**UNITED STATES****SECURITIES AND EXCHANGECOMMISSION**

 

**Washington,D.C. 20549**

 

**FORM 10-QSB/A**

**(Amendment No. 1)**

 

| **ý**                      |   | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period  ended December 31, 2003.**                                                                          |
|---------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                            |   |                                                                                                                                                                                                               |
| **o**                           |   | **TRANSITION REPORT UNDER SECTION  13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period  from         to         .** |
|                            |   |                                                                                                                                                                                                               |
| **Commission File No. 1-13919** |

 

| **Xponential,  Inc.**                                              |
|--------------------------------------------------------------------|
| (Exact name of small  business issuer as specified 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)                                  |

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter 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 ýNo o

 

Check whether the registrant filed all documents and reports requiredto be filed by Section 12, 13 or 15(d) of the Exchange Act after distributionof securities under a plan confirmed by a court. Yes ýNo o

 

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

 

Transitional Small Business Disclosure Format (Check one):  Yes oNo ý

 

 

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**EXPLANATORY NOTE**

 

An income taxprovision was recorded to account for income taxes as required under AmericanInstitute of Certified Public Accountants Statement of Position 90-7 forentities which  emerge frombankruptcy.  Income tax expense wasincreased to $739,000 from $18,000 for the six months ended December 31, 2003and to $171,000 from $18,000 for the three months ended December 31, 2003 as aresult of the correction of the error. This amendment reclassifies amountsbetween additional paid in capital and retained earnings at December 31, 2003for the effect of recording income taxes for the ten months ended June 30, 2003and includes a restatement for income tax expense of $92,000 for the three andfour months ended December 31, 2002. Certain footnote disclosures have also been amended to account for theadditional income tax expense.  See Note10 for a description of the restatement.

 

2

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**XPONENTIAL, INC.**

** **

**INDEX**

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

##### ** **

3

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

##### ** **

**ITEM1.****  FINANCIALSTATEMENTS**

 

**XPONENTIAL, INC. AND SUBSIDIARIES**

Consolidated Balance Sheets

(In thousands, exceptshare and per share data)

 
|                                                                                                                                                                                                 |   | **December  31, 2003** |   | **June 30,  2003** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------------------|--------|
|                                                                                                                                                                                                 |   | **(Unaudited)**        |   | **(As  restated)** |   |
|                                                                                                                                                                                                 |   | **(As restated)**      |   |               |   |
| Assets                                                                                                                                                                                               |   |                   |   |               |   |
| Current assets:                                                                                                                                                                                      |   |                   |   |               |   |
| Cash and cash  equivalents                                                                                                                                                                           |   | $                      | 1,015  |               | $      | 220 |   |
| Accounts  receivable                                                                                                                                                                                 |   | 338                    |   | 176                |   |
| Pawn service  charges receivable                                                                                                                                                                     |   | 608                    |   | 503                |   |
| Pawn loans                                                                                                                                                                                           |   | 5,535                  |   | 4,571              |   |
| Inventories, net                                                                                                                                                                                     |   | 2,705                  |   | 2,540              |   |
| Investments                                                                                                                                                                                          |   | 3,037                  |   | 7,725              |   |
| Prepaid expenses  and other current assets                                                                                                                                                           |   | 371                    |   | 245                |   |
| Total current assets                                                                                                                                                                                 |   | 13,609                 |   | 15,980             |   |
|                                                                                                                                                                                                 |   |                   |   |               |   |
| Property and equipment,  net                                                                                                                                                                         |   | 977                    |   | 889                |   |
| Intangible  assets, net of amortization of $20 and $6 at December 31, 2003 and  June 30, 2003, respectively                                                                                     |   | 95                     |   | 41                 |   |
| Other  investments                                                                                                                                                                                   |   | 2,613                  |   | —             |   |
| Other assets                                                                                                                                                                                         |   | 95                     |   | 107                |   |
| Total assets                                                                                                                                                                                         |   | $                      | 17,389 |               | $      | 17,017 |   |
|                                                                                                                                                                                                 |   |                   |   |               |   |
| Liabilities and  Stockholders’ Equity                                                                                                                                                           |   |                   |   |               |   |
| Current  liabilities:                                                                                                                                                                                |   |                   |   |               |   |
| Accounts payable  and accrued liabilities                                                                                                                                                            |   | $                      | 873    |               | $      | 1,009 |   |
| Current  installments of notes payable                                                                                                                                                               |   | 3,921                  |   | 4,074              |   |
| Total current  liabilities                                                                                                                                                                           |   | 4,794                  |   | 5,083              |   |
| Long term  liabilities                                                                                                                                                                               |   |                   |   |               |   |
| Notes payable  –  net of current portion                                                                                                                                                   |   | 327                    |   | 396                |   |
| Redeemable  Preferred Stock:                                                                                                                                                                         |   |                   |   |               |   |
| Preferred stock  – Series A; par value $0.01; 5% cumulative dividend,  liquidation preference $5.00 per share;  1,071,636  shares issued at  December 31, 2003 and June 30, 2003 |   | 5,358                  |   | 5,358              |   |
| Total long term  liabilities                                                                                                                                                                         |   | 5,685                  |   | 5,754              |   |
|                                                                                                                                                                                                 |   |                   |   |               |   |
| Total  liabilities                                                                                                                                                                                   |   | 10,479                 |   | 10,837             |   |
|                                                                                                                                                                                                 |   |                   |   |               |   |
| Stockholders’  equity:                                                                                                                                                                          |   |                   |   |               |   |
| Preferred stock  – $0.01 par value, 2,500,000 authorized:                                                                                                                                       |   |                   |   |               |   |
| Preferred stock  – Series B; 5% cumulative dividend,   liquidation  preference  $5.00 per share ($2,500,210); 500,042  issued at December 31, 2003 and  June  30, 2003      |   | 5                      |   | 5                  |   |
| Common  stock  $0.01 par value; authorized  10,000,000 shares,  2,322,922 and  2,079,948 issued and outstanding as of  December 31, 2003 and June 30, 2003,   respectively       |   | 23                     |   | 21                 |   |
| Additional  paid-in capital                                                                                                                                                                          |   | 5,410                  |   | 4,403              |   |
| Retained  earnings (accumulated deficit)                                                                                                                                                             |   | 1,177                  |   | (7                 | )      |
| Accumulated  other comprehensive income                                                                                                                                                              |   | 335                    |   | 1,758              |   |
| Less treasury  stock, at cost; 25,000 common shares at December 31, 2003                                                                                                                             |   | (40                    | )      | —             |   |
| Total  stockholders’ equity                                                                                                                                                                     |   | 6,910                  |   | 6,180              |   |
| Total  liabilities and stockholders’ equity                                                                                                                                                     |   | $                      | 17,389 |               | $      | 17,017 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

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**XPONENTIAL, INC. AND SUBSIDIARIES**

Consolidated Statementsof Operations

(Unaudited)

 
|                                                                                                                                  |   | **Reorganized  Company**                  |   | **Predecessor**                         |   | **Reorganized  Company**                    |   |                                      |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------------|--------|-------------------------------------------|--------|
| **(In thousands, except per share  data)**                                                                                            |   | **Six Months  Ended  December 31,  2003** |   | **Two Months  Ended  August 31,  2002** |   | **Four  Months  Ended  December 31,  2002** |   | **Six Months  Ended  December 31,  2002** |   |
|                                                                                                                                  |   | **(As restated)**                         |   |                                    |   | **(As restated)**                           |   | **(As restated)**                         |   |
| Revenues:                                                                                                                             |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Merchandise  sales                                                                                                                    |   | $                                         | 7,301  |                                    | $      | 1,578                                       |   | $                                         | 4,204  |   | $ | 5,782 |   |
| Pawn service  charges                                                                                                                 |   | 3,346                                     |   | 853                                     |   | 1,818                                       |   | 2,671                                     |   |
| Other                                                                                                                                 |   | 221                                       |   | 38                                      |   | 78                                          |   | 116                                       |   |
| Total revenues                                                                                                                        |   | 10,868                                    |   | 2,469                                   |   | 6,100                                       |   | 8,569                                     |   |
|                                                                                                                                  |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Expenses:                                                                                                                             |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Cost of sales                                                                                                                         |   | 5,983                                     |   | 1,075                                   |   | 3,053                                       |   | 4,128                                     |   |
| Store operating  expenses                                                                                                             |   | 3,101                                     |   | 896                                     |   | 1,786                                       |   | 2,682                                     |   |
| Corporate  administrative expenses                                                                                                    |   | 1,441                                     |   | 336                                     |   | 947                                         |   | 1,283                                     |   |
| Depreciation and  amortization                                                                                                        |   | 229                                       |   | 63                                      |   | 99                                          |   | 162                                       |   |
| Total expenses                                                                                                                        |   | 10,754                                    |   | 2,370                                   |   | 5,885                                       |   | 8,255                                     |   |
|                                                                                                                                  |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Operating income                                                                                                                      |   | 114                                       |   | 99                                      |   | 215                                         |   | 314                                       |   |
| Interest and  dividend income                                                                                                         |   | 255                                       |   | —                                  |   | 41                                          |   | 41                                        |   |
| Interest expense  including redeemable  preferred stock  dividends of $134,000 for  the six  months ended December 31, 2003 |   | (325                                      | )      | (83                                     | )      | (107                                        | )      | (190                                      | )      |
| Gain on  disposition of assets                                                                                                        |   | (4                                        | )      | —                                  |   | 5                                           |   | 5                                         |   |
| Gain on sale of  investments                                                                                                          |   | 1,946                                     |   | —                                  |   | 88                                          |   | 88                                        |   |
| Reorganization  expenses                                                                                                              |   | —                                    |   | (241                                    | )      | —                                      |   | (241                                      | )      |
| Net income  before income taxes and  extraordinary  items                                                                        |   | 1,986                                     |   | (225                                    | )      | 242                                         |   | 17                                        |   |
| Extraordinary  items:                                                                                                                 |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Gain on debt  discharge                                                                                                               |   | —                                    |   | 11,810                                  |   | —                                      |   | 11,810                                    |   |
| Net income  before income taxes                                                                                                       |   | 1,986                                     |   | 11,585                                  |   | 242                                         |   | 11,827                                    |   |
| Income tax  provision                                                                                                                 |   | (739                                      | )      | —                                  |   | (92                                         | )      | (92                                       | )      |
| Net income                                                                                                                            |   | 1,247                                     |   | 11,585                                  |   | 150                                         |   | 11,735                                    |   |
| Preferred stock  dividend requirement                                                                                                 |   | (63                                       | )      | —                                  |   | (131                                        | )      | (131                                      | )      |
| Net income  allocable to common stockholders                                                                                          |   | $                                         | 1,184  |                                    | $      | 11,585                                      |   | $                                         | 19     |   | $ | 11,604 |   |
|                                                                                                                                  |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Income (loss)  per common share (note 5):                                                                                             |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Basic                                                                                                                                 |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Continuing  Operations                                                                                                                |   | $                                         | 0.56   |                                    | $      | (0.09                                       | )      | $                                         | 0.01   |   | $ |   | * |
| Extraordinary  Items                                                                                                                  |   | —                                    |   | 4.72                                    |   | —                                      |   |                                      | *      |
|                                                                                                                                  |   | $                                         | 0.56   |                                    | $      | 4.63                                        |   | $                                         | 0.01   |   | $ |   | * |
| Diluted                                                                                                                               |   |                                      |   |                                    |   |                                        |   |                                      |   |
| Continuing  Operations                                                                                                                |   | $                                         | 0.32   |                                    | $      | (0.09                                       | )      | $                                         | 0.02   |   | $ |   | * |
| Extraordinary  Items                                                                                                                  |   | —                                    |   | 4.72                                    |   | —                                      |   |                                      | *      |
|                                                                                                                                  |   | $                                         | 0.32   |                                    | $      | 4.63                                        |   | $                                         | 0.02   |   | $ |   | * |

 

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

 

See accompanying notes toconsolidated financial statements.

 

5

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| **(In thousands, except per share  data)**                                                                                             |   | **Three Months****Ended  December 31,  2003** |   | **Three  Months  Ended  December 31,  2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                                   |   | **(As restated)**                             |   | **(As restated)**                            |   |
| Revenues:                                                                                                                              |   |                                          |   |                                         |   |
| Merchandise  sales                                                                                                                     |   | $                                             | 3,980  |                                         | $      | 3,274 |   |
| Pawn service  charges and  related fee income                                                                                     |   | 1,728                                         |   | 1,399                                        |   |
| Management  advisory and related fee income                                                                                            |   | 176                                           |   | 63                                           |   |
| Total revenues                                                                                                                         |   | 5,884                                         |   | 4,736                                        |   |
|                                                                                                                                   |   |                                          |   |                                         |   |
| Expenses:                                                                                                                              |   |                                          |   |                                         |   |
| Cost of sales                                                                                                                          |   | 3,301                                         |   | 2,381                                        |   |
| Store operating  expenses                                                                                                              |   | 1,583                                         |   | 1,336                                        |   |
| Corporate  administrative expenses                                                                                                     |   | 800                                           |   | 720                                          |   |
| Depreciation and  amortization                                                                                                         |   | 118                                           |   | 76                                           |   |
| Total expenses                                                                                                                         |   | 5,802                                         |   | 4,513                                        |   |
|                                                                                                                                   |   |                                          |   |                                         |   |
| Operating income                                                                                                                       |   | 82                                            |   | 223                                          |   |
|                                                                                                                                   |   |                                          |   |                                         |   |
| Interest and dividend  income                                                                                                          |   | 155                                           |   | 14                                           |   |
| Interest expense  including redeemable preferred  stock  dividends of $67,000 for the three months   ended December 31, 2003 |   | (164                                          | )      | (69                                          | )      |
| Gain on  disposition of assets                                                                                                         |   | (7                                            | )      | —                                       |   |
| Gain on sale of  investments                                                                                                           |   | 315                                           |   | 88                                           |   |
| Net income  before income taxes                                                                                                        |   | 381                                           |   | 256                                          |   |
| Income tax  provision                                                                                                                  |   | (153                                          | )      | (92                                          | )      |
| Net  income/(loss)                                                                                                                     |   | 228                                           |   | 164                                          |   |
|                                                                                                                                   |   |                                          |   |                                         |   |
| Preferred stock  dividend requirement                                                                                                  |   | (31                                           | )      | (98                                          | )      |
| Net income  allocable to common stockholders                                                                                           |   | $                                             | 197    |                                         | $      | 66 |   |
|                                                                                                                                   |   |                                          |   |                                         |   |
| Income per  common share (note 5):                                                                                                     |   |                                          |   |                                         |   |
| Basic                                                                                                                                  |   |                                          |   |                                         |   |
| Continuing  Operations                                                                                                                 |   | $                                             | 0.09   |                                         | $      | 0.03 |   |
| Extraordinary  Items                                                                                                                   |   | —                                        |   | —                                       |   |
|                                                                                                                                   |   | $                                             | 0.09   |                                         | $      | 0.03 |   |
| Diluted                                                                                                                                |   |                                          |   |                                         |   |
| Continuing  Operations                                                                                                                 |   | $                                             | 0.06   |                                         | $      | 0.02 |   |
| Extraordinary  Items                                                                                                                   |   | —                                        |   | —                                       |   |
|                                                                                                                                   |   | $                                             | 0.06   |                                         | $      | 0.02 |   |

 

See accompanying notes toconsolidated financial statements.

 

6

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**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Consolidated Statements of Cash Flows

(Unaudited)

 
|                                                                                  |   | **Reorganized  Company**                           |   | **Predecessor**                                  |   | **Reorganized  Company**                            |   |                                                     |   |
|---------------------------------------------------------------------------------------|--------|----------------------------------------------------|--------|--------------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------------------------------|--------|
| **(In thousands)**                                                                    |   | **For the  Six Months  Ended  December 31,  2003** |   | **For the  Two Months  Ended  August 31,  2002** |   | **For the  Four Months  Ended  December 31,  2002** |   | **For the  Six  Months  Ended  December 31,  2002** |   |
|                                                                                  |   | **(As restated)**                                  |   | **(As restated)**                                |   | **(As restated)**                                   |   | **(As restated)**                                        |   |
| Cash flows from operating  activities:                                                |   |                                               |   |                                             |   |                                                |   |                                                     |   |
| Net income                                                                            |   | $                                                  | 1,247  |                                             | $      | 11,585                                              |   | $                                                        | 150    |   | $ | 11,735 |   |
| Adjustments to  reconcile net income to net cash  used  in operating activities: |   |                                               |   |                                             |   |                                                |   |                                                     |   |
| Depreciation and  amortization                                                        |   | 229                                                |   | 63                                               |   | 99                                                  |   | 162                                                      |   |
| Gain on debt  discharge                                                               |   | —                                             |   | (11,810                                          | )      | —                                              |   | (11,810                                                  | )      |
| Gain on sale of  investments                                                          |   | (1,946                                             | )      | —                                           |   | —                                              |   | —                                                   |   |
| Deferred income  tax expense related to bankruptcy                                    |   | 721                                                |   | —                                           |   | 92                                                  |   | 92                                                       |   |
| Changes in  operating assets and liabilities,  net  of effect of acquisition:    |   |                                               |   |                                             |   |                                                |   |                                                     |   |
| Accounts receivable                                                                   |   | (162                                               | )      | (24                                              | )      | (19                                                 | )      | (43                                                      | )      |
| Net decrease  (increase) in pawn loans                                                |   | (105                                               | )      | (45                                              | )      | (70                                                 | )      | (115                                                     | )      |
| Inventories, net                                                                      |   | (165                                               | )      | 62                                               |   | 158                                                 |   | 220                                                      |   |
| Prepaid expenses  and other current  Assets                                      |   | (168                                               | )      | (3                                               | )      | (67                                                 | )      | (70                                                      | )      |
| Accounts payable  and accrued  Liabilities                                       |   | (136                                               | )      | (56                                              | )      | (70                                                 | )      | (126                                                     | )      |
| Net cash (used  in) provided by  operating activities                            |   | (485                                               | )      | (228                                             | )      | 273                                                 |   | 45                                                       |   |
| Cash flows from  investing activities:                                                |   |                                               |   |                                             |   |                                                |   |                                                     |   |
| Pawn loans made,  net                                                                 |   | (964                                               | )      | (414                                             | )      | (640                                                | )      | (1,054                                                   | )      |
| Proceeds from  sale of investments                                                    |   | 7,809                                              |   | —                                           |   | —                                              |   | —                                                   |   |
| Purchase of  Investments                                                              |   | (5,205                                             | )      | —                                           |   | (220                                                | )      | (220                                                     | )      |
| Cash acquired in  merger (1)                                                          |   | —                                             |   | —                                           |   | 2,565                                               |   | 2,565                                                    |   |
| Purchases of  property and equipment                                                  |   | (317                                               | )      | —                                           |   | (164                                                | )      | (164                                                     | )      |
| Net cash  provided by (used in)  investing  activities                           |   | 1,323                                              |   | (414                                             | )      | 1,541                                               |   | 1,127                                                    |   |
|                                                                                  |   |                                               |   |                                             |   |                                                |   |                                                     |   |
| Cash flows from  financing activities:                                                |   |                                               |   |                                             |   |                                                |   |                                                     |   |
| (Principal  payments)/borrowings on notes payable                                     |   | (222                                               | )      | 455                                              |   | (562                                                | )      | (107                                                     | )      |
| Sale of common  stock                                                                 |   | 283                                                |   | —                                           |   |                                                |   |                                                     |   |
| Purchase of  treasury stock                                                           |   | (40                                                | )      | —                                           |   |                                                |   |                                                     |   |
| Dividends paid                                                                        |   | (62                                                | )      | —                                           |   | (131                                                | )      | (131                                                     | )      |
| Net cash  provided by (used in)  financing  activities                           |   | (41                                                | )      | 455                                              |   | (693                                                | )      | (238                                                     | )      |
| Net increase  (decrease) in cash and cash equivalents                                 |   | 795                                                |   | (187                                             | )      | 1,121                                               |   | 934                                                      |   |
| Cash and cash  equivalents at beginning of period                                     |   | 220                                                |   | 377                                              |   | 190                                                 |   | 377                                                      |   |
| Cash and cash  equivalents at end of period                                           |   | $                                                  | 1,015  |                                             | $      | 190                                                 |   | $                                                        | 1,311  |   | $ | 1,311 |   |
| Supplemental  disclosures of cash flow information - Cash paid for interest           |   | $                                                  | 288    |                                             | $      | 83                                                  |   | $                                                        | 102    |   | $ | 185 |   |

 

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

 

See accompanying notes toconsolidated financial statements.

 

7

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**XPONENTIAL, INC. AND SUBSIDIARIES**

 

Notes to ConsolidatedFinancial Statements

(Unaudited)

 

(1)                      Basis ofPresentation

 

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

 

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 to June 30to more accurately reflect the Company’s post bankruptcy operating results. Theresults of operations for the interim periods ended December 31, 2003 andDecember 31, 2002 are not necessarily indicative of the results that may beexpected 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 10-KSB/Awhich have been previously filed with the Securities and Exchange Commission.

 

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

 

On July 9, 2001 theCompany filed a voluntary petition for relief under Chapter 11 of the UnitedStates Bankruptcy Code (the “Bankruptcy Code”) in the United States BankruptcyCourt for the Northern District of Texas, Fort Worth Division (the “BankruptcyCourt”) in the case of PawnMart, Inc., Debtor, Case No. 01-44957-BJH-11.  The Company operated as debtor in possessionthroughout the bankruptcy proceedings. The Plan of Reorganization was filed on February 15, 2002 and wasamended on April 3, 2002 (the “Plan”). A confirmation hearing for the Plan was held on May 20, 2002 and thePlan was confirmed by order of the Bankruptcy Court as of that date(“Confirmation Date”).  The Plan becameeffective on May 31, 2002 (the “Effective Date”).

 

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-start reporting (Note 2) and gaveeffect to its emergence from bankruptcy and consummation of the Plan on August30, 2002, including recognition of certain reorganization expenses associatedwith the Merger in the Company’s Statement of Operations for the two monthsended August 31, 2002.

 

Fresh-start reporting asset forth in SOP 90-7 required that the reorganized Company restate its assetsand liabilities 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 ofapproximately $1.9 million to the new common equity holders after allowance forpost confirmation 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  companiesin  its industry, net  realizable value of  asset sales and other

 

8

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applicable methods.  The calculated reorganization value wasbased on estimates and assumptions about circumstances in a relativelyhigh-risk investment scenario that have not yet taken place in which there aresignificant economic and competitive uncertainties beyond the control of thereorganized Company.

 

In May 2003, the FASBissued SFAS 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 redeemable preferredstock be classified as a liability and related dividends be charged to the Company’s statement of operations.  Prior to June 15, 2003, the charges relatedto the mandatorily redeemable preferred stock were not reflected in net income(loss), but were reflected in determining net income (loss) applicable tocommon stockholders. At December 31, 2003, the carrying value of the Company’smandatorily redeemable preferred stock was $5,358,000.  The related dividends that would have beenreflected as interest expense for the three months and six months endedDecember 31, 2002 were $67,000 and $89,000.  Subsequent to theadoption of SFAS 150, the Company has reflected $67,000 and $134,000 asinterest expense for the three months and six months ended December 31, 2003,respectively.

 

(2)       Plan of Reorganization -Fresh-start Reporting

 

Under the terms of thePlan, the Company cancelled all equity interests of its common and preferredshareholders and interests of any holders of options and warrants.  The Company issued 2,079,948 shares ofCommon Stock to its unsecured creditors in exchange for release of indebtednessand in connection with the Merger of the Company with CMHI, which is owned inpart by Dwayne A. Moyers and Jeffrey A. Cummer, officers and directors of theCompany, issued 1,071,636 shares of Series A Preferred Stock and 500,042 SeriesB Preferred Stock to the former shareholders of CMHI.  At the time of the Merger, CMHI did not have any businessoperations 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 business combination.

 

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’sreorganization value, 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 was less than the postpetition liabilities and allowedclaims, as shown below.

 

The reorganization valuewas determined 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  asset sales and other applicablemethods.  The Company assigned no valueto its net operating loss carryovers in the calculation of its reorganizationvalue due to the lack of certainty of utilizing the net operating losses basedon historical operating results and the potential limitations on use resultingfrom 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 ofthe Company’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, was as  follows:

 

AtAugust 30, 2002

(inthousands)

 
| 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 purchaseprice for CMHI was approximately $7.8 million which was paid through theissuance of Series A and Series B Preferred Stock valued at $5.3 million and$2.5 million, respectively.  The valueof the Preferred Stock was based on liquidation preferences and dividend and conversionfeatures.

 

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 inother assets, $5.0 million are investments in marketable securities.  The Company classified these securities aslong term assets at the time of the Merger due to its intent to defer sale ofthese securities to offset gains on disposition with accumulated net operatinglosses.

 

The following is a condensedconsolidated  balance sheet August 30,2002 (unaudited), which reflects the Merger:

 
| **(in thousands)**                               |   | **Xponential,  Inc.  Reorganized  Balance Sheet  Prior to Merger** |   | **CMHI  Assets  Acquired and  Liabilities  Assumed as  of 8/30/2002** |   | **Reorganized  Balance Sheet  After Merger** |   |
|--------------------------------------------------|--------|--------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------|--------|
| Assets                                           |   |                                                               |   |                                                                  |   |                                         |   |
| Current assets                                   |   | $                                                                  | 6,772  |                                                                  | $      | 2,725                                        |   | $ | 9,497 |   |
| Property and  equipment, net                     |   | 674                                                                |   | 36                                                                    |   | 710                                          |   |
| Other assets                                     |   | 121                                                                |   | 5,117                                                                 |   | 5,238                                        |   |
| Total assets                                     |   | $                                                                  | 7,567  |                                                                  | $      | 7,878                                        |   | $ | 15,445 |   |
| Liabilities and  Stockholders’ Equity       |   |                                                               |   |                                                                  |   |                                         |   |
| Current  Liabilities                             |   | $                                                                  | 1,469  |                                                                  | $      | 170 (1                                       | )      | $ | 1,639 |   |
| Notes Payable                                    |   | 4,225                                                              |   | —                                                                |   | 4,225                                        |   |
|                                             |   | 5,694                                                              |   | 170                                                                   |   | 5,864                                        |   |
|                                             |   |                                                               |   |                                                                  |   |                                         |   |
| Redeemable  Preferred Stock                      |   | —                                                             |   | 5,358                                                                 |   | 5,358                                        |   |
|                                             |   |                                                               |   |                                                                  |   |                                         |   |
| Stockholders’  Equity:                      |   |                                                               |   |                                                                  |   |                                         |   |
| Preferred Stock                                  |   | —                                                             |   | 5                                                                     |   | 5                                            |   |
| Common Stock                                     |   | 21                                                                 |   | —                                                                |   | 21                                           |   |
| Additional Paid  In Capital                      |   | 1,852                                                              |   | 2,345                                                                 |   | 4,197                                        |   |
| Total  liabilities and stockholders’ Equity |   | $                                                                  | 7,567  |                                                                  | $      | 7,878                                        |   | $ | 15,445 |   |

 

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

 

11

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** **

(3)       Notes Payable

 

*Revolving Credit Facility-*

 

The Company negotiated apost-confirmation credit facility with Comerica Bank (the “Bank”) in the amountof $4,000,000 that matures on June 30, 2004 and bears interest at 9% per annum(the “Credit Facility”), subject to monthly mandatory principal reductions eachin the amount of $100,000 commencing February 1, 2004 through and includingJune 1, 2004.  Amounts available underthe Credit Facility are limited to certain percentages of pawn loans,inventories, and pawn service charges receivable.  The Credit Facility is collateralized by substantially all of theunencumbered assets of the Company.  TheCompany also pledged additional collateral in the form of marketable and othersecurities to the Bank in the amount of $2,500,000. At December 31, 2003,$3,853,000 was outstanding under the Credit Facility and an additional $147,000was available to the Company pursuant to the available borrowing base.  Under the terms of the Credit Facility, theCompany is required to maintain certain financial ratios and comply withcertain other covenants.  The Companywas in compliance with these covenants as of December 31, 2003.  The Company paid fees associated with theCredit Facility totaling $80,000 in the first two quarters of Fiscal 2004,defined as its fiscal year ended June 30, 2004.

 

(4)       Stock Option Plan 

 

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 by the reorganized Company.  Under APB No. 25, compensation costs relatedto stock options issued pursuant to compensatory plans are measured based onthe difference between the quoted market price of the stock at the measurementdate (ordinarily the date of grant) and the exercise price and should becharged to expense over the periods during which the grantee performs therelated services.  All outstanding stockoptions were cancelled in accordance with the Plan which was confirmed on May20, 2002.

 

The Company adopted its2003 Stock Option Plan (“Stock Option Plan”) and 2003 Stock Incentive Plan(“Incentive Plan”) effective January 1, 2003. Under the Stock Option Plan stock options have been awarded to directors, officers andemployees.  These stock options vesteither immediately or over a period two years from the date certain contingencyconditions are satisfied and expire ten years thereafter.  A total of 675,000 shares of common stockare reserved for grant under the Stock Option Plan and a total of the greaterof 325,000 or the number of  sharesequal to 5% of the total number of shares of Common Stock outstanding arereserved for issuance under the Incentive Plan.  In February 2003, the Company granted options covering 455,000common shares under the Stock Option Plan of which 299,000 shares wereimmediately exercisable. The remaining options for the grant of 156,000 shareswere contingent upon achieving $500,000 EBITDA for the fiscal year ended June30, 2003 which the Company did achieve. These options vest 66 2/3% on June 30, 2004 and 33 1/3% on June 30,2005.  The $8,000 cost of these optionsis being amortized over the vesting period described above.   The Company recognized $1,200 and $2,400 ofcompensation expense for options granted during the three month and six monthperiods ended December 31, 2003, respectively. The Incentive Plan provides an opportunity to employees of the Companyto purchase common shares directly from the Company through payroll deductions.As of December 31, 2003, 18,914 shares have been issued under the IncentivePlan.

 

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

 

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|                              |   | **Number of  Options** |   | **Exercise  Price** |   | **Weighted  Average  Price** |   |
|-----------------------------------|--------|------------------------|--------|---------------------|--------|------------------------------|--------|
| Outstanding at  August 30, 2002   |   | —                 |   | —              |   | —                       |   |
| Granted                           |   | 455,000                |   | $                   | 1.00   |                         | $      | 1.00 |   |
| Exercised                         |   | —                 |   | —              |   | —                       |   |
| Forfeited                         |   | —                 |   | —              |   | —                       |   |
| Outstanding at  June 30, 2003     |   | 455,000                |   | $                   | 1.00   |                         | $      | 1.00 |   |
| Granted                           |   | 30,000                 |   | $                   | 1.60   |                         | $      | 1.60 |   |
| Exercised                         |   | 249,000                |   | $                   | 1.00   |                         | $      | 1.00 |   |
| Forfeited                         |   | —                 |   | —              |   | —                       |   |
| Outstanding at  December 31, 2003 |   | 236,000                |   |                |   | $                            | 1.08   |   |
| Exercisable at  December 31, 2003 |   | 80,000                 |   |                |   | $                            | 1.23   |   |

 

(5)          Weighted AverageShares and Net Income (Loss) Per Common Share

 

Net income (loss) percommon share is calculated as required by FASB Statement of FinancialAccounting Standards 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 issued2,079,948 shares 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.

 

The reconciliation ofbasic and diluted weighted average common shares and the reconciliation for thebasic and diluted earnings per common share for the three months ended December31, 2003 and 2002, respectively, following consummation of the Plan and theissuance of the new common and convertible preferred stock pursuant to the Planis as follows:

 
| **For the Three Months Ended  December 31, 2003** |   | **Net Income  Allocable to  Common  Shareholders** |    | **Shares** |      | **Per Share** |   |
|---------------------------------------------------|--------|----------------------------------------------------|---------|------------|-----------|---------------|--------|
|                                              |   |                                               |    |       |      |          |   |
| Basic earnings  per common share                  |   | $                                                  | 197,000 |       | 2,160,939 |          | $      | 0.09 |   |
|                                              |   |                                               |    |       |      |          |   |
| Effect of  preferred dividend-Series B            |   | 31,000                                             |    | 1,720,130  |      |          |   |
|                                              |   |                                               |    |       |      |          |   |
| Diluted earnings  per common share                |   | $                                                  | 228,000 |       | 3,881,069 |          | $      | 0.06 |   |

 

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| **For the Three Months Ended  December 31, 2002** |   | **Net Income  Allocable to  Common  Shareholders** |   | **Shares** |      | **Per Share** |   |
|---------------------------------------------------|--------|----------------------------------------------------|--------|------------|-----------|---------------|--------|
|                                              |   |                                               |   |       |      |          |   |
| Basic earnings  per common share                  |   | $                                                  | 66,000 |       | 2,079,948 |          | $      | 0.03 |   |
|                                              |   |                                               |   |       |      |          |   |
| Effect of  preferred dividend-Series B            |   | 31,000                                             |   | 1,720,130  |      |          |   |
|                                              |   |                                               |   |       |      |          |   |
| Diluted earnings  per common share                |   | $                                                  | 93,000 |       | 3,800,078 |          | $      | 0.02 |   |

 

The reconciliation ofbasic and diluted weighted average common shares and the reconciliation for thebasic and diluted earnings per common share for the six months ended December31, 2003 and for the four months ended December 31, 2002, 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 Six Months Ended  December 31, 2003** |   | **Net Income  Allocable to  Common  Shareholders** |      | **Shares** |      | **Per Share** |   |
|-------------------------------------------------|--------|----------------------------------------------------|-----------|------------|-----------|---------------|--------|
|                                            |   |                                               |      |       |      |          |   |
| Basic earnings  per common share                |   | $                                                  | 1,184,000 |       | 2,120,444 |          | $      | 0.56 |   |
|                                            |   |                                               |      |       |      |          |   |
| Effect of  preferred dividend-Series B          |   | 63,000                                             |      | 1,720,130  |      |          |   |
|                                            |   |                                               |      |       |      |          |   |
| Diluted earnings  per common share              |   | $                                                  | 1,247,000 |       | 3,840,574 |          | $      | 0.32 |   |

 
| **For the Four Months Ended  December 31, 2002** |   | **Net Income  Allocable to  Common  Shareholders** |   | **Shares** |      | **Per Share** |   |
|--------------------------------------------------|--------|----------------------------------------------------|--------|------------|-----------|---------------|--------|
|                                             |   |                                               |   |       |      |          |   |
| Basic earnings  per common share                 |   | $                                                  | 19,000 |       | 2,079,948 |          | $      | 0.01 |   |
|                                             |   |                                               |   |       |      |          |   |
| Effect of  preferred dividend-Series B           |   | 43,000                                             |   | 1,720,130  |      |          |   |
|                                             |   |                                               |   |       |      |          |   |
| Diluted earnings  per common share               |   | $                                                  | 62,000 |       | 3,800,078 |          | $      | 0.02 |   |

 

Stock option grants of236,000 have been excluded from the computation because they are antidilutive.

 

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(6)       Investments inMarketable Securities

 

Marketable equitysecurities have been categorized as available-for-sale and carried at fairvalue.  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 judgedto be other than temporary, the cost basis of the security is written down tofair value and the amount of the write-down is included in the consolidatedstatement of operations.

 

As of December 31, 2003,the Company owned the following marketable securities:

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

 

As of June 30, 2003, theCompany 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)           ComprehensiveIncome

 

Comprehensive income isas follows:

 
| **(in thousands)**                                                                |   | **For the  Three  Month Period  Ended  December 31,  2003** |   | **For the  Six  Month Period  Ended  December 31,  2003** |   |
|-----------------------------------------------------------------------------------|--------|-------------------------------------------------------------|--------|-----------------------------------------------------------|--------|
|                                                                              |   |                                                        |   |                                                      |   |
| Net income                                                                        |   | $                                                           | 228    |                                                      | $      | 1,265 |   |
| Unrealized gain  from available for sale securities                               |   | 389                                                         |   | 523                                                       |   |
| Reclassification  of realized gains previously recognized in comprehensive income |   | (315                                                        | )      | (1,946                                                    | )      |
|                                                                              |   |                                                        |   |                                                      |   |
| Comprehensive  income (loss)                                                      |   | $                                                           | 302    |                                                      | $      | (158 | ) |

 

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(8)     Other Investments

 

In October 2003 theCompany provided financing for American IronHorse Motorcycle Company, Inc.(“AIMC”), a Texas corporation, in the amount of $1,000,000.  The financing provides for interest to theCompany at the rate of 12% per annum payable monthly.  The Company received a $50,000 investment fee at the time thefinancing was provided and is entitled to receive an additional $50,000investment fee upon conversion of the note. The Company exercised its right to convert the note into 166,666 commonshares (one share for each $6.00 of principal converted) in January 2004.  The Company has classified the notereceivable from AIMC as a long term investment because the holding period ofthe investment is expected to exceed one year. The Company also receivedwarrants to purchase 100,000 shares of AIMC common stock at $15.00 per share inconnection with the financing.  DwayneA. Moyers, a director and officer of the Company, is a director and principalshareholder of AIMC.  Additionally, JohnR. Boudreau and Robert W. Schleizer, each a director and officer of theCompany, are serving as interim President and Chief Financial Officer andSecretary, respectively, pursuant to a Management Agreement between XponentialAdvisors, Inc., a wholly-owned subsidiary of the Company, and AIMC.  For the services of Messrs. Boudreau andSchleizer, Xponential Advisors, Inc. receives a management fee of $5,700 perweek plus 25 shares of common stock of AIMC for each hour worked by Robert W.Schleizer, up to a maximum of 24 hours per week.

 

In December 2003, theCompany participated in the AIMC rights offering by purchasing 3,000 shares ofAIMC common stock under its basic subscription rights for $6.00 per share,totaling $18,000, and 222,000 shares of AIMC common stock under the oversubscription rights for $6.00 per share, totaling $1,332,000.  After conversion of its $1,000,000 note andthe purchase of shares noted herein, the Company’s ownership interest in AIMC,combined with that of its wholly-owned subsidiary, Xponential Advisors, Inc.,increased to approximately 9.08% of AIMC common stock.

 

(9)               SubsequentEvents

 

In January 2004, theCompany filed a Registration Statement on Form SB-2 offering $20,000,000 inoriginal principal amount of 8% Limited Recourse Secured ConvertibleSubordinated Notes due 2014.  The net proceedsof the offering will be utilized to pay down the Company s existing line ofcredit, for acquisitions, and for working capital purposes.

 

(10)   Restatement of Annual andQuarterly Financial Statements

 

The financial statementsfor the year ended June 30, 2003 and for the quarters ended December 31, 2003and December 31, 2002 have been restated from amounts previously reported toreflect the correction of an error for the understatement of income tax expenserelated to the utilization of the Company’s net operating loss carryforwardsnot previously recorded upon emergence from bankruptcy.  The restatement increased income tax expenseand reduced net income by $153,000 and $568,000 for the three and six months endedDecember 31, 2003, respectively, and increased income tax expense and reducednet income by $92,000 for the three and six months ended December 31, 2002,respectively,  with correspondingincreases in paid in capital.  There is no effect on cash flows of theCompany for this restatement.

 

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

 

### *Statementsappearing in the following discussion that are not historical facts areforward-looking statements (“forward-looking statements”) within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended, which are intended to be coveredby the safe harbors created by those sections. Such forward-looking statements are necessarily estimates reflecting thebest judgment of the Company’s management based upon current information andinvolve known and unknown risks, uncertainties and other factors which maycause the actual results, performance or achievements of the Company, orindustry results, to be materially different from any future results,performance or achievements expressed or implied by such forward-lookingstatements.  Such risks, uncertaintiesand other factors, include, but are not limited to, those set forth and thoseappearing from time to time in filings made by the Company with the Securitiesand Exchange Commission.  These risks,uncertainties and other factors should not be construed as exhaustive and the Companydoes not 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 following discussion and analysis should beread in conjunction with the Company’s financial statements and notes theretoand other financial data included in the Company’s Form 10-KSB and Form10-KSB/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 advisory servicesin conjunction with financing and investments provided to other companies.  In October 2003 the Company providedfinancing for American IronHorse Motorcycle Company, Inc. (“AIMC”), a Texascorporation, in the amount of $1,000,000. The financing provides for interest to the Company at the rate of 12%per annum payable monthly.  On January30, 2004 Xponential converted the entire principal amount of the note into166,666 shares of Common Stock of the Company. The Company received a $50,000 investment fee at the time the financingwas provided and is entitled to receive an additional $50,000 investment fee atmaturity or conversion of the note. Dwayne A. Moyers, a director and officer of the Company, is a directorand principal shareholder of AIMC.  JohnR. Boudreau, a director and officer of the Company, is serving as interimPresident of AIMC, and Robert W. Schleizer, a director and officer of theCompany, is serving as the Chief Financial Officer and Secretary of AIMC,pursuant to a management agreement between Xponential Advisors, Inc. andAIMC.  For the services of Messrs.Boudreau and Schleizer, Xponential Advisors, Inc. receives a management fee of$5,700 per week plus 25 shares of common stock of AIMC for each hour worked byMr. Schleizer, up to a maximum of 24 hours per week.

 

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 isallowed to maintain possession of the collateral.  Pawn service charges are recognized when loans are repaid orrenewed.  If a loan is not repaid, theprincipal amount advanced on the loan, exclusive of any uncollected pawnservice charges, becomes the carrying value of the forfeited collateral(inventory), which is recovered through subsequent sales.

 

The Company filed for protection under the BankruptcyCode on July 9, 2001.  The Companyoperated as debtor in possession throughout the bankruptcy proceedings. ThePlan was filed on February 15, 2002 and was amended on April 3, 2002.  A confirmation hearing for the Plan was heldon May 20, 2002 and the Plan was confirmed by the Bankruptcy Court as of thatdate with an effective date of May 31, 2002.

 

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

 

Selected elements of the Company’s unaudited statements of operationsare shown below for the three months ended December 31, 2003 andDecember 31, 2002 as a percentage of total revenues.  The following table, as well as thediscussion 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  Six Months  Ended  December 31,  2003** |   | **For the  Six Months  Ended  December 31,  2002** |   |
|--------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                                           |   |                                                    |   |                                                    |   |
| Merchandise sales                                                              |   | 67.2                                                    | %      | 67.5                                                    | %      |
| Pawn service charges and related fee income                                    |   | 31.4                                                    |   | 32.5                                                    |   |
| Management advisory and related fee income                                     |   | 1.4                                                     |   | —                                                  |   |
| Total revenues                                                                 |   | 100.0                                                   |   | 100.0                                                   |   |
|                                                                           |   |                                                    |   |                                                    |   |
| Cost of sales                                                                  |   | 55.1                                                    |   | 48.2                                                    |   |
| Store operating expenses                                                       |   | 28.5                                                    |   | 31.3                                                    |   |
| Corporate administrative expenses  (excluding gain on debt discharge) (1) |   | 13.3                                                    |   | 15.0                                                    |   |
| Depreciation and amortization                                                  |   | 2.1                                                     |   | 1.9                                                     |   |
| Total Expenses                                                                 |   | 99.0                                                    |   | 96.4                                                    |   |
| Operating Income                                                               |   | 1.0                                                     |   | 3.6                                                     |   |
| Interest and dividend income                                                   |   | 2.3                                                     |   | 0.5                                                     |   |
| Interest expense (2)                                                           |   | (3.0                                                    | )      | (2.2                                                    | )      |
| Gain on disposition of assets                                                  |   | —                                                  |   | 0.1                                                     |   |
| Gain on sale of investments                                                    |   | 17.9                                                    |   | 1.0                                                     |   |
| Net income before income taxes                                                 |   | 18.2                                                    |   | 3.0                                                     |   |
| Income tax provision                                                           |   | 6.8                                                     |   | 0.1                                                     |   |
| Net income                                                                     |   | 11.4                                                    | %      | 2.9                                                     | %      |

 

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

(2)          Interest expense for the Six Month PeriodEnded December 31, 2003 includes $134,000 of dividends on redeemablepreferred stock in accordance with SFAS 150. Dividends paid on redeemable preferred stock prior to the June 15,2003 effective date of SFAS 150, which includes the $89,000 and $89,000 for theFour Month and Six Month Periods ended December 31, 2002, respectively,were not reclassified as interest expense.

 

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|                                                                           |   | **For the  Three Months Ended   December 31,  2003** |   | **For the  Three Months Ended   December 31, 2002** |   |
|--------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|----------------------------------------------------------|--------|
| Merchandise sales                                                              |   | 67.6                                                           | %      | 69.1                                                     | %      |
| Pawn service charges and related fees                                          |   | 29.9                                                           |   | 30.9                                                     |   |
| Management advisory and related fee income                                     |   | 2.4                                                            |   | —                                                   |   |
| Total revenues                                                                 |   | 100.0                                                          |   | 100.0                                                    |   |
|                                                                           |   |                                                           |   |                                                     |   |
| Cost of sales                                                                  |   | 56.1                                                           |   | 50.3                                                     |   |
| Store operating expenses                                                       |   | 26.9                                                           |   | 28.2                                                     |   |
| Corporate administrative expenses  (excluding gain on debt discharge) (1) |   | 13.6                                                           |   | 15.2                                                     |   |
| Depreciation and amortization                                                  |   | 2.0                                                            |   | 1.6                                                      |   |
| Total Expenses                                                                 |   | 98.6                                                           |   | 95.3                                                     |   |
|                                                                           |   |                                                           |   |                                                     |   |
| Operating Income                                                               |   | 1.4                                                            |   | 4.7                                                      |   |
| Interest and dividend income                                                   |   | 2.6                                                            |   | 0.3                                                      |   |
| Interest expense                                                               |   | (2.8                                                           | )      | (1.5                                                     | )      |
| (Loss) on disposition of assets                                                |   | (0.1                                                           | )      | —                                                   |   |
| Gain on sale of investments                                                    |   | 5.4                                                            |   | 1.9                                                      |   |
| Net income before income taxes                                                 |   | 6.5                                                            |   | 5.4                                                      |   |
|                                                                           |   |                                                           |   |                                                     |   |
| Income tax provision                                                           |   | 2.9                                                            |   | 1.8                                                      |   |
|                                                                           |   |                                                           |   |                                                     |   |
| Net income (loss                                                               |   | 3.6                                                            | %      | 3.6                                                      | %      |

 

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

(2) Interest expense for the Three Month Period Ended December 31,2003 includes $68,000 of dividends on redeemable preferred stock in accordancewith SFAS 150.  Dividends paid onredeemable preferred stock prior to the June 15, 2003 effective date ofSFAS 150, which includes the $68,000 for the Three Month Period endedDecember 31, 2002, were not reclassified as interest expense.

 

**RESULTSOF OPERATIONS**

** **

*Six Months Ended December 31, 2003 Compared toSix Months Ended December 31, 2002*

* *

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

 

Merchandise sales increased 26.3% to $7,301,000 during the Six Month2004 Period from $5,782,000 during the Six Month 2003 Period primarily due tomore aggressive discounting on merchandise sales and increased jewelry scrapsales.  Sales in Comparable Stores forthe Six Month 2004 Period increased $1,277,000 or 21.7%.

 

Pawn service charges and related fee income increased $628,000 or 22.5%to $3,415,000 during the Six Month 2004 Period from $2,787,000 during the SixMonth 2003 Period primarily due to increased pawn service charges on car loansfor the Six Month 2004 Period.  Pawnservice charges from Comparable Stores increased $626,000 or 23.5% for the SixMonth 2004 Period as compared to the Six Month 2003 Period.

 

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

 

Cost of sales increased 44.9% to $5,983,000 during the Six Month 2004Period from $4,128,000 during the Six Month 2003 Period primarily due toincreased sales and to higher product costs resulting from a combination ofdiscounting sales prices and an increase in the Company’s title pawnbusiness.  Cost of sales as a percentageof

 

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merchandise sales increased to 81.9% from 74.2% for the Six Month 2004Period as compared to the Six Month 2003 Period. The Company experienced losseson car sales of $518,000 during the Six Month 2004 Period as compared to$75,000  during the Six Month 2003Period. The increase in losses on car sales is primarily due to the increasedrepossessions related to the 232% increase in car loans from the prior yearcomparable period. Excluding the effect of car sales, the Company’s cost ofsales for the Six Month 2004 Period were 73.7% as compared to 68.5% during theSix Month 2003 Period.

 

Store operating expenses increased to $3,101,000 for the Six Month 2004Period from $2,682,000 during the Six Month 2003 Period primarily due toincreased personnel expenses for additional car title and compliancepersonnel.   On a Comparable Storebasis, store operating expenses were 28.5% of total revenues during the SixMonth 2004 Period compared to 31.3% of total revenues during the Six Month 2003Period.

 

Corporate administrative expenses increased 12.3% to $1,441,000 duringthe Six Month 2004 Period from $1,283,000 during the Six Month 2003 Periodprimarily due to costs related to additional personnel.  Corporate administrative expenses decreasedto 13.3% of total revenues during the Six Month 2004 Period as compared to15.0% during the Six Month 2003 Period.

 

Interest expense increased $135,000 from $190,000 during the Six Month2004 Period as compared to the Six Month 2003 Period primarily due to thereclassification of dividends as interest expense on preferred stock issued inconjunction with the Plan in accordance with SFAS 150.

 

The Company also recognized a gain of $1,946,000 on the sale ofsecurities during the Six Month 2004 Period primarily due to the sale of itsholdings in Sanders Morris Holdings Group, Inc. for approximately $5,000,000 inJuly 2003 which resulted in a $1,632,000 gain.

 

The Company recognized income tax expense of $739,000 during the SixMonth 2004 Period compared to $92,000 during the Six Month 2003 Period.  $721,000 of the Six Month 2004 Period incometax expense and $92,000 of the Six Month 2003 Period income tax expense isoffset by the utilization of net operating loss carryforwards not previouslyrecognized upon the emergence from bankruptcy and is offset with acorresponding increase in paid in capital and therefore has no effect on theCompany’s cash flows.

 

*Three Months Ended December 31, 2003 Compared toThree Months Ended December 31, 2002*

* *

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

 

Merchandise sales increased 21.6% to $3,980,000 during the Three Month2004 Period from $3,274,000 during the Three Month 2003 Period primarily due tomore aggressive discounting on merchandise sales and increased jewelry scrapsales.  Sales in Comparable Stores forthe Three Month 2004 Period increased $602,000 or 18.4%.

 

Pawn service charges increased $299,000 or 20.5% to $1,761,000 duringthe Three Month 2004 Period from $1,462,000 during the Three Month 2003 Periodprimarily due to increased pawn service charges on car loans for the ThreeMonth 2004 Period.  Pawn service chargesfrom Comparable Stores increased $297,000 or 21.3% for the Three Month 2004Period as compared to the Three Month 2003 Period.

 

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

 

Cost of sales increased 38.6% to $3,301,000 during the Six Month 2004Period from $2,381,000 during the Six Month 2003 Period primarily due toincreased sales and to higher product costs resulting from a combination ofdiscounting sales prices and an increase in the Company’s title pawnbusiness.  Cost of sales as a percentageof merchandise sales increased to 82.9% from 72.7% for the Six Month 2004Period as compared to the Six Month

 

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2003 Period. The Company experienced losses on car sales of $289,000during the Three Month 2004 Period as compared to $40,000 during the ThreeMonth 2003 Period. The increase in losses on car sales is primarily due to theincreased repossessions related to the 232% increase in car loans from theprior year comparable period. Excluding the effect of car sales, the Company’scost of sales for the Three Month 2004 Period were 74.2% as compared to 69.8%during the Three Month 2003 Period.

 

Store operating expenses increased to $1,583,000 for the Three Month2004 Period from $1,336,000 during the Three Month 2003 Period primarily due toincreased personnel expenses for additional car title and compliancepersonnel.  On a Comparable Store basis,store operating expenses were 26.6% of total revenues during the Three Month2004 Period compared to 28.2% of total revenues during the Three Month 2003Period primarily due to lower personnel and occupancy costs as a percentage oftotal revenue.

 

Corporate administrative expenses increased 11.1% to $800,000 duringthe Three Month 2004 Period from $720,000 during the Three Month 2003 Periodprimarily due to costs related to additional personnel.  Corporate administrative expenses decreasedto 13.6% of total revenues during the Three Month 2004 Period as compared to15.2% during the Three Month 2003 Period. Corporate administrative expenses did not increase at the same rate asrevenues increased during the comparable period.

 

Interest expense increased $95,000 from $69,000 during the Three Month2004 Period as compared to the Three Month 2003 Period primarily due to thereclassification of dividends as interest expense on preferred stock issued inconjunction with the Plan in accordance with SFAS 150.

 

The Company also recognized a gain of $315,000 on the sale ofsecurities during the Three Month 2004 Period.

 

The Company recognized income tax expense of $171,000 during the ThreeMonth 2004 Period compared to $92,000 during the Three Month 2003 Period.  $153,000 of the Three Month 2004 Periodincome tax expense and $92,000 of the Three Month 2003 Period income taxexpense is offset by the utilization of net operating loss carryforwards notpreviously recognized upon the emergence from bankruptcy and is offset with acorresponding increase in paid in capital and therefore has no effect on theCompany’s cash flows.

 

**LIQUIDITYAND CAPITAL RESOURCES**

** **

The Company’s operations and growth have been financed with fundsprovided by the Merger in conjunction with the Plan, bank borrowings and fundsgenerated from operations.

 

Under the terms of the Plan, the Company cancelled all equity interestsas of the Confirmation Date, which included all common and preferredshareholder interests, and interests of any holders of options or warrants, andissued 2,079,948 shares of Common Stock to its unsecured creditors in exchangefor cancellation of indebtedness upon completion of the Merger onAugust 30, 2002.  The equityholders of CMHI received 1,071,636 shares of Series A Preferred Stock and500,042 shares of Series B Preferred Stock. The Series B Preferred Stock is convertible at a ratio of approximately3.44 shares of Common Stock for each share of Series B Preferred Stock to atotal of 1,720,130 shares of Common Stock. As a result of the Merger, the Company received $2,565,000 in cash and$5,084,000 in marketable securities.

 

The Company negotiated a post-confirmation credit facility withComerica Bank (the “Bank”) in the amount of $4,000,000 that matures onJune 30, 2004 and bears interest at 9% per annum (the “Credit Facility”),subject to monthly mandatory principal reductions each in the amount of$100,000 commencing February 1, 2004 through and including June 1,2004.  Amounts available under theCredit Facility are limited to certain percentages of pawn loans, inventories,and pawn service charges receivable. The Credit Facility is collateralized by substantially all of theunencumbered assets of the Company.  TheCompany also pledged additional collateral in the form of marketable and othersecurities to the Bank in the amount of $2,500,000. At December 31, 2003,$3,853,000 was outstanding under the Credit Facility and an additional $147,000was available to the Company pursuant to the available borrowing base.  Under the terms of the Credit Facility, theCompany is required to maintain certain financial ratios and comply withcertain other covenants.  The Companywas in compliance with these covenants as of December 31, 2003.   During the Six Month Fiscal 2004 Period theCompany paid fees associated with the Credit Facility totaling $80,000.

 

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

 

The Company’s profitability and liquidity is affected by the amount ofloans outstanding, which is controlled in part by the Company’s lendingdecisions.  The Company is able toinfluence the frequency of forfeiture of collateral by increasing or decreasingthe amount loaned in relation to the sales value of the pledged property.  Tighter credit decisions generally result insmaller loans in relation to the estimated sales value of the pledged propertyand can thereby decrease the Company’s aggregate loan balance and,consequently, decrease pawn service charges. Additionally, lower loans in relation to the pledged property’sestimated sales value tend to slightly increase loan redemptions and improvethe Company’s liquidity.  Conversely,providing higher loans in relation to the estimated sales value of the pledgedproperty can result in an increase in the Company’s pawn service chargeincome.  Higher average loan balancescan also result in a slight increase in loan forfeitures, which increases thequantity of goods on hand and, unless the Company increases inventory turnover,reduces the Company’s liquidity.

 

The Company believes it has sufficient working capital to fund itscurrent operations for the fiscal year ended June 30, 2004.  The Company’s ability to expand through theacquisition of new stores and other businesses will be dependent on its abilityto replace its existing Credit Facility with a new borrowing agreement.  The Company’s current lender has indicatedthat it will not renew the loan on terms acceptable to the Company.  In the event a new credit facility isunavailable, the Company has sufficient working capital on hand as ofDecember 31, 2003 to pay off the Credit Facility.

 

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

 

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned 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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