnMart, Inc. (“PawnMart”) currently have a creditfacility with Comerica Bank (the “Bank”) in the amount of $4,000,000 thatmatures on June 30, 2004 and bears interest at 9% per annum (the “CreditFacility”), subject to monthly mandatory principal reductions each in theamount of $100,000 commencing February 1, 2004 through and includingJune 1, 2004.  Amounts availableunder the Credit Facility are limited to certain percentages of pawn loans,inventories, and pawn service charges receivable.  The Credit Facility is collateralized bysubstantially all of the unencumbered assets of the Company and PawnMart.  The Company also pledged additionalcollateral in the form of marketable and other securities to the Bank in theamount of $2,500,000.  At March 31,2004, $2,955,000 was outstanding under the Credit Facility and an additional$845,000 was available to the Company pursuant to the available borrowingbase.  Under the terms of the CreditFacility, the Company and PawnMart are required to maintain certain financialratios and to comply with certain other covenants.  The Company and PawnMart paid fees associatedwith the Credit Facility totaling $80,000 during the nine months endedMarch 31, 2004.

 

In April 2004, PawnMartentered into a commitment agreement for a $4,500,000 senior credit facilitywith First Capital Corporation. (the “Senior Credit Facility”) to replace thecurrent Credit Facility with Comerica Bank on more favorable terms.   The Senior Credit Facility will mature threeyears from closing and will bear interest at a rate of the prevailing primerate plus 2%.  The Company has paid a feeof $15,000 in connection with the commitment. Although the Company anticipates that the transaction with First CapitalCorporation will be completed, there can be no assurance that the Senior CreditFacility will be funded.

 

(4)           Stock Option Plan 

 

Effective January 1,2003, the Company adopted the fair value method defined in SFAS No. 123,“Accounting for Stock-Based Compensation,” in accounting for the Company’sstock option plans. Previously the Company applied Accounting PrinciplesBoard’s Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued toEmployees,” 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 for 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 stock optionsoutstanding on the Confirmation Date were cancelled in accordance with thePlan. 

 

The Company adopted its 2003Stock Option Plan (“Stock Option Plan”) and 2003 Stock Incentive 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 grantedoptions covering 455,000 common shares from the Stock Option Plan of which299,000 shares were immediately exercisable. The remaining options for thegrant of 156,000 shares were contingent upon achieving $500,000 EBITDA for thefiscal year ended June 30, 2003, which the Company achieved.  These options vest 66 2/3% on June 30,2004 and 33 1/3% on June 30, 2005. The $8,000 cost of these options is being amortized over the vestingperiod described above.   The Companyrecognized $1,200 and $3,700 of compensation expense for options granted duringthe three month and nine month periods ended March 31, 2004,respectively.  The Incentive Planprovides an opportunity to employees of the Company to purchase common sharesdirectly from the

 

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Company through payroll deductions.  As of March 31, 2004, 18,914 shares havebeen issued under the Incentive Plan.

 

The following tablesummarizes the stock option activity of the reorganized Company from the timeit emerged from bankruptcy:

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

 

(5)           Weighted Average Shares and Net Income (Loss)Per Common Share

 

Net income (loss) per commonshare is calculated as required by FASB Statement of Financial AccountingStandards No. 128, “Earnings Per Share” (“Statement No. 128”).  Statement No. 128 requires dual presentationof basic and diluted earnings per share and a reconciliation between the twoamounts.  Basic earnings per shareexcludes dilution, and diluted earnings per share reflects the potentialdilution that would occur if securities for the purchase of Common Stock wereexercised.  In loss periods, dilutivecommon equivalent shares are excluded as the effect would be antidilutive.

 

The Company issued 2,079,948shares of Common Stock upon consummation of the Plan and  500,042 shares of Series B Preferred Stockwhich is convertible at the option of the holders into 1,720,130 shares of theCompany’s Common Stock.  In loss periods,dilutive common equivalent shares are excluded as the effect would beantidilutive.

 
| **For the Three Months Ended  March 31, 2003** | ** ** | **Net Income  Allocable to  Common  Shareholders** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|---------------|------------|
|                                                |       |                                               |       |       |       |          |       |
| Basic  earnings per common share                    |       | $                                                  | 211,000    |       | 2,079,948  |          | $          | 0.10 |   |
|                                                |       |                                               |       |       |       |          |       |
| Assumed  conversion of Series B Preferred Stock     |       | 31,000                                             |       | 1,720,130  |       |          |       |
|                                                |       |                                               |       |       |       |          |       |
| Diluted  earnings per common share                  |       | $                                                  | 242,000    |       | 3,800,078  |          | $          | 0.06 |   |

 

The reconciliation of basicand diluted weighted average common shares and the reconciliation for the basicand diluted earnings per common share for the nine months ended March 31,2004 and for the seven

 

13

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months ended March 31, 2003, respectively,following consummation of the Plan and the issuance of the new common andconvertible preferred stock pursuant to the Plan is as follows:

 
| **For the Nine Months Ended  March 31, 2004** | ** ** | **Net Income  Allocable to  Common  Shareholders** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|---------------|------------|
|                                               |       |                                               |       |       |       |          |       |
| Basic  earnings per common share                   |       | $                                                  | 974,000    |       | 2,322,862  |          | $          | 0.42 |   |
|                                               |       |                                               |       |       |       |          |       |
| Assumed  conversion of Series B Preferred Stock    |       | 94,000                                             |       | 1,720,130  |       |          |       |
|                                               |       |                                               |       |       |       |          |       |
| Diluted  earnings per common share                 |       | $                                                  | 1,068,000  |       | 4,042,992  |          | $          | 0.26 |   |

 
| **For the Seven Months Ended  March 31, 2003** | ** ** | **Net Income  Allocable to  Common  Shareholders** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------------|------------|------------|------------|---------------|------------|
|                                                |       |                                               |       |       |       |          |       |
| Basic  earnings per common share                    |       | $237,000                                           |       | 2,079,948  |       | $0.11         |       |
|                                                |       |                                               |       |       |       |          |       |
| Assumed  conversion of Series B Preferred Stock     |       | 74,000                                             |       | 1,720,130  |       |          |       |
|                                                |       |                                               |       |       |       |          |       |
| Diluted  earnings per common share                  |       | $311,000                                           |       | 3,800,078  |       | $0.08         |       |

 

Exercisable stock optionsfor the purchase of 80,000 shares of Common Stock for the three and nine monthsended March 31, 2004 have been excluded from the computation of dilutedearnings per share because they are antidilutive.

 

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(6)           Investments in Marketable Securities

 

Marketable equity securitieshave been categorized as available-for-sale and carried at fair value.  Unrealized gains and losses foravailable-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 judged tobe other than temporary, the cost basis of the security is written down to fairvalue and the amount of the write-down is included in the consolidatedstatement of operations.      

 

As of March 31, 2004,the Company owned the following marketable securities:

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

 

As of June 30, 2003,the Company owned the 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

 

Comprehensive income is as follows:

 
| **(in thousands)**                                         | ** ** | **For the Three  Month Period  Ended  March 31, 2004** | ** ** | **For the Nine  Month Period  Ended  March 31, 2004** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------------------------------|------------|------------------------------------------------------------|------------|
|                                                       |       |                                                        |       |                                                       |       |
| Net income  (loss)                                         |       | $                                                           | (179       | )                                                          | $          | 1,032 |   |
| Unrealized  gain from available for sale Securities        |       | (77                                                         | )          | 231                                                        |       |
| Reclassification  of realized gains included in net income |       | (7                                                          | )          | (1,150                                                     | )          |
|                                                       |       |                                                        |       |                                                       |       |
| Comprehensive  income (loss)                               |       | $                                                           | (263       | )                                                          | $          | 313 |   |

 

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(8)           Investment in AIMC

 

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

 

In December 2003 theCompany participated in the AIMC rights offering by purchasing 225,000 sharesof AIMC common stock for $6.00 per share, totaling $1,350,000.

 

In March 2004 theCompany entered into a stock purchase and stock option agreement with ashareholder of AIMC to purchase up to 84,000 shares of AIMC common stock for$6.00 per share, of which 28,000 shares have been purchased.  The Company has an option to purchase up toan additional 56,000 shares in installments through August 31, 2004 at thesame per share purchase price.

 

At April 30, 2004, theCompany and its wholly-owned subsidiary Xponential Advisors, Inc. collectivelyowned 463,248 common shares of AIMC, or approximately a 9.1% ownershipinterest, exclusive of the warrants to purchase 100,000 shares of AIMC commonstock at $15.00 per share received in connection with the financing.

 

As of April 30, 2004directors and officers of the Company, directly and through affiliates, owned18.92% of the common stock of AIMC, calculated on a fully diluted basis.

 

(9)           Store Closing

 

In March 2004, theCompany decided to close its South Carolina location due to unfavorable changesin the state’s pawn regulations.  Thetotal revenues for the store for the nine months and three months endedMarch 31, 2004 were $476,000 and $130,000, respectively.  Net operating income for the store for thenine months and three months ended March 31, 2004 did not have a materialeffect on operating income.  Storeclosing expenses are not anticipated to be material.

 

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(10)         Restatement of Annual and Quarterly FinancialStatements

 

The financial statements forthe year ended June 30, 2003 and for the quarters ended March 31,2004 and March 31, 2003 have been restated from amounts previouslyreported to reflect the correction of an error for the understatement of incometax expense related to the utilization of the Company’s net operating losscarryforwards not previously recorded upon the emergence from bankruptcy. Therestatement reduced income tax benefit and increased the net loss by $23,000for the three months ended March 31, 2004, increased income tax expenseand reduced net income by $68,000 for the nine months ended March 31, 2004and increased income tax expense and reduced net income by $194,000 and$286,000 for the three and seven months ended March 31, 2003,respectively, with corresponding increases to paid in capital.  There is no effect on cash flows of theCompany for this restatement.

 

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**ITEM 2.****                            ****MANAGEMENT’S DISCUSSION ANDANALYSIS OR PLAN OF OPERATION**

 

### *Statements appearing in the following discussion thatare not historical facts are forward-looking statements (“forward-lookingstatements”) within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended, which are intended to be covered by the safe harbors created bythose sections.  Such forward-lookingstatements are necessarily estimates reflecting the best judgment of theCompany’s management based upon current information and involve known andunknown risks, uncertainties and other factors which may cause the actualresults, performance or achievements of the Company, or industry results, to bematerially different from any future results, performance or achievementsexpressed or implied by such forward-looking statements.  Such risks, uncertainties and other factors,include, but are not limited to, those set forth and those appearing from timeto time in filings made by the Company with the Securities and ExchangeCommission.  These risks, uncertaintiesand other factors should not be construed as exhaustive and the Company doesnot undertake, and specifically disclaims any obligation, to update anyforward-looking statements to reflect occurrences or unanticipated events orcircumstances 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 and Form 10KSB/A for the fiscal year ended June 30,2003.*

 

GENERAL

 

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

 

The Company also provides management advisoryservices in conjunction with financing and investments provided to othercompanies.  In October 2003 theCompany provided financing to American IronHorse Motorcycle Company, Inc.(“AIMC”), a Texas corporation, in the amount of $1,000,000. The note evidencingthe financing provided for interest at the rate of 12% per annum and waspayable in monthly installments of interest only until September 30, 2004,when all outstanding principal plus accrued interest matured.  In connection with the financing the Companyalso received warrants for the purchase of 100,000 shares of common stock ofAIMC at $15.00 per share.  Pursuant tothe financing arrangement AIMC agreed to retain Xponential Advisors, Inc., asubsidiary of the Company, as managers and to pay Xponential Advisors, Inc. amanagement fee of $5,700 per week for the services of John R. Boudreau andtwenty-five (25) shares of common stock of AIMC for each hour worked by RobertW. Schleizer up to a maximum of 24 hours per week.  On April 1, 2004 Mr. Boudreau became afull time employee of AIMC and AIMC discontinued paying Xponential Advisors,Inc. $5,700 per week under the management agreement.  The management agreement will terminate onJuly 31, 2004. On January 30, 2004, the Company converted the$1,000,000 note into common stock of AIMC at a rate of one share for each $6.00of principal converted, for a total of 166,666 shares. The Company received a$50,000 investment fee at the time the financing was provided and an additional$50,000 investment fee in connection with the conversion of the $1,000,000note.

 

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

 

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

 

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The Company filed for protection under theBankruptcy Code on July 9, 2001. The Company operated as debtor in possession throughout the bankruptcyproceedings. The Plan was filed on February 15, 2002 and was amended onApril 3, 2002.  A confirmationhearing for the Plan was held on May 20, 2002 and the Plan was confirmed by theBankruptcy Court as of that date with an effective date of May 31, 2002. 

 

Pursuant to the Plan, the Company issued 2,079,948shares of Common Stock to its unsecured creditors in exchange for release fromindebtedness.  The Company also completeda merger with C/M Holdings, Inc., a Texas corporation (“CMHI”), whereby theequity holders of CMHI received two new classes of Preferred Stock, 1,071,636shares of Series A Preferred Stock and 500,042 shares of Series B PreferredStock.  The 500,042 shares of Series BPreferred Stock are convertible into 1,720,130 shares of Common Stock, orapproximately 45% of the total Common Stock. The Company also negotiated a post-confirmation credit facility with abank in the amount of $4,500,000.  Termsof the Plan are set forth in the Company’s Form 10-KSB for the year endedJune 30, 2003.

 

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

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

 

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

(2)          Interest expense for the nine months ended March 31, 2004 includes$201,000 of dividends on redeemable preferred stock in accordance with SFAS150.  Dividends paid on redeemablepreferred stock prior to the June 15, 2003 effective date of SFAS 150,which includes the $157,000 for the nine months ended March 31, 2003, werenot reclassified as interest expense. 

 

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

 

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

 

RESULTS OF OPERATIONS

 

*Nine Months Ended March 31, 2004 Compared toNine Months Ended March  31, 2003*

 

Total revenues increased 22.5% to $16,118,000 duringthe nine months ended March 31, 2004 (the “Nine Month 2004 Period”) ascompared to $13,162,000 during the nine months ended March 31, 2003 (the“Nine Month 2003 Period”).  The overallincrease was attributable primarily to increases in pawn service charges,increased merchandise sales and increased jewelry scrap sales.  The 25 stores that remained open for the full12 months or more as of March 31, 2004 (the “Comparable Stores”)experienced a net increase in revenues of $2,651,000 or 20.2%. 

 

Merchandise sales increased 18.1% to $10,715,000during the Nine Month 2004 Period from $9,075,000 during the Nine Month 2003Period primarily due to more aggressive discounting on merchandise sales andincreased jewelry scrap sales.  Sales inComparable Stores for the Nine Month 2004 Period increased $1,424,000 or 15.7%.

 

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

 

In March 2004, the Company decided to close itsstore in South Carolina due to an unfavorable change in regulations effectiveJanuary 2004 affecting car title loans. The impact on the Company’s ability to recover defaulted collateralunder the new regulations made the viability of operating one store in thatmarket unfeasible.  Store closing costsand impact on the Company’s operations are insignificant.

 

The Company earned management advisory andinvestment fees totaling $301,000 during the Nine Month 2004 Period related tofinancing provided to AIMC.

 

Cost of sales increased 39.3% to $8,936,000 duringthe Nine Month 2004 Period from $6,417,000 during the Nine Month 2003 Periodprimarily due to increased costs associated with the recovery and sale of carson defaulted car title loans, write offs of defaulted car title loans,increased merchandise sales and higher related costs resulting fromaggressively discounting sales prices. Cost of sales as a percentage of merchandise sales increased to 83.4%from 70.7% for the Nine Month 2004 Period as compared to the Nine Month 2003Period. The cost of sales related

 

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to recovery and sale of recovered cars and for car title loan writeoffs totaled $1,541,000 during the Nine Months 2004 Period as compared to$268,000 during the Nine Month 2003 Period. Cost of sales for merchandise other than cars as a percentage ofmerchandise sales for the Nine Month 2004 Period were 73.0% as compared to68.8% during the Nine Month 2003 Period.

 

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

 

Corporate administrative expenses increased 2.9% to$2,217,000 during the Nine Month 2004 Period from $2,152,000 during the NineMonth 2003 Period primarily due to costs related to additional personnel.  Corporate administrative expenses decreasedto 13.8% of total revenues during the Nine Month 2004 Period as compared to16.3% during the Nine Month 2003 Period. 

 

Interest expense increased $121,000 from $234,000during the Nine Month 2004 Period as compared to the Nine Month 2003 Periodprimarily due to the reclassification of dividends as interest expense onredeemable preferred stock issued in conjunction with the Plan in accordancewith SFAS 150.  

 

The Company also recognized a gain of $2,018,000 onthe sale of securities during the Nine Month 2004 Period primarily due to thesale of its holdings in Sanders Morris Harris Group, Inc. for $4,998,000 inJuly 2003 which resulted in a $1,630,000 gain.

 

The Company recognized an income tax expense of$681,000 during the Nine Month 2004 Period compared to $286,000 during the NineMonth 2003 Period.  $663,000 of the NineMonth 2004 Period income tax expense and $286,000 of the Nine Month 2003 Periodincome tax expense is offset by the utilization of net operating losscarryforwards not previously recognized upon the emergence from bankruptcy andis offset with a corresponding increase in paid in capital and therefore has noeffect on the Company’s cash flows.  

 

*Three Months Ended March 31, 2004 Compared toThree Months Ended March 31, 2003*

 

Total revenues increased 14.4% to $5,250,000 duringthe three months ended March 31, 2004 (the “Three Month 2004 Period”) ascompared to $4,591,000 during the three months ended March 31, 2003 (the“Three Month 2003 Period”).  The overall increasewas attributable primarily to increases in pawn service charges, increasedmerchandise sales and increased jewelry scrap sales.  Stores that remained open for the full 12months or more as of March 31, 2004 (the “Comparable Stores”) experienceda net increase in revenues of $556,000 or 12.1%. 

 

Merchandise sales increased 6.6% to $3,414,000during the Three Month 2004 Period from $3,203,000 during the Three Month 2003Period primarily due to more aggressive discounting on merchandise sales andincreased jewelry scrap sales.  Sales inComparable Stores for the Three Month 2004 Period increased $148,000 or 4.6%.

 

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

 

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

 

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

 

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related to defaulted title pawn loans, the Company’s cost of sales forthe Three Month 2004 Period was 71.4% as compared to 69.4% during the ThreeMonth 2003 Period.

 

Store operating expenses increased to $1,579,000 forthe Three Month 2004 Period from $1,386,000 during the Three Month 2003 Periodprimarily due to increased personnel expenses for additional car title andcompliance personnel.   On a ComparableStore basis, store operating expenses were 28.6% of total revenues during theThree Month 2004 Period compared to 30.0% of total revenues during the Three Month2003 Period primarily due to lower personnel and occupancy costs as apercentage of total revenue.

 

Corporate administrative expenses decreased 10.6% to$776,000 during the Three Month 2004 Period from $868,000 during the ThreeMonth 2003 Period primarily due to reduced costs related to incentivecompensation.  Corporate administrativeexpenses decreased to 14.8% of total revenues during the Three Month 2004Period as compared to 18.9% during the Three Month 2003 Period.  Corporate administrative expenses did notincrease at the same rate as revenues increased during the comparable period. 

 

Interest expense increased $124,000 from $69,000during the Three Month 2004 Period as compared to the Three Month 2003 Periodprimarily due to the reclassification of dividends as interest expense on redeemablepreferred stock issued in conjunction with the Plan in accordance with SFAS150.

 

The Company recognized an income tax benefit of$58,000 during the Three Month 2004 Period compared to income tax expense of$194,000 during the Three Month 2003 Period. The income tax benefit recognized in the Three Month 2004 Period and theincome tax expense recognized in the Three Month 2003 Period are offset by theutilization of net operating loss carryforwards not previously recognized uponthe emergence from bankruptcy and are offset with a corresponding adjustmentsto paid in capital and therefore have no effect on the Company’s cashflows.  

 

LIQUIDITYAND CAPITAL RESOURCES

 

The Company’s operations and growth have beenfinanced with funds provided by the Merger in conjunction with the Plan, bankborrowings and funds generated from operations.

 

Under the terms of the Plan, the Company cancelledall equity interests as of the Confirmation Date, which included all common andpreferred shareholder interests, and interests of any holders of options orwarrants, and issued 2,079,948 shares of Common Stock to its unsecuredcreditors in exchange for cancellation of indebtedness upon completion of theMerger on August 30, 2002.  Theequity holders of CMHI received 1,071,636 shares of Series A Preferred Stockand 500,042 shares of Series B Preferred Stock. The Series B Preferred Stock is convertible at a ratio of approximately3.44 shares of Common Stock for each share of Series B Preferred Stock to atotal of 1,720,130 shares of Common Stock. As a result of the Merger, the Company received $2,565,000 in cash and$5,084,000 in marketable securities.

 

The Company and PawnMart currently have a creditfacility with Comerica Bank (the “Bank”) in the amount of $4,000,000 thatmatures on June 30, 2004 and bears interest at 9% per annum (the “CreditFacility”), subject to monthly mandatory principal reductions each in theamount of $100,000 commencing February 1, 2004 through and includingJune 1, 2004.  Amounts availableunder the Credit Facility are limited to certain percentages of pawn loans,inventories, and pawn service charges receivable.  The Credit Facility is collateralized bysubstantially all of the unencumbered assets of the Company and PawnMart.  The Company also pledged additionalcollateral in the form of marketable and other securities to the Bank in theamount of $2,500,000. At March 31, 2004, $2,955,000 was outstanding underthe Credit Facility and an additional $845,000 was available pursuant to theavailable borrowing base.  Under theterms of the Credit Facility, the Company and PawnMart are required to maintaincertain financial ratios and to comply with certain other covenants.  The Company and PawnMart paid fees associatedwith the Credit Facility totaling $80,000 during the nine months endedMarch 31, 2004.

 

In April 2004 PawnMart entered into acommitment agreement for a $4,500,000 senior credit facility with First CapitalCorporation (the “Senior Credit Facility”) to replace the current CreditFacility with Comerica Bank on more favorable terms. The Senior Credit Facilitywill mature three years from closing and will bear interest at a rate of theprevailing prime rate plus 2%.  TheCompany paid a $15,000 fee in connection with the commitment.  Although the

 

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Company anticipates that the transaction with First Capital Corporationwill be completed, there can be no assurance that the Senior Credit Facilitywill be funded.

 

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

 

The Company’s profitability and liquidity isaffected by the amount of loans outstanding, which is controlled in part by theCompany’s lending decisions.  The Companyis able to influence the frequency of forfeiture of collateral by increasing ordecreasing the amount loaned in relation to the sales value of the pledgedproperty.  Tighter credit decisionsgenerally result in smaller loans in relation to the estimated sales value ofthe pledged property and can thereby decrease the Company’s aggregate loanbalance and, consequently, decrease pawn service charges.  Additionally, lower loans in relation to thepledged property’s estimated sales value tend to slightly increase loanredemptions and improve the Company’s liquidity.  Conversely, providing higher loans inrelation to the estimated sales value of the pledged property can result in anincrease in the Company’s pawn service charge income.  Higher average loan balances can also result ina slight increase in loan forfeitures, which increases the quantity of goods onhand and, unless the Company increases inventory turnover, reduces theCompany’s liquidity.  

 

The Company believes it has sufficient workingcapital to fund its current operations for the fiscal year ending June 30,2004.  The Company’s ability to expandthrough the acquisition of new stores and other businesses will be dependent onits ability to replace its existing Credit Facility.  Management believes the new Senior CreditFacility will close in May 2004. In the event a new credit facility isunavailable, the Company has sufficient working capital on hand as ofMarch 31, 2004 to pay off the Credit Facility.

 

The Series A Preferred Stock must be redeemed forcash at $5.00 per share by the Company beginning April 30, 2005 in amountsof at least $500,000 per year.  EachApril 30 thereafter through 2009 an additional 100,000 shares must beredeemed for cash at $5.00 per share.  OnApril 30, 2010 any unredeemed shares must be redeemed for cash at $5.00per share plus any accrued and unpaid dividends.

 

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**SIGNATURES**

 

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

 
|                 | XPONENTIAL, INC. (Registrant) |
|----------------------|-------------------------------|
|                 |                          |
|                 |                          |
| August 27, 2004 | By:                           | /s/ Robert W. Schleizer |   |
|                 |                          | Robert W. Schleizer, Executive Vice |
|                 |                          | President and Chief Financial Officer |

 

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**EXHIBITINDEX**

 
| **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 Rule 13a-14(b)  or 15d-14(b) under the Securities Exchange Act of 1934, as amended |
|       |       |                                                                                                                                    |
| 32.2       |       | Certification of Chief Financial Officer pursuant to Rule 13a-14(b)  or 15d-14(b) under the Securities Exchange Act of 1934, as amended |

 

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