##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934for the
quarterly period ended December 31, 2005.
 o
    
    TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934for
the transition period from

to
.
 Commission File No. 1-13919
 Xponential, Inc.
  Delaware
    
    75-2520896(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 6400 Atlantic Boulevard, Suite 190, Norcross, Georgia 30080
 (678) 720-0660
 þ o
 þ o
 o þ
  o þ




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##### 



XPONENTIAL, INC.
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1
    
    Consolidated Financial StatementsConsolidated Balance Sheets as of December 31 and June 30, 2005
    
    
    3Consolidated Statements of Operations for the Six Months Ended
December 31, 2005 and 2004
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 2005 and 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    16Item 3
    
    Controls and Procedures
    
    
    20PART
II  OTHER INFORMATIONItem 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Item 6
    
    Exhibits
    
    
    21Sales ContractStock Purchase AgreementCertification of CEO Pursuant to Rule 13a-14(a) or 15d-14(a)Certification of CFO Pursuant to Rule 13a-14(a) or 15d-14(a)Certification of CEO Pursuant to 18 U.S.C. Section 1350Certification of CFO Pursuant to 18 U.S.C. Section 1350
  2




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##### Table of Contents



ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 XPONENTIAL, INC. AND SUBSIDIARIES
 
   December 31, 2005
    
    
    June 30, 2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,779
    
    
    $
    407Accounts receivable
    
    
    301
    
    
    
    336Pawn service charges receivable
    
    
    477
    
    
    
    541Pawn loans
    
    
    4,331
    
    
    
    4,919Inventories, net
    
    
    5,323
    
    
    
    4,329Investments  marketable
securities
    
    
    6,727
    
    
    
    4,677Prepaid expenses and other current assets
    
    
    263
    
    
    
    276Total current assets
    
    
    19,201
    
    
    
    15,485Property and equipment, net
    
    
    1,354
    
    
    
    848Bond issuance costs, net of amortization of $84 and $22 at December 31, 2005 and June 30, 2005,
respectively
    
    
    1,340
    
    
    
    849Investment in American IronHorse Motorcycle Company, Inc.
    
    
    4,836
    
    
    
    4,836Other assets, net of amortization of $132 and $101 at December 31, 2005 and June 30, 2005, respectively
    
    
    150
    
    
    
    202Total assets
    
    $
    26,881
    
    
    $
    22,220Liabilities and Stockholders EquityCurrent liabilities:Current installments of notes payable
    
    $
    868
    
    
    $
    860Accounts payable and accrued expenses
    
    
    221
    
    
    
    413Accrued payroll and payroll taxes
    
    
    148
    
    
    
    334Deferred revenue
    
    
    96
    
    
    
    70Revolving credit facility
    
    
    
    
    
    
    546Total current liabilities
    
    
    1,333
    
    
    
    2,223Long term notes payable:8% limited recourse convertible notes, net of discount of $86 and $55 at December 31, 2005 and
June 30,
2005, respectively
    
    
    14,736
    
    
    
    8,771Other long term notes payable
    
    
    108
    
    
    
    294Total long term notes payable
    
    
    14,844
    
    
    
    9,065Commitments and contingenciesRedeemable preferred stock  Series A; par value $0.01; 5% cumulative dividend, liquidation preference
$5.00 per share; 971,632 shares issued at December 31, 2005 and June 30, 2005, respectively; $500,000
redeemable on April 30, 2006 is reported in current installments of notes payable as of December 31,
2005 and June 30, 2005, respectively
    
    
    4,358
    
    
    
    4,358Total long term liabilities
    
    
    19,202
    
    
    
    13,423Total liabilities
    
    
    20,535
    
    
    
    15,646Stockholders equity:Preferred stock  Series B; 5% cumulative dividend, liquidation preference $5.00 per share
($2,500,210); 500,042 issued at December 31, 2005 and June 30, 2005, respectively
    
    
    5
    
    
    
    5Common stock $0.01 par value; authorized 10,000,000 shares, issued 2,434,932 and 2,380,804 as of
December 31, 2005 and June 30, 2005, respectively
    
    
    25
    
    
    
    24Additional paid-in capital
    
    
    5,766
    
    
    
    5,631Retained earnings
    
    
    466
    
    
    
    756Accumulated other comprehensive income
    
    
    124
    
    
    
    198Less treasury stock, at cost; 25,000 common shares at December 31, 2005 and June 30, 2005, respectively
    
    
    (40
    )
    
    
    (40
    )Total stockholders equity
    
    
    6,346
    
    
    
    6,574Total liabilities and stockholders equity
    
    $
    26,881
    
    
    $
    22,220
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XPONENTIAL, INC. AND SUBSIDIARIES
 
    Six Months Ended
    
    
    Six Months EndedDecember 31, 2005
    
    
    December 31, 2004Revenues:Merchandise sales
    
    $
    7,855
    
    
    $
    6,494Pawn service charges
    
    
    3,130
    
    
    
    3,142Other
    
    
    30
    
    
    
    85Total revenues
    
    
    11,015
    
    
    
    9,721Cost of sales
    
    
    5,840
    
    
    
    4,749Gross profit
    
    
    5,175
    
    
    
    4,972Expenses:Store operating expenses
    
    
    3,075
    
    
    
    2,860Corporate administrative expenses
    
    
    1,400
    
    
    
    1,434Depreciation and amortization
    
    
    198
    
    
    
    216Total expenses
    
    
    4,673
    
    
    
    4,510Operating income
    
    
    502
    
    
    
    462Interest and dividend income
    
    
    278
    
    
    
    85Interest expense including Series A preferred
dividends of $121 and $134 for the six months
ended December 31, 2005 and 2004, respectively
    
    
    (769
    )
    
    
    (320
    )Loss on futures contracts
    
    
    (473
    )
    
    
    Gain on investments
    
    
    180
    
    
    
    239Income (loss) before taxes
    
    
    (282
    )
    
    
    466Income tax provision (benefit)
    
    
    (55
    )
    
    
    204Net income (loss)
    
    
    (227
    )
    
    
    262Preferred stock dividend requirement
    
    
    (63
    )
    
    
    (63
    )Net income (loss) allocable to common stockholders
    
    $
    (290
    )
    
    $
    199Income (loss) per common share (note 5):Basic
    
    $
    (0.12
    )
    
    $
    0.08Diluted
    
    $
    (0.12
    )
    
    $
    0.06
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XPONENTIAL, INC. AND SUBSIDIARIES
    Three Months Ended
    
    
    Three Months EndedDecember 31, 2005
    
    
    December 31, 2004Revenues:Merchandise sales
    
    $
    4,757
    
    
    $
    3,462Pawn service charges
    
    
    1,533
    
    
    
    1,571Other
    
    
    26
    
    
    
    43Total revenues
    
    
    6,316
    
    
    
    5,076Cost of sales
    
    
    3,492
    
    
    
    2,419Gross profit
    
    
    2,824
    
    
    
    2,657Expenses:Store operating expenses
    
    
    1,556
    
    
    
    1,439Corporate administrative expenses
    
    
    704
    
    
    
    752Depreciation and amortization
    
    
    95
    
    
    
    107Total expenses
    
    
    2,355
    
    
    
    2,298Operating income
    
    
    469
    
    
    
    359Interest and dividend income
    
    
    163
    
    
    
    44Interest expense including Series A preferred
dividends of $61 and $67 for the three months
ended December 31, 2005 and 2004, respectively
    
    
    (420
    )
    
    
    (170
    )Loss on futures contracts
    
    
    (407
    )
    
    
    Gain on investments
    
    
    180
    
    
    
    28Income (loss) before taxes
    
    
    (15
    )
    
    
    261Income tax provision
    
    
    15
    
    
    
    111Net income (loss)
    
    
    (30
    )
    
    
    150Preferred stock dividend requirement
    
    
    (32
    )
    
    
    (32
    )Net income (loss) allocable to common stockholders
    
    $
    (62
    )
    
    $
    118Income (loss) per common share (note 5):Basic
    
    $
    (0.03
    )
    
    $
    0.05Diluted
    
    $
    (0.03
    )
    
    $
    0.04
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XPONENTIAL, INC. AND SUBSIDIARIES
 
    For the
    
    
    For theSix Months Ended
    
    
    Six Months EndedDecember 31, 2005
    
    
    December 31, 2004Cash flows from operating activities:Net income (loss)
    
    $
    (227
    )
    
    $
    262Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization
    
    
    198
    
    
    
    216Gain on sale of investments
    
    
    (180
    )
    
    
    (239
    )Deferred income tax expense (benefit)
    
    
    (67
    )
    
    
    204Non-cash interest expense
    
    
    92
    
    
    
    12Stock-based
compensation
    
    
    57
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    35
    
    
    
    15Pawn service charges receivable
    
    
    64
    
    
    
    18Inventories, net
    
    
    (994
    )
    
    
    (550
    )Prepaid expenses and other current assets
    
    
    13
    
    
    
    9Accounts payable and accrued liabilities
    
    
    (352
    )
    
    
    (7
    )Net cash used in operating activities
    
    
    (1,361
    )
    
    
    (60
    )Cash flows from investing activities:Pawn loans made
    
    
    (8,747
    )
    
    
    (7,843
    )Pawn loans redeemed
    
    
    3,395
    
    
    
    3,333Inventory acquired from loan forfeitures
    
    
    5,940
    
    
    
    4,680Proceeds from sale of investments
    
    
    1,710
    
    
    
    1,595Purchase of investments
    
    
    (3,654
    )
    
    
    (1,882
    )Purchases of property and equipment
    
    
    (677
    )
    
    
    (174
    )Other assets
    
    
    
    
    
    
    (52
    )Net cash used in investing activities
    
    
    (2,033
    )
    
    
    (343
    )Cash flows from financing activities:Borrowings on notes payable
    
    
    8,675
    
    
    
    4,669Principal payments on notes payable
    
    
    (9,399
    )
    
    
    (4,154
    )Convertible note offering proceeds
    
    
    5,996
    
    
    
    225Convertible note offering costs
    
    
    (553
    )
    
    
    Sale of common stock
    
    
    110
    
    
    
    27Dividends paid
    
    
    (63
    )
    
    
    (63
    )Net cash provided by financing activities
    
    
    4,766
    
    
    
    704Net increase in cash and cash equivalents
    
    
    1,372
    
    
    
    301Cash and cash equivalents at beginning of period
    
    
    407
    
    
    
    206Cash and cash equivalents at end of period
    
    $
    1,779
    
    
    $
    507Supplemental disclosures of cash flow information -Cash paid for interest
    
    $
    733
    
    
    $
    286
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XPONENTIAL, INC. AND SUBSIDIARIES
 
   Basis of Presentation
      Notes Payable
 Revolving Credit Facility-
  8% Limited Recourse Convertible Notes-
  7




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 Notes Payable (continued)
  Equity
  Stock Option Plan, Stock Incentive Plan and Stock Purchase Plan
   Weighted AverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at June 30, 2003
    
    
    455,000
    
    
    $
    1.00Granted
    
    
    30,000
    
    
    
    1.60Exercised
    
    
    (249,000
    )
    
    $
    1.02Forfeited
    
    
    (30,000
    )
    
    
    1.00Outstanding at June 30, 2004
    
    
    206,000
    
    
    $
    1.09Granted
    
    
    20,000
    
    
    
    1.56Exercised
    
    
    (2,000
    )
    
    
    1.00Forfeited
    
    
    (4,000
    )
    
    
    1.00Outstanding at June 30, 2005
    
    
    220,000
    
    
    
    1.13Granted
    
    
    40,000
    
    
    
    2.90Exercised
    
    
    (5,000
    )
    
    
    1.00Forfeited
    
    
    
    
    
    
    Exercisable at December 31, 2005
    
    
    255,000
    
    
    $
    1.41
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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 Stock Option Plan, Stock Incentive Plan and Stock Purchase Plan (continued)
     Weighted Average Shares and Net Income Per Common Share
   Net LossAllocable toFor the Three Months Ended
    
    CommonDecember 31, 2005
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
    
    $
    (30,000
    )
    
    
    2,406,733
    
    
    $
    (0.01
    )
 Net IncomeAllocable toFor the Three Months Ended
    
    CommonDecember 31, 2004
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic earnings per common share
    
    $
    118,000
    
    
    
    2,360,828
    
    
    $
    0.05Assuming conversion-Series B
preferred stock
    
    
    32,000
    
    
    
    1,720,130Dilutive effect of stock options
    
    
    
    
    
    
    59,756Diluted earnings per common share
    
    $
    150,000
    
    
    
    4,140,714
    
    
    $
    0.04
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Weighted Average Shares and Net Income Per Common Share (continued)
  Net Loss Allocable toFor the Six Months Ended
    
    CommonDecember 31, 2005
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
    
    $
    (290,000
    )
    
    
    2,393,768
    
    
    $
    (0.12
    )
 Net IncomeAllocable toFor the Six Months Ended
    
    CommonDecember 31, 2004
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic earnings per common share
    
    $
    199,000
    
    
    
    2,348,983
    
    
    $
    0.08Assuming conversion -Series B
preferred stock
    
    
    63,000
    
    
    
    1,720,130Dilutive effect of stock options
    
    
    
    
    
    
    29,878Diluted earnings per common share
    
    $
    262,000
    
    
    
    4,098,991
    
    
    $
    0.06
  Investments in Marketable Securities
   Unrealized(in thousands)
    

    Cost
    
    
    Gain/(Loss)
    
    
    Market ValueStocks
    
    $
    7
    
    
    $
    (6
    )
    
    $
    1Bonds
    
    
    6,596
    
    
    
    130
    
    
    
    6,726Total
    
    $
    6,603
    
    
    $
    124
    
    
    $
    6,727
  Unrealized(in thousands)
    
    Cost
    
    
    Gain/(Loss)
    
    
    Market ValueStocks
    
    $
    7
    
    
    $
    (6
    )
    
    $
    1Bonds
    
    
    4,472
    
    
    
    204
    
    
    
    4,676Total
    
    $
    4,479
    
    
    $
    198
    
    
    $
    4,677
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Derivative Instruments
   Comprehensive Income
  For the Three Month
    
    
    For the Three MonthPeriod Ended
    
    
    Period Ended(in thousands)
    
    December 31, 2005
    
    
    December 31, 2004Net income (loss)
    
    $
    (30
    )
    
    $
    150Unrealized
gain (loss) from available for sale securities
    
    
    120
    
    
    
    (106
    )Reclassification of realized gain (loss) included
in net income
    
    
    (180
    )
    
    
    (28
    )Effect of income tax
    
    
    20
    
    
    
    46Comprehensive
income loss
    
    $
    (70
    )
    
    $
    62
 For the Six Month
    
    
    For the Six MonthPeriod Ended
    
    
    Period Ended(in thousands)
    
    December 31, 2005
    
    
    December 31, 2004Net income (loss)
    
    $
    (227
    )
    
    $
    262Unrealized gain from available for sale securities
    
    
    106
    
    
    
    157Reclassification of realized gain included
in net income
    
    
    (180
    )
    
    
    (239
    )Effect of income tax
    
    
    25
    
    
    
    28Comprehensive income (loss)
    
    $
    (276
    )
    
    $
    208
 Investment in American IronHorse Motorcycle Company, Inc.
   11




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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Investment in American Iron Horse Motorcycle Company, Inc. (continued)
 As of
    
    
    As ofSeptember 30, 2005
    
    
    December 31, 2004(in thousands)
    
    (Unaudited)
    
    
    (Unaudited)Current assets
    
    $
    39,971
    
    
    $
    30,039Current liabilities
    
    
    22,616
    
    
    
    14,207Total assets
    
    $
    44,559
    
    
    $
    34,555Total liabilities
    
    
    31,996
    
    
    
    25,358Stockholders equity
    
    $
    12,563
    
    
    $
    9,197
 For the
    
    
    For theYear Ended
    
    
    Year Ended(in thousands)
    
    December 31, 2005
    
    
    December 31, 2004Total revenue
    
    $
    82,294
    
    
    $
    65,019Net income (loss)
    
    $
    3,350
    
    
    $
    (1,247
    )
 Operating Segment Information
   12




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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Operating Segment Information (continued)
 Investment,Pawn
    
    
    Management andThree Months Ended December 31, 2005
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    4,757
    
    
    
    
    
    
    
    4,757Pawn service charges and related fee income
    
    
    1,533
    
    
    
    
    
    
    
    1,533Other Income
    
    
    26
    
    
    
    
    
    
    
    26Total Revenue
    
    
    6,316
    
    
    
    
    
    
    
    6,316Expenses:Cost of sales
    
    
    3,492
    
    
    
    
    
    
    
    3,492Store operating expenses
    
    
    1,556
    
    
    
    
    
    
    
    1,556Corporate administrative expenses
    
    
    472
    
    
    
    232
    
    
    
    704Depreciation and amortization
    
    
    90
    
    
    
    5
    
    
    
    95Operating income (loss)
    
    
    706
    
    
    
    (237
    )
    
    
    469Interest and dividend income
    
    
    1
    
    
    
    162
    
    
    
    163Interest expense
    
    
    (49
    )
    
    
    (371
    )
    
    
    (420
    )Loss on change of futures contracts value
    
    
    (407
    )
    
    
    
    
    
    
    (407
    )Gain on sale of marketable securities
    
    
    
    
    
    
    180
    
    
    
    180Net income (loss) before taxes
    
    $
    251
    
    
    
    (266
    )
    
    
    (15
    )Total Assets
    
    $
    12,578
    
    
    $
    14,303
    
    
    $
    26,881
 Investment,Pawn
    
    
    Management andThree Months Ended December 31, 2004
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    3,462
    
    
    $
    
    
    
    $
    3,462Pawn service charges and related fee income
    
    
    1,571
    
    
    
    
    
    
    
    1,571Total Revenue
    
    
    5,033
    
    
    
    43
    
    
    
    5,076Expenses:Cost of sales
    
    
    2,419
    
    
    
    
    
    
    
    2,419Store operating expenses
    
    
    1,439
    
    
    
    
    
    
    
    1,439Corporate administrative expenses
    
    
    511
    
    
    
    241
    
    
    
    752Depreciation and amortization
    
    
    106
    
    
    
    1
    
    
    
    107Operating income (loss)
    
    
    558
    
    
    
    (199
    )
    
    
    359Interest and dividend income
    
    
    1
    
    
    
    43
    
    
    
    44Interest expense
    
    
    (86
    )
    
    
    (84
    )
    
    
    (170
    )Loss on change of futures contracts value
    
    
    
    
    
    
    
    
    
    
    Gain on sale of marketable securities
    
    
    
    
    
    
    28
    
    
    
    28Net income (loss) before taxes
    
    $
    473
    
    
    $
    (212
    )
    
    $
    261Total Assets
    
    $
    9,735
    
    
    $
    6,900
    
    
    $
    16,635
 13




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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Operating Segment Information (continued)
 Investment,Pawn
    
    
    Management andSix Months Ended December 31, 2005
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    7,855
    
    
    $
    
    
    
    $
    7,855Pawn service charges and related fee income
    
    
    3,130
    
    
    
    
    
    
    
    3,130Other
    
    
    30
    
    
    
    
    
    
    
    30Total Revenue
    
    
    11,015
    
    
    
    
    
    
    
    11,015Expenses:Cost of sales
    
    
    5,840
    
    
    
    
    
    
    
    5,840Store operating expenses
    
    
    3,075
    
    
    
    
    
    
    
    3,075Corporate administrative expenses
    
    
    946
    
    
    
    454
    
    
    
    1,400Depreciation and amortization
    
    
    193
    
    
    
    5
    
    
    
    198Operating income (loss)
    
    
    961
    
    
    
    (459
    )
    
    
    502Interest and dividend income
    
    
    1
    
    
    
    277
    
    
    
    278Interest expense
    
    
    (102
    )
    
    
    (667
    )
    
    
    (769
    )Loss on change of futures contracts value
    
    
    (473
    )
    
    
    
    
    
    
    (473
    )Gain on sale of marketable securities
    
    
    
    
    
    
    180
    
    
    
    180Net income (loss) before taxes
    
    $
    387
    
    
    $
    (669
    )
    
    $
    (282
    )Total Assets
    
    $
    12,578
    
    
    $
    14,303
    
    
    $
    26,881
 Investment,Pawn
    
    
    Management andSix Months Ended December 31, 2004
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    6,494
    
    
    $
    
    
    
    $
    6,494Pawn service charges and related fee income
    
    
    3,142
    
    
    
    
    
    
    
    3,142Management advisory and related fee income
    
    
    
    
    
    
    85
    
    
    
    85Total Revenue
    
    
    9,636
    
    
    
    85
    
    
    
    9,721Expenses:Cost of sales
    
    
    4,749
    
    
    
    
    
    
    
    4,749Store operating expenses
    
    
    2,860
    
    
    
    
    
    
    
    2,860Corporate administrative expenses
    
    
    934
    
    
    
    500
    
    
    
    1,434Depreciation and amortization
    
    
    216
    
    
    
    
    
    
    
    216Operating income (loss)
    
    
    877
    
    
    
    (415
    )
    
    
    462Interest and dividend income
    
    
    2
    
    
    
    83
    
    
    
    85Interest expense
    
    
    (158
    )
    
    
    (162
    )
    
    
    (320
    )Gain on sale of marketable securities
    
    
    
    
    
    
    239
    
    
    
    239Net income (loss) before taxes
    
    $
    721
    
    
    $
    (255
    )
    
    $
    466Total Assets
    
    $
    9,735
    
    
    $
    6,900
    
    
    $
    16,635
 14




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 Subsequent Events
   15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Statements appearing in the following discussion that are not historical facts are
forward-looking statements (forward-looking statements) within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which are intended to be covered by the safe harbors created by those sections. Such
forward-looking statements are necessarily estimates reflecting the best judgment of the Companys
management based upon current information and involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks, uncertainties and other
factors, include, but are not limited to, those set forth and those appearing from time to time in
filings made by the Company with the Securities and Exchange Commission. These risks,
uncertainties and other factors should not be construed as exhaustive and the Company does not
undertake, and specifically disclaims any obligation, to update any forward-looking statements to
reflect occurrences or unanticipated events or circumstances after the date of such statements.
 In addition, the following discussion and analysis should be read in conjunction with the
Companys financial statements and notes thereto and other financial data included in the Companys
Form 10-KSB for the fiscal year ended June 30, 2005.
       16




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##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedDecember 31
    
    
    December 312005
    
    
    2004
    
    
    2005
    
    
    2004Merchandise sales
    
    
    75.3
    %
    
    
    68.2
    %
    
    
    71.3
    
    
    
    66.8Pawn service charges and related fee income
    
    
    24.3
    
    
    
    30.9
    
    
    
    28.4
    
    
    
    32.3Management advisory fees and related fee income
    
    
    0.4
    
    
    
    0.9
    
    
    
    0.3
    
    
    
    0.9Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    55.3
    
    
    
    47.7
    
    
    
    53.0
    
    
    
    48.9Store operating expenses
    
    
    24.6
    
    
    
    28.3
    
    
    
    27.9
    
    
    
    29.4Corporate administrative expenses
    
    
    11.2
    
    
    
    14.8
    
    
    
    12.7
    
    
    
    14.8Depreciation and amortization
    
    
    1.5
    
    
    
    2.1
    
    
    
    1.8
    
    
    
    2.2Operating income
    
    
    7.4
    
    
    
    7.1
    
    
    
    4.6
    
    
    
    4.7Interest and dividend income
    
    
    2.6
    
    
    
    0.9
    
    
    
    2.5
    
    
    
    0.9Interest expense
    
    
    (6.6
    )
    
    
    (3.3
    )
    
    
    (7.0
    )
    
    
    (3.3
    )(Loss) on
futures contracts
    
    
    (6.4
    )
    
    
    
    
    
    
    (4.3
    )
    
    
    Gain on sale of marketable securities
    
    
    2.8
    
    
    
    0.6
    
    
    
    1.6
    
    
    
    2.5Net income (loss) before income taxes
    
    
    (0.2
    )
    
    
    5.1
    
    
    
    (2.6
    )
    
    
    4.8Income tax benefit (provision)
    
    
    (0.2
    )
    
    
    (2.2
    )
    
    
    0.5
    
    
    
    (2.1
    )Net income (loss)
    
    
    (0.5
    )%
    
    
    3.0
    %
    
    
    (2.1
    )%
    
    
    2.7
    %
  Three Months Ended December 31, 2005 Compared to Three Months Ended December 31, 2004
     17




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##### Table of Contents



For the Three Months EndedDecember 31, 2005
    
    
    December 31, 2004(In thousands)
    
    Merchandise
    
    
    Jewelry Scrap
    
    
    Total
    
    
    Merchandise
    
    
    Jewelry Scrap
    
    
    TotalSales
    
    $
    2,909
    
    
    $
    1,848
    
    
    $
    4,757
    
    
    $
    3,290
    
    
    $
    172
    
    
    $
    3,462Pawn Service
Charges and Other
Income
    
    
    
    
    
    
    
    
    
    
    1,559
    
    
    
    
    
    
    
    
    
    
    
    1,614Total Revenue
    
    
    2,909
    
    
    
    1,848
    
    
    
    6,316
    
    
    
    3,290
    
    
    
    172
    
    
    
    5,076Cost of Sales
    
    
    2,139
    
    
    
    1,353
    
    
    
    3,492
    
    
    
    2,331
    
    
    
    88
    
    
    
    2,419Gross Profit
    
    $
    769
    
    
    $
    495
    
    
    $
    2,824
    
    
    $
    959
    
    
    $
    84
    
    
    $
    2,657Profit Margin
    
    
    26.4
    %
    
    
    26.8
    %
    
    
    44.7
    %
    
    
    29.2
    %
    
    
    48.7
    %
    
    
    52.3
    %
       Six Months Ended December 31, 2005 Compared to Six Months Ended December 31, 2004
   18




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##### Table of Contents



For the Six Months EndedDecember 31, 2005
    
    
    December 31, 2004(In thousands)
    
    Merchandise
    
    
    Jewelry Scrap
    
    
    Total
    
    
    Merchandise
    
    
    Jewelry Scrap
    
    
    TotalSales
    
    $
    5,605
    
    
    $
    2,250
    
    
    $
    7,855
    
    
    $
    6,071
    
    
    $
    423
    
    
    $
    6,494Pawn Service
Charges and
Other Income
    
    
    
    
    
    
    
    
    
    
    3,160
    
    
    
    
    
    
    
    
    
    
    
    3,217Total Revenue
    
    
    5,605
    
    
    
    2,250
    
    
    
    11,015
    
    
    
    6,071
    
    
    
    423
    
    
    
    9,721Cost of Sales
    
    
    4,216
    
    
    
    1,624
    
    
    
    5,840
    
    
    
    4,467
    
    
    
    332
    
    
    
    4,749Gross Profit
    
    $
    1,389
    
    
    $
    626
    
    
    $
    5,175
    
    
    $
    1,604
    
    
    $
    91
    
    
    $
    4,972Profit Margin
    
    
    24.8
    %
    
    
    27.8
    %
    
    
    47.0
    %
    
    
    26.4
    %
    
    
    21.5
    %
    
    
    51.1
    %
        19




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##### Table of Contents



ITEM 3. CONTROLS AND PROCEDURES
   20




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##### Table of Contents



PART II
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Shares Voted
    
    Shares as to Which VotingName
    
    For Election
    
    Authority WithheldCarroll Dawson
    
    
    1,634,371
    
    
    
    13,124James R. Richards
    
    
    1,634,371
    
    
    
    13,124Robert W. Schleizer
    
    
    1,634,371
    
    
    
    13,124
  Shares Voted
    
    Shares as to Which VotingName
    
    For Election
    
    Authority WithheldJ. Robert Collins
    
    
    438,142
    
    
    
    0Jeffrey A. Cummer
    
    
    438,142
    
    
    
    0Dwayne A. Moyers
    
    
    432,750
    
    
    
    5,392John H. Wilson
    
    
    438,142
    
    
    
    0
   
 ITEM 6. EXHIBITS
 Number
    
    Description10.1
    
    Sales Contract between Xponential Real Estate
Holdings, Inc. as buyer and Bradford, Bradford &
Williams as seller, dated November 23, 2005; Warranty
Deed dated December 30, 2005; Purchase Money Deed to
Secure Debt, Assignment and Security Agreement between
dated December 30, 2005; and Purchase Money Note in
the original principal amount of $625,000 with
Xponential Real Estate Holdings, Inc. as borrower and
Bradford, Williams and Williams as lender, dated
December 30, 2005 *10.2
    
    Stock Purchase Agreement by and between Slammer
Partners L.P., a Texas limited partnership, as seller,
Tim D. Edmondson, as the general partner of seller,
and Xponential, Inc., as buyer, dated January 6, 2006;
and Promissory Note in the original principal amount
of $967,944.42 payable by Xponential, Inc. to Slammer
Partners, L.P., dated January 6, 1006 *
 21




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##### Table of Contents



Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended *31.2
    
    Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended *32.1
    
    Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *32.2
    
    Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *
 
 *
    
    Filed herewith. 22




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##### Table of Contents



SIGNATURES
  XPONENTIAL, INC. (Registrant)February 15, 2006
    
    By:
    
    /s/ Robert W. SchleizerRobert W. Schleizer, Executive
VicePresident and Chief Financial Officer
 23




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description10.1
    
    Sales Contract between Xponential Real Estate
Holdings, Inc. as buyer and Bradford, Bradford &
Williams as seller, dated November 23, 2005; Warranty
Deed dated December 30, 2005; Purchase Money Deed to
Secure Debt, Assignment and Security Agreement between
dated December 30, 2005; and Purchase Money Note in
the original principal amount of $625,000 with
Xponential Real Estate Holdings, Inc. as borrower and
Bradford, Williams and Williams as lender, dated
December 30, 200510.2
    
    Stock Purchase Agreement by and between Slammer
Partners L.P., a Texas limited partnership, as seller,
Tim D. Edmondson, as the general partner of seller,
and Xponential, Inc., as buyer, dated January 6, 2006;
and Promissory Note in the original principal amount
of $967,944.42 payable by Xponential, Inc. to Slammer
Partners, L.P., dated January 6, 100631.1
    
    Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended31.2
    
    Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended32.1
    
    Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002