##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the quarterly period ended March 31, 2006.
 o
    
    TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the transition period from ______ to ______.
 Commission File No. 1-13919
 Xponential, Inc.
  Delaware
    
    75-2520896(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 6400 Atlantic Boulevard, Suite 190, Norcross, Georgia 30080
 (678) 720-0660
 þ o
 o þ
 þ o
  o þ




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##### 



XPONENTIAL, INC.
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1Consolidated Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2006 and June 30, 2005
    
    
    3Consolidated Statements of Operations for the Nine Months Ended March 31, 2006 and 2005
    
    
    4Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005
    
    
    5Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2006 and 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2Managements Discussion and Analysis or Plan of Operation
    
    
    17Item 3Controls and Procedures
    
    
    21PART II  OTHER INFORMATION
    
    
    23Item 2Unregistered Sales of Equity Securities
    
    
    23Item 6Exhibits
    
    
    24Certification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 XPONENTIAL, INC. AND SUBSIDIARIES
 
   March 31, 2006
    
    
    June 30, 2005(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,223
    
    
    $
    407Accounts receivable
    
    
    689
    
    
    
    336Pawn service charges receivable
    
    
    394
    
    
    
    541Pawn loans
    
    
    3,577
    
    
    
    4,919Inventories, net
    
    
    5,421
    
    
    
    4,329Investments  marketable securities
    
    
    10,606
    
    
    
    4,677Prepaid expenses and other current assets
    
    
    248
    
    
    
    276Total current assets
    
    
    22,158
    
    
    
    15,485Property and equipment, net
    
    
    2,334
    
    
    
    848Bond issuance costs, net of amortization of $128 and $22 at March 31, 2006 and June 30, 2005, respectively
    
    
    1,696
    
    
    
    849Investment in American IronHorse Motorcycle Company, Inc.
    
    
    6,451
    
    
    
    4,836Other assets, net of amortization of $147 and $101 at March 31, 2006 and June 30, 2005, respectively
    
    
    163
    
    
    
    202Total assets
    
    $
    32,802
    
    
    $
    22,220Liabilities and Stockholders EquityCurrent liabilities:Current installments of notes payable
    
    $
    1,134
    
    
    $
    860Accounts payable and accrued expenses
    
    
    278
    
    
    
    413Accrued payroll and payroll taxes
    
    
    226
    
    
    
    334Deferred revenue
    
    
    132
    
    
    
    70Revolving credit facility
    
    
    
    
    
    
    546Total current liabilities
    
    
    1,770
    
    
    
    2,223Long term notes payable:8% limited recourse convertible notes, net of discount of $120 and $55 at March 31, 2006 and June 30,
2005, respectively
    
    
    19,171
    
    
    
    8,771Other long term notes payable
    
    
    1,301
    
    
    
    294Total long term notes payable
    
    
    20,472
    
    
    
    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 March 31, 2006 and June 30, 2005, respectively; $500,000
redeemable on April 30, 2006 is reported in current installments of notes payable as of March 31, 2006 and
June 30, 2005, respectively.
    
    
    4,358
    
    
    
    4,358Total long term liabilities
    
    
    24,830
    
    
    
    13,423Total liabilities
    
    
    26,600
    
    
    
    15,646Stockholders equity:Preferred stock  Series B; 5% cumulative dividend, liquidation preference $5.00 per share
($2,500,210); 500,042 shares issued at March 31, 2006 and June 30, 2005, respectively
    
    
    5
    
    
    
    5Common stock
$0.01 par value; authorized 10,000,000 shares, 2,491,014 and
2,380,804 shares issued at March
31, 2006 and June 30, 2005, respectively.
    
    
    25
    
    
    
    24Additional paid-in capital
    
    
    5,945
    
    
    
    5,631Retained earnings (deficit)
    
    
    (72
    )
    
    
    756Accumulated other comprehensive income
    
    
    339
    
    
    
    198Less treasury stock, at cost; 25,000 common shares at March 31, 2006 and June 30, 2005, respectively
    
    
    (40
    )
    
    
    (40
    )Total stockholders equity
    
    
    6,202
    
    
    
    6,574Total liabilities and stockholders equity
    
    $
    32,802
    
    
    $
    22,220
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XPONENTIAL, INC. AND SUBSIDIARIES
 
   Nine Months Ended
    
    
    Nine Months Ended(In thousands, except per share data)
    
    March 31, 2006
    
    
    March 31, 2005Revenues:Merchandise sales
    
    $
    11,513
    
    
    $
    9,807Pawn service charges
    
    
    4,634
    
    
    
    4,635Management advisory and related fee income
    
    
    
    
    
    
    128Other
    
    
    30
    
    
    
    Total revenues
    
    
    16,177
    
    
    
    14,570Cost of sales
    
    
    8,271
    
    
    
    7,208Gross profit
    
    
    7,906
    
    
    
    7,362Expenses:Store operating expenses
    
    
    4,666
    
    
    
    4,267Corporate administrative expenses
    
    
    2,142
    
    
    
    2,198Depreciation and amortization
    
    
    291
    
    
    
    324Total expenses
    
    
    7,099
    
    
    
    6,789Operating income
    
    
    807
    
    
    
    573Interest and dividend income
    
    
    478
    
    
    
    131Interest expense including Series A preferred dividends of $182
and $201 for the nine months ended March 31, 2006 and 2005,
respectively
    
    
    (1,288
    )
    
    
    (494
    )Loss on futures contracts
    
    
    (936
    )
    
    
    Gain on sale of investments
    
    
    219
    
    
    
    317Income (loss) before taxes
    
    
    (720
    )
    
    
    527Income tax provision
    
    
    14
    
    
    
    247Net income (loss)
    
    
    (734
    )
    
    
    280Preferred stock dividend requirement
    
    
    (94
    )
    
    
    (94
    )Net income (loss) allocable to common stockholders
    
    $
    (828
    )
    
    $
    186Income (loss) per common share :Basic
    
    $
    (0.34
    )
    
    $
    0.08Diluted
    
    $
    (0.34
    )
    
    $
    0.07
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XPONENTIAL, INC. AND SUBSIDIARIES
 
   Three Months Ended
    
    
    Three Months Ended(In thousands, except per share data)
    
    March 31, 2006
    
    
    March 31, 2005Revenues:Merchandise sales
    
    $
    3,664
    
    
    $
    3,313Pawn service charges
    
    
    1,499
    
    
    
    1,493Management advisory and related fee income
    
    
    
    
    
    
    43Total revenues
    
    
    5,163
    
    
    
    4,849Cost of sales
    
    
    2,431
    
    
    
    2,459Gross profit
    
    
    2,732
    
    
    
    2,390Expenses:Store operating expenses
    
    
    1,591
    
    
    
    1,407Corporate administrative expenses
    
    
    742
    
    
    
    764Depreciation and amortization
    
    
    93
    
    
    
    108Total expenses
    
    
    2,426
    
    
    
    2,279Operating income
    
    
    306
    
    
    
    111Interest and dividend income
    
    
    200
    
    
    
    46Interest expense including Series A
preferred dividends of $61 and $67 for the three
months ended March 31, 2006 and 2005,
respectively
    
    
    (520
    )
    
    
    (174
    )Loss on futures contracts
    
    
    (463
    )
    
    
    Gain on sale of investments
    
    
    38
    
    
    
    78Income (loss) before taxes
    
    
    (439
    )
    
    
    61Income tax provision
    
    
    68
    
    
    
    43Net income (loss)
    
    
    (507
    )
    
    
    18Preferred stock dividend requirement
    
    
    (31
    )
    
    
    (31
    )Net loss allocable to common stockholders
    
    $
    (538
    )
    
    $
    (13
    )Loss per common share :Basic
    
    $
    (0.22
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.22
    )
    
    $
    (0.01
    )
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XPONENTIAL, INC. AND SUBSIDIARIES
 
   For the
    
    
    For theNine Months Ended
    
    
    Nine Months Ended(In thousands)
    
    March 31, 2006
    
    
    March 31, 2005Cash flows from operating activities:Net income (loss)
    
    $
    (734
    )
    
    $
    280Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    292
    
    
    
    324Gain on sale of investments
    
    
    (219
    )
    
    
    (317
    )Deferred income tax expense
    
    
    
    
    
    
    247Non-cash interest expense
    
    
    152
    
    
    
    Non-cash compensation expense
    
    
    64
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (353
    )
    
    
    6Pawn service charges receivable
    
    
    147
    
    
    
    55Inventories, net
    
    
    (1,092
    )
    
    
    (517
    )Prepaid expenses and other current assets
    
    
    28
    
    
    
    41Accounts payable and accrued liabilities
    
    
    (181
    )
    
    
    35Net cash used in operating activities
    
    
    (1,896
    )
    
    
    154Cash flows from investing activities:Pawn loans made
    
    
    (12,153
    )
    
    
    (11,533
    )Pawn loans redeemed
    
    
    5,411
    
    
    
    5,273Inventories acquired from loan forfeitures
    
    
    8,084
    
    
    
    6,767Proceeds from sale of investments
    
    
    2,178
    
    
    
    2,049Purchase of investments
    
    
    (9,363
    )
    
    
    (2,926
    )Purchases of property and equipment, net
    
    
    (1,743
    )
    
    
    (302
    )Other assets
    
    
    (32
    )
    
    
    (369
    )Net cash used in investing activities
    
    
    (7,618
    )
    
    
    (1,041
    )Cash flows from financing activities:Borrowings on notes payable
    
    
    13,943
    
    
    
    10,698Principal payments on notes payable
    
    
    (13,208
    )
    
    
    (8,499
    )Convertible note offering proceeds, net
    
    
    9,503
    
    
    
    Sale of common stock
    
    
    186
    
    
    
    62Dividends paid
    
    
    (94
    )
    
    
    (94
    )Net cash provided by financing activities
    
    
    10,330
    
    
    
    2,167Net increase in cash and cash equivalents
    
    
    816
    
    
    
    1,280Cash and cash equivalents at beginning of period
    
    
    407
    
    
    
    206Cash and cash equivalents at end of period
    
    $
    1,223
    
    
    $
    1,487Supplemental
disclosures of cash flow information 
Cash paid for interest
    
    $
    1,288
    
    
    $
    456
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XPONENTIAL, INC. AND SUBSIDIARIES
 
   Basis of Presentation
      Notes Payable
 Revolving Credit Facility-
  8% Limited Recourse Convertible Notes-
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Notes Payable (continued)
  Equity
  Stock Option Plan, Stock Incentive Plan and Stock Purchase Plan
   Weighted AverageNumber of Options
    
    
    Exercise 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
    
    
    (40,000
    )
    
    
    1.00Forfeited
    
    
    
    
    
    
    Exercisable and outstanding at March
31, 2006
    
    
    220,000
    
    
    $
    1.35
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Stock Option Plan, Stock Incentive Plan and Stock Purchase Plan (continued)
      Weighted Average Shares and Net Income Per Common Share
   9




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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Weighted Average Shares and Net Income Per Common Share (continued)
 Net LossAllocable toFor the Three Months Ended
    
    CommonMarch 31, 2006
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
    
    $
    (538,000
    )
    
    
    2,455,888
    
    
    $
    (0.22
    )
 Net IncomeAllocable toFor the Three Months Ended
    
    CommonMarch 31, 2005
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
    
    $
    (13,000
    )
    
    
    2,368,153
    
    
    $
    (0.01
    )
  Net LossAllocable toFor the Nine Months Ended
    
    CommonMarch 31, 2006
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
    
    $
    (828,000
    )
    
    
    2,414,191
    
    
    $
    (0.34
    )
 Net IncomeAllocable toFor the Nine Months Ended
    
    CommonMarch 31, 2005
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic earnings per common share
    
    $
    186,000
    
    
    
    2,356,614
    
    
    $
    0.08Assuming conversion -Series B
preferred stock
    
    
    94,000
    
    
    
    1,720,130Dilutive effect of stock options
    
    
    
    
    
    
    73,095Diluted earnings per common share
    
    $
    280,000
    
    
    
    4,149,839
    
    
    $
    0.07
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Investments in Marketable Securities
   Unrealized(in thousands)
    
    Cost
    
    
    Gain/(Loss)
    
    
    Market ValueStocks
    
    $
    56
    
    
    $
    (6
    )
    
    $
    50Bonds
    
    
    10,213
    
    
    
    343
    
    
    
    10,556Total
    
    $
    10,269
    
    
    $
    337
    
    
    $
    10,606
  Unrealized(in thousands)
    
    Cost
    
    
    Gain/(Loss)
    
    
    Market ValueStocks
    
    $
    7
    
    
    $
    (6
    )
    
    $
    1Bonds
    
    
    4,472
    
    
    
    204
    
    
    
    4,676Total
    
    $
    4,479
    
    
    $
    198
    
    
    $
    4,677
 Derivative Instruments
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Comprehensive Income
  For the Three Month
    
    
    For the Three MonthPeriod Ended
    
    
    Period Ended(in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Net income (loss)
    
    $
    (507
    )
    
    $
    18Unrealized gain (loss) from
available for sale securities
    
    
    215
    
    
    
    (170
    )Reclassification of realized
gain included in net income
    
    
    (38
    )
    
    
    (157
    )Effect of income tax
    
    
    
    
    
    
    111Comprehensive loss
    
    $
    (330
    )
    
    $
    (198
    )
 For the Nine Month
    
    
    For the Nine MonthPeriod Ended
    
    
    Period Ended(in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Net income (loss)
    
    $
    (734
    )
    
    $
    280Unrealized gain from available for sale securities
    
    
    141
    
    
    
    (252
    )Reclassification of realized (gain) loss included in net
income
    
    
    50
    
    
    
    (346
    )Effect of income tax
    
    
    
    
    
    
    203Comprehensive income (loss)
    
    $
    (543
    )
    
    $
    (115
    )
 Investment in American IronHorse Motorcycle Company, Inc.
   12




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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Investment in American IronHorse Motorcycle Company, Inc. (continued
 As of
    
    
    As of(in thousands)
    
    March 31, 2006
    
    
    December 31, 2005(Unaudited)Current assets
    
    $
    38,207
    
    
    $
    37,358Current liabilities
    
    $
    30,843
    
    
    $
    28,120Total assets
    
    $
    42,362
    
    
    
    41,663Total liabilities
    
    
    30,978
    
    
    
    28,291Stockholders equity
    
    $
    11,384
    
    
    
    13,371
 For the Three
    
    
    For theMonths Ended
    
    
    Year Ended(in thousands)
    
    March 31, 2006
    
    
    December 31, 2005(Unaudited)Total revenue
    
    $
    11,988
    
    
    $
    96,802Net income (loss)
    
    $
    (1,987
    )
    
    $
    2,524
 Operating Segment Information
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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Operating Segment Information (continued)
 Investment,Pawn
    
    
    Management andThree Months Ended March 31, 2006
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    3,664
    
    
    $
    
    
    
    $
    3,664Pawn service charges and related fee income
    
    
    1,499
    
    
    
    
    
    
    
    1,499Other Income
    
    
    
    
    
    
    
    
    
    
    Total Revenue
    
    
    5,163
    
    
    
    
    
    
    
    5,163Expenses:Cost of sales
    
    
    2,431
    
    
    
    
    
    
    
    2,431Store operating expenses
    
    
    1,618
    
    
    
    (27
    )
    
    
    1,591Corporate administrative expenses
    
    
    513
    
    
    
    229
    
    
    
    742Depreciation and amortization
    
    
    83
    
    
    
    10
    
    
    
    93Operating income (loss)
    
    
    518
    
    
    
    (212
    )
    
    
    306Interest and dividend income
    
    
    4
    
    
    
    196
    
    
    
    200Interest expense
    
    
    (30
    )
    
    
    (490
    )
    
    
    (520
    )Loss on change of futures contracts value
    
    
    (463
    )
    
    
    
    
    
    
    (463
    )Gain on sale of investments
    
    
    
    
    
    
    38
    
    
    
    38Net income (loss) before taxes
    
    $
    29
    
    
    $
    (468
    )
    
    $
    (439
    )Total Assets
    
    $
    11,759
    
    
    $
    21,043
    
    
    $
    32,802
 Investment,Pawn
    
    
    Management andThree Months Ended March 31, 2005
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    3,313
    
    
    $
    
    
    
    $
    3,313Pawn service charges and related fee income
    
    
    1,493
    
    
    
    
    
    
    
    1,493Management advisory and related fee income
    
    
    
    
    
    
    43
    
    
    
    43Total Revenue
    
    
    4,806
    
    
    
    43
    
    
    
    4,849Expenses:Cost of sales
    
    
    2,459
    
    
    
    
    
    
    
    2,459Store operating expenses
    
    
    1,407
    
    
    
    
    
    
    
    1,407Corporate administrative expenses
    
    
    465
    
    
    
    299
    
    
    
    764Depreciation and amortization
    
    
    103
    
    
    
    5
    
    
    
    108Operating income (loss)
    
    
    372
    
    
    
    (261
    )
    
    
    111Interest and dividend income
    
    
    1
    
    
    
    45
    
    
    
    46Interest expense
    
    
    (75
    )
    
    
    (99
    )
    
    
    (174
    )Gain on sale of investments
    
    
    
    
    
    
    78
    
    
    
    78Net income (loss) before taxes
    
    $
    298
    
    
    $
    (237
    )
    
    $
    61Total Assets
    
    $
    9,348
    
    
    $
    8,806
    
    
    $
    18,154
 14




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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Operating Segment Information (continued)
 Investment,Pawn
    
    
    Management andNine Months Ended March 31, 2006
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    11,513
    
    
    $
    
    
    
    $
    11,513Pawn service charges and related fee income
    
    
    4,634
    
    
    
    
    
    
    
    4,634Other
    
    
    30
    
    
    
    
    
    
    
    30Total Revenue
    
    
    16,177
    
    
    
    
    
    
    
    16,177Expenses:Cost of sales
    
    
    8,271
    
    
    
    
    
    
    
    8,271Store operating expenses
    
    
    4,693
    
    
    
    (27
    )
    
    
    4,666Corporate administrative expenses
    
    
    1,459
    
    
    
    683
    
    
    
    2,142Depreciation and amortization
    
    
    276
    
    
    
    15
    
    
    
    291Operating income (loss)
    
    
    1,478
    
    
    
    (671
    )
    
    
    807Interest and dividend income
    
    
    6
    
    
    
    472
    
    
    
    478Interest expense
    
    
    (133
    )
    
    
    (1,155
    )
    
    
    (1,288
    )Loss on change of futures contracts value
    
    
    (936
    )
    
    
    
    
    
    
    (936
    )Gain on sale of investments
    
    
    
    
    
    
    219
    
    
    
    219Net income (loss) before taxes
    
    $
    415
    
    
    $
    (1,135
    )
    
    $
    (720
    )Total Assets
    
    $
    11,759
    
    
    $
    21,043
    
    
    $
    32,802
 Investment,Pawn
    
    
    Management andNine Months Ended March 31, 2005
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenue:Merchandise sales
    
    $
    9,807
    
    
    $
    
    
    
    $
    9,807Pawn service charges and related fee income
    
    
    4,635
    
    
    
    
    
    
    
    4,635Management advisory and related fee income
    
    
    
    
    
    
    128
    
    
    
    128Total Revenue
    
    
    14,442
    
    
    
    128
    
    
    
    14,570Expenses:Cost of sales
    
    
    7,208
    
    
    
    
    
    
    
    7,208Store operating expenses
    
    
    4,267
    
    
    
    
    
    
    
    4,267Corporate administrative expenses
    
    
    1,398
    
    
    
    800
    
    
    
    2,198Depreciation and amortization
    
    
    319
    
    
    
    5
    
    
    
    324Operating income (loss)
    
    
    1,250
    
    
    
    (677
    )
    
    
    573Interest and dividend income
    
    
    2
    
    
    
    129
    
    
    
    131Interest expense
    
    
    (233
    )
    
    
    (261
    )
    
    
    (494
    )Gain on sale of investments
    
    
    
    
    
    
    317
    
    
    
    317Net income (loss) before taxes
    
    $
    1,019
    
    
    $
    (492
    )
    
    $
    527Total Assets
    
    $
    9,348
    
    
    $
    8,806
    
    
    $
    18,154
 15




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 Subsequent Events
 Loan
to American IronHorse
     Tender
Offer
  16




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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.
       17




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##### Table of Contents



For the Three Months Ended
    
    
    For the Nine Months EndedMarch 31
    
    
    March 312006
    
    
    2005
    
    
    2006
    
    
    2005Merchandise sales
    
    
    71.0
    %
    
    
    68.3
    %
    
    
    71.2
    %
    
    
    67.3
    %Pawn service charges and related fee income
    
    
    29.0
    
    
    
    30.8
    
    
    
    28.6
    
    
    
    31.8Management advisory fees and related fee income
    
    
    
    
    
    
    0.9
    
    
    
    0.2
    
    
    
    0.9Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    47.1
    
    
    
    50.7
    
    
    
    51.1
    
    
    
    49.5Store operating expenses
    
    
    30.8
    
    
    
    29.0
    
    
    
    28.9
    
    
    
    29.3Corporate administrative expenses
    
    
    14.4
    
    
    
    15.8
    
    
    
    13.2
    
    
    
    15.1Depreciation and amortization
    
    
    1.8
    
    
    
    2.2
    
    
    
    1.8
    
    
    
    2.2Operating income
    
    
    5.9
    
    
    
    2.3
    
    
    
    5.0
    
    
    
    3.9Interest and dividend income
    
    
    3.9
    
    
    
    1.0
    
    
    
    3.0
    
    
    
    0.9Interest expense
    
    
    (10.0
    )
    
    
    3.6
    
    
    
    (8.0
    )
    
    
    3.4Loss on futures contracts
    
    
    (9.0
    )
    
    
    
    
    
    
    (5.8
    )
    
    
    Gain on sale of marketable securities
    
    
    0.7
    
    
    
    1.6
    
    
    
    1.4
    
    
    
    2.2Net income (loss) before income taxes
    
    
    (8.5
    )
    
    
    1.3
    
    
    
    (4.4
    )
    
    
    3.6Income tax benefit (provision)
    
    
    (1.3
    )
    
    
    (0.9
    )
    
    
    (0.1
    )
    
    
    (1.7
    )Net income (loss)
    
    
    (9.8
    )%
    
    
    0.4
    %
    
    
    (4.5
    )%
    
    
    1.9
    %
  Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
    18




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##### Table of Contents



For the Three Months Ended(In thousands)
    
    March 31, 2006
    
    
    March 31, 2005Jewelry
    
    
    
    
    
    
    
    
    
    
    JewelryMerchandise
    
    
    Refining
    
    
    Total
    
    
    Merchandise
    
    
    Refining
    
    
    TotalSales
    
    $
    2,597
    
    
    $
    1,067
    
    
    $
    3,664
    
    
    $
    3,075
    
    
    $
    238
    
    
    $
    3,313Pawn Service
Charges and Other
Income
    
    
    1,499
    
    
    
    
    
    
    
    1,499
    
    
    
    1,536
    
    
    
    
    
    
    
    1,536Total Revenue
    
    
    4,096
    
    
    
    1,067
    
    
    
    5,163
    
    
    
    4,611
    
    
    
    238
    
    
    
    4,849Cost of Sales
    
    
    1,848
    
    
    
    583
    
    
    
    2,431
    
    
    
    2,306
    
    
    
    153
    
    
    
    2,459Gross Profit
    
    $
    2,248
    
    
    $
    484
    
    
    $
    2,732
    
    
    $
    2,305
    
    
    $
    85
    
    
    $
    2,390Profit Margin
    
    
    54.9
    %
    
    
    45.4
    %
    
    
    52.9
    %
    
    
    50.0
    %
    
    
    35.7
    %
    
    
    49.3
    %
       19




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##### Table of Contents



Nine Months Ended March 31, 2006 Compared to Nine Months Ended March 31, 2005
    (In thousands)
    
    For the Nine Months EndedMarch 31, 2006
    
    
    March 31, 2005Jewelry
    
    
    
    
    
    
    
    
    
    
    JewelryMerchandise
    
    
    Refining
    
    
    Total
    
    
    Merchandise
    
    
    Refining
    
    
    TotalSales
    
    $
    8,195
    
    
    $
    3,318
    
    
    $
    11,513
    
    
    $
    9,146
    
    
    $
    661
    
    
    $
    9,807Pawn Service
Charges and Other
Income
    
    
    4,664
    
    
    
    
    
    
    
    4,664
    
    
    
    4,763
    
    
    
    
    
    
    
    4,763Total Revenue
    
    
    12,859
    
    
    
    3,318
    
    
    
    16,177
    
    
    
    13,909
    
    
    
    661
    
    
    
    14,570Cost of Sales
    
    
    6,063
    
    
    
    2,208
    
    
    
    8,271
    
    
    
    6,673
    
    
    
    535
    
    
    
    7,208Gross Profit
    
    $
    6,796
    
    
    
    1,110
    
    
    
    7,906
    
    
    
    7,236
    
    
    
    126
    
    
    
    7,362Profit Margin
    
    
    52.9
    %
    
    
    33.5
    %
    
    
    48.9
    %
    
    
    52.0
    %
    
    
    19.1
    %
    
    
    50.5
    %
     20




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##### Table of Contents



ITEM 3. CONTROLS AND PROCEDURES
  21




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##### Table of Contents



22




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##### Table of Contents



PART II
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
 (1)
 Original Issuance
    

    PrincipalDate
    

    Amount03/31/06
    

    $
    150,00004/04/06
    

    $
    10,00004/04/06
    

    $
    75,00004/10/06
    

    $
    59,00004/13/06
    

    $
    33,00004/17/06
    

    $
    50,00004/20/06
    

    $
    25,00004/28/06
    

    $
    100,00005/02/06
    

    $
    10,00005/02/06
    

    $
    100,00005/03/06
    

    $
    15,000
      (1)
    
    In its Report on Form 8-K dated October 27 2005, as
filed with the Securities and Exchange Commission on November 2,
2005, the registrant erroneously reported the sale of an aggregate of
$13,125,000 in original principal amount of Convertible Notes, which
amount included $50,000 in subscriptions that were subsequently not
accepted by the registrant.
 23




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##### Table of Contents



ITEM 6. EXHIBITS
 Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended *31.2
    
    Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended *32.1
    
    Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 *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. 24




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##### Table of Contents



SIGNATURES
  XPONENTIAL, INC. (Registrant)May 17, 2006
    
    By:
    /s/ Robert W. SchleizerRobert W. Schleizer, Executive VicePresident and Chief Financial Officer 25




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##### Table of Contents



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