##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for
the quarterly period ended December 31, 2006.
 o
    
    TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for
the transition period from

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




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##### 



XPONENTIAL, INC.
  
 INDEX
 PagePART I - FINANCIAL INFORMATIONItem 1
    
    Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of December 31 and June 30, 2006
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six
Months Ended December 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    19Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4
    
    Controls and Procedures
    
    
    26PART II - OTHER INFORMATIONItem 6
    
    Exhibits
    
    
    26Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906
  2




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##### Table of Contents



ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 XPONENTIAL, INC. AND SUBSIDIARIES
 December 31,
    
    
    June 30,2006
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    468
    
    
    $
    1,932Investments-marketable securities
    
    
    6,336
    
    
    
    8,741Accounts and short term notes receivable
    
    
    916
    
    
    
    1,499Pawn service charges receivable
    
    
    498
    
    
    
    524Pawn loans receivable
    
    
    4,524
    
    
    
    4,763Inventories, net
    
    
    4,929
    
    
    
    5,242Prepaid expenses and other current assets
    
    
    253
    
    
    
    171Total current assets
    
    $
    17,924
    
    
    
    22,872Property and equipment, net
    
    
    2,912
    
    
    
    2,464Notes receivable  American IronHorse Motorcycle Company, Inc. (Note 10)
    
    
    900
    
    
    
    Investment in American IronHorse Motorcycle Company, Inc. (Note 10)
    
    
    1,720
    
    
    
    6,451Investment in Integrity Mutual Funds, Inc. (Note 11)
    
    
    3,473
    
    
    
    586Note issuance costs, net of amortization of $280 and $179 as of December 31, 2006 and June 30, 2006,
respectively
    
    
    1,612
    
    
    
    1,713Other assets, net of amortization of $113 and $86 as of December 31, 2006 and June 30, 2006, respectively
    
    
    146
    
    
    
    157Total assets
    
    $
    28,687
    
    
    $
    34,243Liabilities and Stockholders EquityCurrent liabilities:Bank line of credit
    
    $
    1,440
    
    
    $
    1,880Current maturities of notes payable
    
    
    400
    
    
    
    577Accounts payable and accrued expenses
    
    
    285
    
    
    
    495Accrued payroll and payroll taxes
    
    
    190
    
    
    
    150Deferred revenues
    
    
    214
    
    
    
    152Accrued interest
    
    
    37
    
    
    
    132Redeemable Preferred Stock  Series A
    
    
    500
    
    
    
    500Total current liabilities
    
    
    3,066
    
    
    
    3,886Long term notes payable:8% limited recourse convertible notes, net of discount of $112 and $111 at December 31, 2006 and
June 30, 2006, respectively
    
    
    19,888
    
    
    
    19,889Other long term notes payable
    
    
    1,001
    
    
    
    1,191Total long term notes payable
    
    
    20,889
    
    
    
    21,080Commitments and contingenciesRedeemable preferred stock  Series A; par value $0.01; 5% cumulative dividend, liquidation preference
$5.00 per share; 871,630 shares issued at December 31, 2006 and June 30, 2006, respectively
    
    
    3,858
    
    
    
    3,858Total long term liabilities
    
    
    24,747
    
    
    
    24,938Total liabilities
    
    
    27,813
    
    
    
    28,824Stockholders equity:Preferred stock  Series B; par value $0.01; 5% cumulative dividend, liquidation preference $5.00 per
share ($2,500,210); 500,042 shares issued at December 31, 2006 and June 30, 2006, respectively
    
    
    5
    
    
    
    5Common stock  $0.01 par value; 10,000,000 shares authorized, 2,525,605 and 2,491,014 shares issued
as of
December 31, 2006 and June 30, 2006, respectively
    
    
    25
    
    
    
    25Additional paid-in capital
    
    
    6,080
    
    
    
    5,959Accumulated deficit
    
    
    (5,522
    )
    
    
    (258
    )Accumulated other comprehensive income (loss)
    
    
    326
    
    
    
    (272
    )Treasury stock, at cost; 25,000 common shares
    
    
    (40
    )
    
    
    (40
    )Total stockholders equity
    
    
    874
    
    
    
    5,419Total liabilities and stockholders equity
    
    $
    28,687
    
    
    $
    34,243
  3




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 Six Months Ended
    
    
    Six Months Ended(In thousands, except per share data)
    
    December 31, 2006
    
    
    December 31, 2005Revenues:Merchandise sales
    
    $
    7,218
    
    
    $
    7,855Pawn service charges and related fee income
    
    
    3,196
    
    
    
    3,130Other
    
    
    22
    
    
    
    30Total revenues
    
    
    10,436
    
    
    
    11,015Cost of sales
    
    
    5,528
    
    
    
    5,840Gross profit
    
    
    4,908
    
    
    
    5,175Expenses:Store operating expenses
    
    
    3,114
    
    
    
    3,075Corporate administrative expenses
    
    
    1,502
    
    
    
    1,400Depreciation and amortization
    
    
    168
    
    
    
    198Total expenses
    
    
    4,784
    
    
    
    4,673Operating income
    
    
    124
    
    
    
    502Interest and dividend income
    
    
    484
    
    
    
    278Interest expense including Series A preferred dividends of $109 and $121
for the six months ended December 31, 2006 and 2005, respectively
    
    
    (1,245
    )
    
    
    (769
    )Gain (loss) on futures contracts
    
    
    17
    
    
    
    (473
    )Gain on sale of marketable investments
    
    
    150
    
    
    
    180Loss from American IronHorse Motorcycle Company, Inc.
    
    
    (1,069
    )
    
    
    Loss before taxes, impairment and cumulative effect of change in accounting
principle
    
    
    (1,539
    )
    
    
    (282
    )Income tax benefit
    
    
    
    
    
    
    (55
    )Loss before impairment and cumulative effect of change in accounting principle
    
    
    (1,539
    )
    
    
    (227
    )Loss due to impairment of investment in American IronHorse Motorcycle Company, Inc.
(Note 10)
    
    
    (3,224
    )
    
    
    Cumulative effect of change in accounting principle (Note 10)
    
    
    (438
    )
    
    
    Net loss
    
    
    (5,201
    )
    
    
    (227
    )Preferred stock dividend requirement
    
    
    (63
    )
    
    
    (63
    )Net loss allocable to common stockholders
    
    $
    (5,264
    )
    
    $
    (290
    )Net loss per common share (Note 6):Basic and Diluted Loss before cumulative effect of change in accounting principle
    
    $
    (0.64
    )
    
    $
    (0.12
    )Impairment loss
    
    
    (1.28
    )
    
    
    Cumulative effect of change in accounting principle
    
    
    (0.17
    )
    
    
    Net loss per common share
    
    $
    (2.09
    )
    
    $
    (0.12
    )
  4




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XPONENTIAL, INC. AND SUBSIDIARIES
 
 Three Months Ended
    
    
    Three Months Ended(In thousands, except per share data)
    
    December 31, 2006
    
    
    December 31, 2005Revenues:Merchandise sales
    
    $
    3,668
    
    
    $
    4,757Pawn service charges and related fee income
    
    
    1,595
    
    
    
    1,533Other
    
    
    16
    
    
    
    26Total revenues
    
    
    5,279
    
    
    
    6,316Cost of sales
    
    
    2,784
    
    
    
    3,492Gross profit
    
    
    2,495
    
    
    
    2,824Expenses:Store operating expenses
    
    
    1,566
    
    
    
    1,556Corporate administrative expenses
    
    
    817
    
    
    
    704Depreciation and amortization
    
    
    82
    
    
    
    95Total expenses
    
    
    2,465
    
    
    
    2,355Operating income
    
    
    30
    
    
    
    469Interest and dividend income
    
    
    246
    
    
    
    163Interest expense including Series A preferred dividends of $54 and $61 for the three
months ended December 31, 2006 and 2005, respectively
    
    
    (657
    )
    
    
    (420
    )Loss on futures contracts
    
    
    (35
    )
    
    
    (407
    )Gain on sale of marketable investments
    
    
    70
    
    
    
    180Loss from American IronHorse Motorcycle Company, Inc. (Note 10)
    
    
    (662
    )
    
    
    Loss before taxes and impairment
    
    
    (1,008
    )
    
    
    (15
    )Income tax expense
    
    
    
    
    
    
    15Loss before impairment
    
    
    (1,008
    )
    
    
    (30
    )Loss due to impairment of investment in American IronHorse Motorcycle Company, Inc.
    
    
    (3,224
    )
    
    
    Net loss
    
    
    (4,232
    )
    
    
    (30
    )Preferred stock dividend requirement
    
    
    (31
    )
    
    
    (32
    )Net loss allocable to common stockholders
    
    $
    (4,263
    )
    
    $
    (62
    )Net loss per common share (Note 6):Basic and Diluted Loss before impairment
    
    $
    (0.41
    )
    
    $
    (0.03
    )Impairment loss
    
    
    (1.28
    )
    
    
    Net loss per common share
    
    $
    (1.69
    )
    
    $
    (0.03
    )
  5




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 
 For the
    
    
    For theSix Months Ended
    
    
    Six Months Ended(In thousands)
    
    December 31, 2006
    
    
    December 31, 2005Cash flows from operating activities:Net loss
    
    $
    (5,201
    )
    
    $
    (227
    )Adjustments to reconcile net loss to net cash used in operating
activities:Impairment loss
    
    
    3,264
    
    
    
    Cumulative effect of change in accounting principle
    
    
    438
    
    
    
    Depreciation and amortization
    
    
    168
    
    
    
    198Compensation expense
    
    
    46
    
    
    
    57Gain on sale of marketable investments
    
    
    (150
    )
    
    
    (180
    )Non cash loss from American IronHorse
    
    
    1,029
    
    
    
    Deferred income tax benefit related to bankruptcy
    
    
    
    
    
    
    (67
    )Interest expense  bond discount
    
    
    26
    
    
    
    92Changes in operating assets and liabilities:Amortization of debt issuance costs
    
    
    102
    
    
    
    Accounts receivable
    
    
    (317
    )
    
    
    35Pawn service charges receivable
    
    
    26
    
    
    
    64Inventories, net
    
    
    313
    
    
    
    (994
    )Prepaid expenses and other current assets
    
    
    (97
    )
    
    
    13Accounts payable and accrued liabilities
    
    
    (203
    )
    
    
    (352
    )Net cash used in operating activities
    
    
    (556
    )
    
    
    (1,361
    )Cash flows from investing activities:Pawn loans made
    
    
    (7,821
    )
    
    
    (8,747
    )Pawn loans redeemed
    
    
    3,404
    
    
    
    3,395Inventories acquired from loan forfeitures
    
    
    4,656
    
    
    
    5,940Proceeds from sale of marketable investments
    
    
    3,506
    
    
    
    1,710Purchase of marketable investments
    
    
    (2,290
    )
    
    
    (3,654
    )Purchase of notes receivable (Note 11)
    
    
    (950
    )
    
    
    Purchases of property and equipment
    
    
    (605
    )
    
    
    (677
    )Other assets
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (100
    )
    
    
    (2,033
    )Cash flows from financing activities:Borrowings on notes payable
    
    
    7,979
    
    
    
    8,675Principal payments on notes payable
    
    
    (8,786
    )
    
    
    (9,399
    )Convertible note offering proceeds
    
    
    
    
    
    
    5,996Convertible note offering costs
    
    
    (1
    )
    
    
    (553
    )Proceeds from issuance of common stock
    
    
    63
    
    
    
    110Dividends paid
    
    
    (63
    )
    
    
    (63
    )Net cash provided by (used in) financing activities
    
    
    (808
    )
    
    
    4,766Net increase (decrease) in cash and cash equivalents
    
    
    (1,464
    )
    
    
    1,372Cash and cash equivalents at beginning of period
    
    
    1,932
    
    
    
    407Cash and cash equivalents at end of period
    
    $
    468
    
    
    $
    1,779Supplemental disclosures of cash flow information 
Cash paid for interest
    
    $
    1,080
    
    
    $
    733
  6




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
   (1)
    
    Basis of Presentation
      (2)
    
    Recent Accounting Pronouncements
    7




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
   (3)
    
    Notes Payable
 Revolving
Credit Facility
  8%
Limited Recourse Convertible Notes
  (4)
    
    Equity
  8




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
   (5)
    
    Stock Option Plan, Stock Incentive Plan and Stock Purchase Plan
   Weighted AverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at June 30, 2004
    
    
    206,000
    
    
    $
    1.09Granted
    
    
    20,000
    
    
    
    1.56Exercised
    
    
    (2,000
    )
    
    
    1.00Forfeited
    
    
    (4,000
    )
    
    
    1.00Outstanding and exercisable at June 30, 2005
    
    
    220,000
    
    
    
    1.13Granted
    
    
    40,000
    
    
    
    2.90Exercised
    
    
    (40,000
    )
    
    
    1.00Forfeited
    
    
    
    
    
    
    Outstanding and exercisable at June 30, 2006
    
    
    220,000
    
    
    
    1.48Granted
    
    
    40,000
    
    
    
    1.65Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding and exercisable at December 31, 2006
    
    
    260,000
    
    
    $
    1.50
      9




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
   (5)
    
    Stock Option Plan, Stock Incentive Plan and Stock Purchase Plan (continued)
   (6)
    
    Weighted Average Shares and Net Income Per Common Share
   Net LossAllocableFor the Three Months Ended
    
    to CommonDecember 31, 2006
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
before dividend
and impairment loss
    
    $
    (1,008,000
    )
    
    
    2,521,261
    
    
    $
    (0.40
    )Preferred stock dividend
    
    
    (31,000
    )Basic and diluted loss per common share before
impairment loss
    
    
    (1,039,000
    )
    
    
    2,521,261
    
    
    
    (0.41
    )Impairment loss
    
    
    (3,224,000
    )
    
    
    2,521,261
    
    
    
    (1.28
    )Basic and diluted loss per common share
    
    $
    (4,263,000
    )
    
    
    2,521,261
    
    
    $
    (1.69
    )
 Net LossAllocableFor the Three Months Ended
    
    to CommonDecember 31, 2005
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
    
    $
    (62,000
    )
    
    
    2,406,733
    
    
    $
    (0.03
    )
   10




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
   (6)
    
    Weighted Average Shares and Net Income Per Common Share (continued)
 Net LossAllocableFor the Six Months Ended
    
    to CommonDecember 31, 2006
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share before
dividend, impairment loss and cumulative effect of
change in accounting principle
    
    $
    (1,539,000
    )
    
    
    2,513,305
    
    
    $
    (0.61
    )Preferred stock dividend
    
    
    (63,000
    )Basic and diluted loss per common share before
impairment loss and cumulative effect of change in
accounting principle
    
    
    (1,602,000
    )
    
    
    2,513,305
    
    
    
    (0.64
    )Impairment loss
    
    
    (3,224,000
    )
    
    
    2,513,305
    
    
    
    (1.28
    )Cumulative effect of change in accounting principle
    
    
    (438,000
    )
    
    
    2,513,305
    
    
    
    (0.17
    )Basic and diluted loss per common share
    
    $
    (5,264,000
    )
    
    
    2,513,305
    
    
    $
    (2.09
    )
 Net LossAllocableFor the Six Months Ended
    
    to CommonDecember 31, 2005
    
    Shareholders
    
    
    Shares
    
    
    Per ShareBasic and diluted loss per common share
    
    $
    (290,000
    )
    
    
    2,393,768
    
    
    $
    (0.12
    )
  (7)
    
    Investments in Marketable Securities
   Unrealized(in thousands)
    
    Cost
    
    
    Gain/(Loss)
    
    
    Market ValueStocks:Integrity Mutual Funds, Inc.
    
    $
    734
    
    
    $
    264
    
    
    $
    998Other
    
    
    7
    
    
    
    (7
    )
    
    
    741
    
    
    
    257
    
    
    
    998Bonds, maturing in:2008
    
    
    
    
    
    
    
    
    
    
    2009
    
    
    100
    
    
    
    (3
    )
    
    
    972010
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    6,167
    
    
    
    72
    
    
    
    6,2396,267
    
    
    
    69
    
    
    
    6,336Total
    
    $
    7,008
    
    
    $
    326
    
    
    $
    7,334
 11




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
   (7)
    
    Investments in Marketable Securities (continued)
  Unrealized(in thousands)
    
    Cost
    
    
    Gain/(Loss)
    
    
    Market ValueStocks:Integrity Mutual
Funds, Inc.
    
    $
    645
    
    
    $
    (59
    )
    
    $
    586Other
    
    
    7
    
    
    
    (7
    )
    
    
    652
    
    
    
    (66
    )
    
    
    586Bonds, maturing in:2008
    
    
    115
    
    
    
    14
    
    
    
    1292009
    
    
    352
    
    
    
    15
    
    
    
    3672010
    
    
    
    
    
    
    
    
    
    
    Thereafter
    
    
    8,479
    
    
    
    (234
    )
    
    
    8,2458,946
    
    
    
    (205
    )
    
    
    8,741Total
    
    $
    9,598
    
    
    $
    (271
    )
    
    $
    9,327
 (8)
    
    Derivative Instruments
  (9)
    
    Accumulated Other Comprehensive Income
  For the Three Month
    
    
    For the Three MonthPeriod Ended
    
    
    Period Ended(in thousands)
    
    December 31, 2006
    
    
    December 31, 2005Accumulated other comprehensive gain (loss) of
September 30
    
    $
    (134
    )
    
    $
    184Unrealized gain from available for sale securities
    
    
    530
    
    
    
    120Reclassification of realized gain included in net income
    
    
    (70
    )
    
    
    (180
    )Effect of income tax
    
    
    
    
    
    
    20Accumulated other comprehensive gain
    
    $
    326
    
    
    $
    124
 For the Six Month
    
    
    For the Six MonthPeriod Ended
    
    
    Period Ended(in thousands)
    
    December 31, 2006
    
    
    December 31, 2005Accumulated other comprehensive gain (loss) as of June 30
    
    $
    (272
    )
    
    $
    198Unrealized gain from available for sale securities
    
    
    748
    
    
    
    106Reclassification of realized gain included in net income
    
    
    (150
    )
    
    
    (180
    )Effect of income tax
    
    
    
    
    
    
    Accumulated other comprehensive gain
    
    $
    326
    
    
    $
    124
 12




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
   (10)
    
    Investment in American IronHorse Motorcycle Company, Inc.
   2006
    
    
    2005
    
    
    2004Investment in American IronHorse as of fiscal years ended
June 30, 2004, 2005 and 2006  cost basis
    
    $
    6,451
    
    
    $
    4,835
    
    
    $
    3,018Add: % share of net income (loss) from American
IronHorse for fiscal years ended June 30, 2004, 2005 and
2006
    
    
    (639
    )
    
    
    220
    
    
    
    (19
    )Add: cumulative net income (loss) prior fiscal years
    
    
    201
    
    
    
    (19
    )
    
    
    Cumulative adjustment due to change to equity method
    
    
    (438
    )
    
    
    201
    
    
    
    (19
    )Investment at end of each fiscal year under equity method
    
    $
    6,013
    
    
    $
    5,036
    
    
    $
    2,999
   13




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
   (10)
    
    Investment in American IronHorse Motorcycle Company, Inc. (continued)
  As of
    
    
    As of(in thousands)
    
    December 31, 2006
    
    
    June 30, 2006(Unaudited)
    
    
    (Unaudited)Current assets
    
    $
    25,783
    
    
    $
    30,064Current liabilities
    
    
    24,680
    
    
    
    23,611Total assets
    
    $
    28,803
    
    
    $
    33,909Total liabilities
    
    
    24,783
    
    
    
    23,803Stockholders equity
    
    $
    4,040
    
    
    $
    10,106
 For the
    
    
    For theThree Months Ended
    
    
    Three Months Ended(in thousands)
    
    December 31, 2006
    
    
    December 31, 2005(Unaudited)
    
    
    (Unaudited)Total revenue
    
    $
    8,790
    
    
    $
    14,593Net income (loss)
    
    $
    (3,736
    )
    
    $
    (740
    )
 For the
    
    
    For theSix Months Ended
    
    
    Six Months Ended(in thousands)
    
    December 31, 2006
    
    
    December 31, 2005(Unaudited)
    
    
    (Unaudited)Total revenue
    
    $
    21,471
    
    
    $
    39,053Net income (loss)
    
    $
    (6,040
    )
    
    $
    59
 (11)
    
    Investment in Integrity Mutual Funds, Inc.
    14




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
   (11)
    
    Investment in Integrity Mutual Funds, Inc. (continued)
 shares, $0.0001 par value, of Integrity at a price of $0.50 per share for each $0.50 of
principal of the Promissory Note outstanding, subject to anti-dilutive adjustment. The
Promissory Note is automatically convertible into common shares of Integrity on the
foregoing basis upon the earlier to occur of a sale of Integrity or maturity of the
Promissory Note.
   (12)
    
    Operating Segment Information
   Investment,Management andThree Months Ended December 31, 2006
    
    Pawn Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenues:Merchandise sales
    
    $
    3,668
    
    
    $
    
    
    
    $
    3,668Pawn service charges and related fee income
    
    
    1,611
    
    
    
    
    
    
    
    1,611Total revenues
    
    
    5,279
    
    
    
    
    
    
    
    5,279Expenses:Cost of sales
    
    
    2,784
    
    
    
    
    
    
    
    2,784Store operating expenses
    
    
    1,622
    
    
    
    (56
    )
    
    
    1,566Corporate administrative expenses
    
    
    597
    
    
    
    220
    
    
    
    817Depreciation and amortization
    
    
    68
    
    
    
    14
    
    
    
    82Operating income (loss)
    
    
    208
    
    
    
    (178
    )
    
    
    30Interest and dividend income
    
    
    15
    
    
    
    231
    
    
    
    246Interest expense
    
    
    (119
    )
    
    
    (538
    )
    
    
    (657
    )Gain on change of futures contracts value
    
    
    (35
    )
    
    
    
    
    
    
    (35
    )Gain on sale of marketable investments
    
    
    
    
    
    
    70
    
    
    
    70Loss from American IronHorse
    
    
    
    
    
    
    (662
    )
    
    
    (662
    )Income (loss) before taxes and impairment loss
    
    $
    69
    
    
    $
    (1,077
    )
    
    $
    (1,008
    )Total Assets
    
    $
    15,028
    
    
    $
    13,659
    
    
    $
    28,687
 15




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 Operating Segment Information (continued)
 Investment,Pawn
    
    
    Management andThree Months Ended December 31, 2005
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenues:Merchandise sales
    
    $
    4,757
    
    
    $
    
    
    
    $
    4,757Pawn service charges and related fee income
    
    
    1,533
    
    
    
    
    
    
    
    1,533Other income
    
    
    26
    
    
    
    
    
    
    
    26Total revenues
    
    
    6,316
    
    
    
    
    
    
    
    6,316Expenses:Cost of sales
    
    
    3,492
    
    
    
    
    
    
    
    3,492Store operating expenses
    
    
    1,556
    
    
    
    
    
    
    
    1,556Corporate administrative expenses
    
    
    472
    
    
    
    232
    
    
    
    704Depreciation and amortization
    
    
    90
    
    
    
    5
    
    
    
    95Operating income (loss)
    
    
    706
    
    
    
    (237
    )
    
    
    469Interest and dividend income
    
    
    1
    
    
    
    162
    
    
    
    163Interest expense
    
    
    (49
    )
    
    
    (371
    )
    
    
    (420
    )Loss on change of futures contracts value
    
    
    (407
    )
    
    
    
    
    
    
    (407
    )Gain on sale of marketable investments
    
    
    
    
    
    
    180
    
    
    
    180Income (loss) before taxes
    
    $
    251
    
    
    $
    (266
    )
    
    $
    (15
    )Total Assets
    
    $
    12,578
    
    
    $
    14,303
    
    
    $
    26,881
 16




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 Operating Segment Information (continued)
 Investment,Pawn
    
    
    Management andSix Months Ended December 31, 2006
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenues:Merchandise sales
    
    $
    7,218
    
    
    $
    
    
    
    $
    7,218Pawn service charges and related fee income
    
    
    3,218
    
    
    
    
    
    
    
    3,218Total revenues
    
    
    10,436
    
    
    
    
    
    
    
    10,436Expenses:Cost of sales
    
    
    5,528
    
    
    
    
    
    
    
    5,528Store operating expenses
    
    
    3,227
    
    
    
    (113
    )
    
    
    3,114Corporate administrative expenses
    
    
    1,094
    
    
    
    408
    
    
    
    1,502Depreciation and amortization
    
    
    138
    
    
    
    30
    
    
    
    168Operating income (loss)
    
    
    449
    
    
    
    (325
    )
    
    
    124Interest and dividend income
    
    
    19
    
    
    
    465
    
    
    
    484Interest expense
    
    
    (166
    )
    
    
    (1,079
    )
    
    
    (1,245
    )Loss on change of futures contracts value
    
    
    17
    
    
    
    
    
    
    
    17Gain on sale of marketable investments
    
    
    
    
    
    
    150
    
    
    
    150Loss from American Iron Horse
    
    
    
    
    
    
    (1,069
    )
    
    
    (1,069
    )Income (loss) before taxes, impairment loss and
cumulative effect of change in accounting principle
    
    $
    319
    
    
    $
    (1,858
    )
    
    $
    (1,539
    )Total Assets
    
    $
    15,028
    
    
    $
    13,659
    
    
    $
    28,687
 17




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##### Table of Contents



XPONENTIAL, INC. AND SUBSIDIARIES
 
 Investment,Pawn
    
    
    Management andSix Months Ended December 31, 2005
    
    Lending
    
    
    Advisory Services
    
    
    ConsolidatedRevenues:Merchandise sales
    
    $
    7,855
    
    
    $
    
    
    
    $
    7,855Pawn service charges and related fee income
    
    
    3,130
    
    
    
    
    
    
    
    3,130Other
    
    
    30
    
    
    
    
    
    
    
    30Total revenues
    
    
    11,015
    
    
    
    
    
    
    
    11,015Expenses:Cost of sales
    
    
    5,840
    
    
    
    
    
    
    
    5,840Store operating expenses
    
    
    3,075
    
    
    
    
    
    
    
    3,075Corporate administrative expenses
    
    
    946
    
    
    
    454
    
    
    
    1,400Depreciation and amortization
    
    
    193
    
    
    
    5
    
    
    
    198Operating income (loss)
    
    
    961
    
    
    
    (459
    )
    
    
    502Interest and dividend income
    
    
    1
    
    
    
    277
    
    
    
    278Interest expense
    
    
    (102
    )
    
    
    (667
    )
    
    
    (769
    )Loss on change of futures contracts value
    
    
    (473
    )
    
    
    
    
    
    
    (473
    )Gain on sale of marketable investments
    
    
    
    
    
    
    180
    
    
    
    180Income (loss) before taxes
    
    $
    387
    
    
    $
    (669
    )
    
    $
    (282
    )Total Assets
    
    $
    12,578
    
    
    $
    14,303
    
    
    $
    26,881
 18




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Statements appearing in the following discussion that are not historical facts are
forward-looking statements (forward-looking statements) within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which are intended to be covered by the safe harbors created by those sections. Such
forward-looking statements are necessarily estimates reflecting the best judgment of the Companys
management based upon current information and involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks, uncertainties and other
factors, include, but are not limited to, those set forth and those appearing from time to time in
filings made by the Company with the Securities and Exchange Commission. These risks,
uncertainties and other factors should not be construed as exhaustive and the Company does not
undertake, and specifically disclaims any obligation, to update any forward-looking statements to
reflect occurrences or unanticipated events or circumstances after the date of such statements.
 In addition, the following discussion and analysis should be read in conjunction with the
Companys financial statements and notes thereto and other financial data included in the Companys
Form 10-KSB for the fiscal year ended June 30, 2006.
       19




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20




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##### Table of Contents



For the Three Months
    
    
    For the Six Months EndedEnded December 31
    
    
    December 312006
    
    
    2005
    
    
    2006
    
    
    2005Merchandise sales
    
    
    69.5
    %
    
    
    75.3
    %
    
    
    69.2
    %
    
    
    71.3
    %Pawn service charges and related fee income
    
    
    30.5
    
    
    
    24.3
    
    
    
    30.8
    
    
    
    28.4Management advisory fees and related fee income
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.3Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    52.7
    
    
    
    55.3
    
    
    
    53.0
    
    
    
    53.0Store operating expenses
    
    
    29.7
    
    
    
    24.6
    
    
    
    29.8
    
    
    
    27.9Corporate administrative expenses
    
    
    15.5
    
    
    
    11.2
    
    
    
    14.4
    
    
    
    12.7Depreciation and amortization
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.6
    
    
    
    1.8Operating income
    
    
    0.6
    
    
    
    7.4
    
    
    
    1.2
    
    
    
    4.6Interest and dividend income
    
    
    4.7
    
    
    
    2.6
    
    
    
    4.6
    
    
    
    2.5Interest expense
    
    
    (12.4
    )
    
    
    (6.6
    )
    
    
    (11.9
    )
    
    
    (7.0
    )Gain (loss) on futures contracts
    
    
    (0.7
    )
    
    
    (6.4
    )
    
    
    0.2
    
    
    
    (4.3
    )Gain (loss) on sale of marketable securities
    
    
    1.3
    
    
    
    2.8
    
    
    
    1.4
    
    
    
    1.6Loss from American IronHorse
    
    
    (11.8
    )
    
    
    
    
    
    
    (9.9
    )
    
    
    Loss before income taxes, impairment loss and
cumulative effect of change in accounting
principle
    
    
    (18.3
    )
    
    
    (0.2
    )
    
    
    (14.4
    )
    
    
    (2.6
    )Income tax benefit (provision)
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    0.5Loss before impairment loss and cumulative
effect of change in accounting principle
    
    
    (18.3
    )%
    
    
    (0.4
    )%
    
    
    (14.4
    )%
    
    
    (2.1
    )%
    Three Months Ended December 31, 2006 Compared to Three Months Ended December 31, 2005
   21




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##### Table of Contents



For the Three Months EndedDecember 31, 2006
    
    
    December 31, 2005(In thousands)
    
    Merchandise
    
    
    Jewelry Scrap
    
    
    Total
    
    
    Merchandise
    
    
    Jewelry Scrap
    
    
    TotalSales
    
    $
    2,499
    
    
    $
    1,169
    
    
    $
    3,668
    
    
    $
    2,909
    
    
    $
    1,848
    
    
    $
    4,757Pawn Service
Charges and Other
Income
    
    
    
    
    
    
    
    
    
    
    1,611
    
    
    
    
    
    
    
    
    
    
    
    1,559Total Revenue
    
    
    2,499
    
    
    
    1,169
    
    
    
    5,279
    
    
    
    2,909
    
    
    
    1,848
    
    
    
    6,316Cost of Sales
    
    
    1,716
    
    
    
    1,068
    
    
    
    2,784
    
    
    
    2,139
    
    
    
    1,353
    
    
    
    3,492Gross Profit
    
    $
    783
    
    
    $
    101
    
    
    $
    2,495
    
    
    $
    770
    
    
    $
    495
    
    
    $
    2,824Profit Margin
    
    
    31.3
    %
    
    
    8.6
    %
    
    
    47.3
    %
    
    
    26.4
    %
    
    
    26.8
    %
    
    
    44.7
    %
       22




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##### Table of Contents



Six Months Ended December 31, 2006 Compared to Six Months Ended December 31, 2005
      For the Six Months EndedDecember 31, 2006
    
    
    December 31, 2005(In thousands)
    
    Merchandise
    
    
    Jewelry Scrap
    
    
    Total
    
    
    Merchandise
    
    
    Jewelry Scrap
    
    
    TotalSales
    
    $
    5,288
    
    
    $
    1,930
    
    
    $
    7,218
    
    
    $
    5,605
    
    
    $
    2,250
    
    
    $
    7,855Pawn Service
Charges and Other
Income
    
    
    
    
    
    
    
    
    
    
    3,218
    
    
    
    
    
    
    
    
    
    
    
    3,160Total Revenue
    
    
    5,288
    
    
    
    1,930
    
    
    
    10,436
    
    
    
    5,605
    
    
    
    2,250
    
    
    
    11,015Cost of Sales
    
    
    3,900
    
    
    
    1,628
    
    
    
    5,528
    
    
    
    4,216
    
    
    
    1,624
    
    
    
    5,840Gross Profit
    
    $
    1,388
    
    
    $
    302
    
    
    $
    4,908
    
    
    $
    1,389
    
    
    $
    626
    
    
    $
    5,175Profit Margin
    
    
    26.2
    %
    
    
    15.6
    %
    
    
    47.0
    %
    
    
    24.8
    %
    
    
    27.8
    %
    
    
    47.0
    %
   23




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##### Table of Contents



24




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##### Table of Contents



ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
 Competition
  Government Regulation
  Risks Related to Improper Assessment of the Pledged Propertys Estimated Resale Value
  Interest Rate Risk
   Risks Related to Automobile Title Loans
  25




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended*31.2
    
    Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as amended*32.1
    
    Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*32.2
    
    Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*
 
 *
    
    Filed herewith. 26




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##### Table of Contents



SIGNATURES
  XPONENTIAL, INC. (Registrant)February 19, 2007
    By:
    /s/ Robert W. SchleizerRobert W. Schleizer, Executive VicePresident and Chief Financial Officer 27




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##### Table of Contents



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