ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Nature of Operations and Basis of Presentation

Organization and Business

Xhibit Corp. (the “Company”, “Xhibit” or the “Registrant”), f/k/a NB Manufacturing, Inc., was incorporated on September 19, 2001 in the State of Nevada.  The original purpose of the Company was to provide manufacturing services.  Effective November 12, 2012 the Company changed its legal name from NB Manufacturing, Inc. to Xhibit Corp. by amending its Articles of Incorporation with the State of Nevada.

On June 4, 2012, the merger (the "Merger") contemplated by the Merger Agreement dated as of April 25, 2012 by and among Xhibit Corp., a Nevada corporation, NB Manufacturing Subsidiary, LLC, a Nevada limited liability company (the "Merger Sub"), Xhibit Interactive, LLC, a Nevada limited liability company ("Xhibit Interactive"), f/k/a Xhibit, LLC, and a certain director and officer of the then NB Manufacturing, Inc. (the "Merger Agreement"), as amended as of May 23, 2012, was completed as of the filing of Articles of Merger with the Secretary of State of the State of Nevada, merging the Merger Sub into Xhibit Interactive.

As a result of the Merger and pursuant to the Merger Agreement, Xhibit Interactive became a wholly-owned subsidiary of the Company, and the Company issued 55,383,452 shares of its common stock to holders of Units of Xhibit Interactive at a rate of 1.2641737582 shares of the Company's common stock for each Xhibit Interactive Unit.

Immediately following the Merger, the Registrant had 66,583,676 shares of common stock outstanding and no derivative securities outstanding. The former members of Xhibit Interactive owned 83.2% of the Registrant's outstanding securities, and the Registrant's shareholders owned 16.8% of the Registrant's outstanding securities.

Xhibit Interactive was organized on July 18, 2011 as a Nevada limited liability company.  On August 9, 2011, Xhibit Interactive entered into a Unit Exchange Agreement whereby the members of SpyFire Interactive, LLC (“SpyFire”) and Stacked Digital, LLC (“Stacked”) exchanged 100% of their membership units for 18,292,319 of Xhibit Interactive’s Units.  Concurrent with this transaction, SpyFire and Stacked became wholly-owned subsidiaries of Xhibit Interactive.  On September 21, 2012, Xhibit Interactive filed with the State of Nevada an Amendment to its Articles of Organization to change the name of Xhibit, LLC to Xhibit Interactive, LLC.

On January 20, 2012 Xhibit Interactive formed Xhibit, d.o.o., a wholly-owned Bosnian subsidiary, for the purpose of hiring highly skilled software coders, programmers and developers to provide the Company with high quality and economical in-house product development capabilities.

On May 24, 2012, the Company, through its wholly-owned subsidiary Xhibit Interactive, acquired Social Bounce, LLC (“Bounce”), a social media and online game development company founded on August 2, 2011.  Bounce was acquired to obtain intellectual property for the Company’s online and mobile gaming and social media platforms.  Bounce had nominal assets and no operations prior to May 24, 2012.  Bounce was merged into Xhibit Interactive and Bounce ceased to exist.

On June 29, 2012, the Company formed a new wholly-owned subsidiary, FlyReply Corp., and launched its newly developed product through this company, which provides turn-key cloud based marketing CRM solutions on a subscription basis to customers.

On September 24, 2012, the Company acquired various intellectual property assets owned by several individuals and private companies giving it the right to the source code, software, database, websites and domain names previously owned or operated by Radio Connect, LLC, Twit Yap, LLC and Star Connect, LLC which the Company now refers to as its Twit Yap social media properties. The Company obtained these assets for a total issuance of 727,050 shares of common stock.

On December 1, 2012, we entered into a Marketing Services Agreement with WAT Works, LLC, a Utah limited liability company ("WAT Works").  We also hired five employees (including a 50% equity holder in WAT Works) at salaries ranging from $7,500 to $11,000 per month plus a bonus pool of five percent (5%) of EBITDA generated by these five at will employees in the consumer nutraceutical products industry.  Our agreement with WAT Works engaged it to select products developed by third party formulators and manufacturers and assist us in marketing this line of health and wellness related consumer products and services.  We agreed to pay WAT Works its direct costs in delivering these services, which included reimbursement for rent (as they operate out of an office in Salt Lake City, Utah), reimbursement for manufacturing and formulation costs paid to a third party, and payment of a contractor for sales tracking software development.  This Marketing Services Agreement is exclusive but terminable at will at any time and is on a month to month basis. During the first six months of 2013, a majority of Xhibit Interactive's revenues have been generated by these five employees from the sales of a weight loss product, colon cleanser and green coffee supplement.  Sales have been made in the United States, Australia and South Africa. During the second quarter ended June 30, 2013, the Company discontinued all sales of nutraceutical products but is continuing to conduct internet marketing and advertising campaigns for customers which sell their own nutraceutical products.

On May 16, 2013, the Company entered into an Agreement and Plan of Merger (the “SkyMall Merger Agreement”), among Xhibit, Project SMI Corp., a Delaware corporation and wholly-owned subsidiary of Xhibit (“SMI Merger Sub”), SHC Parent Corp., a Delaware corporation (“SHC”), and TNC Group, Inc., an Arizona corporation and Stockholder Representative for the SHC stockholders. Pursuant to the terms of the Merger Agreement, on May 16, 2013, SMI Merger Sub merged with and into SHC (the “SkyMall Merger”), with SHC surviving the SkyMall Merger as a wholly-owned subsidiary of Xhibit. SHC is the parent corporation of SkyMall Interests, LLC, a Delaware limited liability company (“Interests”), SkyMall, LLC, a Delaware limited liability company (“SkyMall, LLC”), and SkyMall Ventures, LLC, a Delaware limited liability company (“Ventures,” and, with SHC, Interests and SkyMall, LLC, the “SkyMall Companies” or "SkyMall"). The former shareholders of SHC became shareholders of Xhibit, receiving 44,440,000 shares of Xhibit common stock as part of the SkyMall Merger.

Xhibit, through its subsidiaries other than SkyMall Companies, is an online marketing and digital advertising company providing targeted and measurable online advertising campaigns and programs for a broad base of advertisers and advertising agency customers. The Company enables marketers to advertise and sell their products and services through major online marketing channels including display advertising and affiliate marketing networks.  As of June 30, 2013, the marketing and sale of nutraceutical products online represented a significant portion of the business of Xhibit.

The SkyMall Companies operate (i) SkyMall, a multi-channel, direct marketer offering a wide array of merchandise from numerous direct marketers and manufacturers through the SkyMall catalog and website, SkyMall.com; and (ii) SkyMall Ventures, a provider of merchandise, gift cards and experiential rewards reaching millions of loyalty program members in various corporate and other loyalty programs throughout the United States.

SkyMall’s loyalty business provides turnkey strategy, creative and fulfillment solutions for numerous customer programs operated by internationally-recognized brands such as Marriott Rewards, Caesar’s Entertainment (formerly Harrah’s Casinos) and Capital One. SkyMall’s proprietary technology system allows SkyMall to precisely manage merchandise procurement across a vast network of vendors to ensure that the most current products are available for loyalty program members. In addition, SkyMall designs, develops and hosts the websites and manages the entire ecommerce transaction process from order placement to shipment and customer service. For example, some sites features the ability to include: (i) mixed payment options (the ability to combine points and dollars); (ii) multiple currencies and languages; and (iii) auctions.

SkyMall’s loyalty merchandising solutions are co-branded or private-labeled and offer a full suite of services, including development of marketing plans and strategies, product assortment selection and sourcing, website design, development and hosting, customer service support and reporting and analysis. Most of the Company's consolidated revenues now come from the SkyMall Companies.

Basis of Presentation and Principles of Consolidation

The condensed consolidated interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report to the Securities and Exchange Commission for the fiscal year ended December 31, 2012, filed on Form 10-K on April 16, 2013.

The consolidated financial statements include the accounts of Xhibit and its wholly-owned subsidiaries which include the accounts and transactions of SHC Parent Corp. and its subsidiaries from the May 16, 2013 merger date.  Intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, all adjustments necessary to summarize fairly the financial position and results of operations for such periods in accordance with accounting principles generally accepted in the United States of America have been recorded.  All such adjustments are of a normal recurring nature. The results of operations for the most recent interim period are not necessarily indicative of the results to be expected for the full year.

Going Concern and Management Plans

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company has incurred significant losses from operations for the six months ended June 30, 2013, has used approximately $6.4 million in cash from operations through this current six month period, and has a working capital deficit of approximately $25.5 million at June 30, 2013. As a result, a risk exists regarding our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty.

A multi-step plan was adopted by management to enable the Company to continue to operate and begin to report operating profits. The highlights of that plan are:

· The Company plans to seek additional debt and/or equity financing.

· The Company intends to more fully integrate the operations of Xhibit and SkyMall to gain better efficiencies.

· The Company plans to aggressively seek new and additional sales opportunities.