Xhibit Corp. - FORM 10-Q/A - September 10, 2014

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - Xhibit Corp.	ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - Xhibit Corp.	ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Xhibit Corp.	ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - Xhibit Corp.	ex32-2.htm
EXCEL - IDEA: XBRL DOCUMENT - Xhibit Corp.	Financial_Report.xls

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

(Amendment No. 1)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2013

[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

Commission file number: 000-52678

XHIBIT CORP.

(Exact name of registrant as specified in its charter)

Nevada		20-0853320
(State of incorporation)		(I.R.S. Employer Identification Number)

1520 E. Pima Street

Phoenix, AZ 85034

(Address of principal executive offices)

(602) 254-9777

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 [ ] NO [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). YES [X] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[X]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 16, 2013, the Company had 112,279,298 shares of its $0.0001 par value common stock issued and outstanding.

This Quarterly Report on Form 10-Q/A amends the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, originally filed by Xhibit Corp. (“Xhibit” or the “Company”) with the Securities and Exchange Commission (“SEC”) on August 19, 2013. The following items have been revised:

·	Part I — Item 1. Financial Statements

As disclosed in a Current Report on Form 8-K the Company filed with the SEC on April 16, 2014, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) determined on April 11, 2014 that the Company’s previously filed financial statements for: (i) the three and six month periods ended June 30, 2013 included in the Form 10-Q filed with the SEC on August 19, 2013 and (ii) the three and nine month periods ended September 30, 2013 included in the Form 10-Q filed with the SEC on November 15, 2013 needed to be restated to correct the accounting for the SkyMall merger in such financial statements. The Audit Committee’s determination was based upon analysis of the issues raised in comment letters from the SEC related to the Company’s accounting for the SkyMall Merger. Please refer to Note 2, “Restatement” to the Notes to Condensed Consolidated Financial Statements for more information on the restatement.

The restatement did not have any effect on the previously reported statements of operations data for the three and six month periods ended June 30, 2013. The restatement also did not have any effect on the Company’s cash or debt balances. The following table shows the effects of the restatement on the Company's condensed consolidated balance sheet as of June 30, 2013:

	As of June 30, 2013
	As Previously Recorded			As Restated			Variance
Total current assets	$	23,130,302		$	23,130,302		$	-
Total assets	$	75,087,728		$	200,683,728			125,596,000
Total current liabilities	$	48,634,688		$	48,634,688			-
Total liabilities	$	49,447,867		$	49,447,867			-
Additional paid-in capital	$	32,315,213		$	157,911,213			125,596,000
Accumulated deficit	$	(6,686,580	)	$	(6,686,580	)		-
Total stockholders' equity	$	25,639,861		$	151,235,861			125,596,000

Except as described above, no other revisions are being made to the financial statements and disclosures presented in the original Form 10-Q. This amended Form 10-Q does not reflect events occurring after the filing of the original Form 10-Q, or modify or update the disclosure contained therein in any other way other than as required to reflect the revisions discussed above. Information in the amended financial statements and disclosures that is not affected by the restatement is unchanged and reflects the disclosures made at the time of the original filing of the Form 10-Q with the SEC on August 19, 2013.

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		Page No.

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of June 30, 2013 (Restated and Unaudited) and December 31, 2012	1

	Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2013 and 2012 (Unaudited)	2

	Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2013 and 2012 (Unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June, 2013 (Restated and Unaudited) and 2012 (Unaudited)	4

	Notes to Condensed Consolidated Financial Statements (Restated and Unaudited)	5

Item 6.	Exhibits	22

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Part I. FINANCIAL INFORMATION

Item 1 - FINANCIAL STATEMENTS

Restatement of 2013 Financial Statements

As discussed in Note 2 to the Condensed Consolidated Financial Statements, the Company restated its financial statements for the quarterly period ended June 30, 2013 to correct the accounting for the SkyMall merger.

XHIBIT CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2013		December 31, 2012
	(Restated and Unaudited)		(Audited)
ASSETS
Current assets:
Cash	$	1,726,667	$	363,172
Accounts receivable, net		5,863,235		699,207
Inventories		13,718,835		-
Prepaid expenses		1,821,565		79,191
Total current assets		23,130,302		1,141,570

Other assets:
Security deposit		35,231		32,731
Property and equipment, net		6,976,047		1,429,773
Intangibles, net		170,240,562		2,752,974
Other		301,586		-

TOTAL ASSETS	$	200,683,728	$	5,357,048

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	23,467,703		$	640,736
Accrued interest, related parties		-			16,164
Customer deposits		16,071,392			-
Revolving line of credit		7,650,000			-
Notes payable, related parties		1,245,000			700,000
Deferred revenue		77,390			-
Deferred lease incentive - current portion		123,203			123,203
Total current liabilities		48,634,688			1,480,103

Non-current liabilities:
Deferred rent liability		258,768			236,476
Deferred lease incentive - non-current portion		554,411			616,013

Total liabilities		49,447,867			2,332,592

SHAREHOLDERS' EQUITY
Preferred stock, authorized 80,000,000 shares, $0.0001 par value, none issued or outstanding		-			-
Common stock, authorized 480,000,000 shares, $0.0001 par value, 112,279,298 and 67,310,726 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		11,228			6,731
Additional paid-in capital		157,911,213			4,296,682
Accumulated deficit		(6,686,580	)		(1,278,957	)
Total shareholders' equity		151,235,861			3,024,456

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	200,683,728		$	5,357,048

See notes to condensed consolidated financial statements (unaudited)

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XHIBIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

	2013			2012
Revenues:
Internet marketing revenues	$	1,580,984		$	2,389,725
Net revenues from nutraceutical sales		4,604,091			-
Merchandise sales, net		6,091,367			-
Placement fees		1,691,636			-
Gift cards and other		2,563,663			-
Total revenues		16,531,741			2,389,725
Cost of revenues:		11,595,440			1,455,511
Gross profit		4,936,301			934,214

Operating expenses:
Catalog expenses		759,363			-
Sales and marketing		2,202,738			234,783
Customer service and fulfillment		314,241			-
General and administrative		5,612,510			923,539
Research and development		357,242			102,499
Total operating expenses		9,246,094			1,260,821

Loss from operations		(4,309,793	)		(326,607	)

Other income (expense):
Interest expense		(32,901	)		(15,107	)
Other income		4,781			-

Net loss	$	(4,337,913	)	$	(341,714	)

Net loss per common share:
Basic and diluted	$	(0.05	)	$	(0.01	)

Weighted-average common shares used to calculate net loss per common share:
Basic and diluted		90,608,624			66,583,676

See notes to condensed consolidated financial statements (unaudited)

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XHIBIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

	2013			2012
Revenues:
Internet marketing revenues	$	3,083,263		$	4,509,233
Net revenues from nutraceutical sales		6,860,936			-
Merchandise sales, net		6,091,367			-
Placement fees		1,691,636			-
Gift cards and other		2,563,663			-
Total revenues		20,290,865			4,509,233
Cost of revenues:		14,221,789			2,835,336
Gross profit		6,069,076			1,673,897

Operating expenses:
Catalog expenses		759,363			-
Sales and marketing		2,711,491			488,261
Customer service and fulfillment		314,241			-
General and administrative		6,960,049			1,494,417
Research and development		628,808			189,825
Total operating expenses		11,373,952			2,172,503

Loss from operations		(5,304,876	)		(498,606	)

Other income (expense):
Interest expense		(41,096	)		(19,668	)
Other income		4,781			-
Loss on debt conversion		(66,431	)		-

Net loss	$	(5,407,622	)	$	(518,274	)

Net loss per common share:
Basic and diluted	$	(0.07	)	$	(0.01	)

Weighted-average common shares used to calculate net loss per common share:
Basic and diluted		79,456,896			66,583,676

See notes to condensed consolidated financial statements (unaudited)

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XHIBIT CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2012

(Unaudited)

	2013			2012
Cash flows from operating activities:	(Restated)
Net loss	$	(5,407,622	)	$	(518,274	)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization		894,533			10,890
Non-cash compensation		2,030,501			-
Expenses paid by shareholder and donated to the company		-			11,185
Tenant improvement allowance		(61,602	)		-
Loss on debt conversion		66,431			-
Bad debt expense		58,119			-
Changes in operating assets and liabilities:
Accounts receivable		(1,328,968	)		52,779
Accounts receivable, related party		-			8,750
Inventory		3,667,011			-
Prepaid expenses		(97,714	)		95,605
Other assets		(80,543	)		-
Accounts payable and accrued expenses		2,638,845			283,546
Accounts payable, related party		-			34,526
Deferred revenue		77,390			-
Deferred rent liability		22,292			38,277
Customer deposits		(8,865,320	)		-
Net cash (used in) provided by operating activities		(6,386,647	)		17,284

Cash flows from investing activities:
Cash acquired in SkyMall merger		4,369,535			-
Purchases of property and equipment		(514,393	)		(564,131	)
Net cash provided by (used in) investing activities		3,855,142			(564,131	)

Cash flows from financing activities:
Borrowings on bank line of credit		2,900,000			-
Proceeds from note payable to related party		1,035,000			700,000
Repayment of note payable to related party		(40,000	)		(333,516	)
Net cash provided by financing activities		3,895,000			366,484

Net increase (decrease) in cash		1,363,495			(180,363	)

Cash, beginning of period		363,172			241,077

Cash, end of period	$	1,726,667		$	60,714

Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock in connection with note conversion	$	450,000		$	-
Issuance of common stock in connection with merger	$	151,096,000		$	-
Construction in progress paid for with tenant improvement allowance	$	-		$	790,550

Cash paid for:
Interest	$	27,625		$	-
Taxes	$	24,208		$	-

See notes to condensed consolidated financial statements (unaudited)

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XHIBIT CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Restated and Unaudited)

NOTE 1 - 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.

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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.

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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.

NOTE 2 - RESTATEMENT

As disclosed in a Current Report on Form 8-K the Company filed with the SEC on April 16, 2014, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) determined on April 11, 2014 that the Company’s previously filed financial statements for: (i) the three and six month periods ended June 30, 2013 included in the Form 10-Q filed with the SEC on August 19, 2013 and (ii) the three and nine month periods ended September 30, 2013 included in the Form 10-Q filed with the SEC on November 15, 2013 needed to be restated to correct the accounting for the merger with SkyMall (the “SkyMall Merger”) in such financial statements. The Audit Committee’s determination was based upon its analysis of issues raised in comment letters from the SEC related to the Company’s accounting for the SkyMall Merger.

When the Company originally recorded the SkyMall Merger, the Board of Directors did not believe the market price for Xhibit’s common stock on the merger date was reliable and/or representative of fair value. Accordingly, the Company valued the SkyMall Merger based on the fair value of the assets acquired and liabilities assumed. The Company has now performed a re-assessment of the SkyMall Merger fair value and has determined that an active market for Xhibit’s common stock existed and, accordingly, the fair value of the shares issued to former owners of SkyMall (the “Merger Shares”) should have been used to value the SkyMall Merger.

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Based on its reassessment of the SkyMall Merger fair value, the Company has recorded additional consideration of $125,596,000 for the SkyMall Merger. The Company engaged an independent valuation firm to assist with a purchase price allocation based on the revised valuation.

The following table shows the effects of the restatement on the Company’s purchase price allocation for the assets acquired and liabilities assumed in the SkyMall Merger as of May 17, 2013:

	As of May 17, 2013
	As Previously Recorded			As Restated			Variance
Current assets	$	27,297,780		$	27,297,780		$	-
Property and equipment		5,267,121			5,267,121			-
Amortizable intangible assets		19,780,000			19,430,000			(350,000	)
SkyMall tradename		7,170,000			7,170,000			-
Goodwill		15,622,726			141,568,726			125,946,000
Other assets		221,043			221,043			-
Liabilities assumed		(49,858,670	)		(49,858,670	)		-
	$	25,500,000		$	151,096,000		$	125,596,000

The restatement did not have any effect on the Company’s previously reported condensed consolidated statement of operations for the three and six month periods ended June 30, 2013. The following table show the effects of the restatement on the Company's condensed consolidated balance sheet as of June 30, 2013:

	As of June 30, 2013
	As Previously Recorded			As Restated			Variance
Total current assets	$	23,130,302		$	23,130,302		$	-
Total assets	$	75,087,728		$	200,683,728		$	125,596,000
Total current liabilities	$	48,634,688		$	48,634,688		$	-
Total liabilities	$	49,447,867		$	49,447,867		$	-
Additional paid-in capital	$	32,315,213		$	157,911,213		$	125,596,000
Accumulated deficit	$	(6,686,580	)	$	(6,686,580	)	$	-
Total stockholders' equity	$	25,639,861		$	151,235,861		$	125,596,000

NOTE 3 -SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Xhibit Corp. and all of its subsidiaries. Intercompany accounts have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management believes that the estimates utilized in the preparation of financial statements are prudent and reasonable. Actual results could differ from these estimates.

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Accounts Receivable and Allowance for Doubtful Accounts

Receivables are recorded at the gross sales price of products sold to customers on trade credit terms. The Company estimates the allowance for doubtful accounts based on an analysis of specific customers, taking into consideration the age of past due accounts, historical trends and an assessment of the customer’s ability to pay. The adequacy of the allowance is evaluated each month as part of the month-end closing activities and all customer accounts are reviewed. Established guidelines as well as professional judgment are used in establishing the allowance. Receivables that prove to be uncollectible after prescribed collection efforts have been exhausted are written-off by a charge to the allowance for doubtful accounts. Recoveries of receivables previously written off are recorded when received. Interest is not charged on overdue receivables, nor is collateral obtained on any amounts due.

Revenue Recognition

The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, delivery has occurred, collection of the related receivable is reasonably assured, and the fees are fixed or determinable.

We evaluate the criteria outlined in ASC Topic 605-45, Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. When we are the primary obligor in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sales price. If we are not the primary obligor in the transaction and amounts earned are determined using a fixed percentage, revenue is recorded on a net basis.

Revenue from merchandise sales:

The Company recognizes revenue from merchandise sales when acting as a principal upon shipment of product to customers by participating merchants, net of estimated returns and allowance. Catalog, mail and internet merchandise sales are reported on a net basis. Variable margin revenue is recognized as merchandise sales at the time a customer places an order and is based on a percentage of the merchandise sales price.

Sales and use taxes charged to customers and incurred by the Company are shown net in the consolidated statements of income.

Revenue from gift card sales:

The Company has a gift card program which provides fulfillment of gift cards for large loyalty programs that offer gift card reward options in their program. The Company recognizes revenue from gift card sales when acting as a principal upon shipment of product to customers, net of estimated returns and allowance. Under certain of its partner agreements, the Company earns a margin that is charged in addition to the cost of the gift card. For these sales, the Company records gift card revenue for only the amount of the margin.

Revenue from placement fees:

Placement fees include amounts paid to the Company by participating merchants for inclusion of their products in the Company's catalogs. Placement fees can be either fixed or a combination of variable and fixed arrangements depending on the agreement the Company has with the participating merchant. Fixed placement fee revenue is recognized on a straight-line basis over the circulation period of the catalog, which is generally three months. Placement fees billed in advance of distribution of the related catalog are recorded as a contra receivable account.

Revenue from nutraceutical sales:

Revenue from product sales and gross outbound shipping and handling charges, are recognized upon receipt of the product by the customer. In accordance with the Company’s revenue recognition policy, the Company establishes a deferred revenue liability equal to five days which represents products that have shipped, but have not yet been received by the customers at the end of a given period. The Company’s sales terms allow customers certain limited rights of return for a period of 30-days. The Company recorded a reserve for returns of $89,473 at June 30, 2013.

Internet marketing revenue:

The Company recognizes revenue at the time services are performed and sales are generated on behalf of their customers. Revenue is presented on a gross basis, net of discounts and allowances.

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Shipping and handling costs

Amounts billed to customers related to shipping and handling costs ($821,127 and zero for the six months ended June 30, 2013 and 2012, respectively) are recorded as other revenues. Shipping and handling costs incurred by the Company are classified as cost of goods sold in the consolidated statements of operations.

Inventory

The Company supplies and fulfills retail gift cards to third party loyalty programs that make the Company’s retail gift cards available to their members upon redemption of accumulated loyalty points or miles. The Company maintains a gift card inventory and assumes all risks associated with the inventory.

Paper inventory consists principally of paper held for future catalog editions, and is stated at lower of cost or market. Cost is determined using the first-in, first-out method. There is no paper inventory on hand that management believes to be obsolete or slow-moving.

Catalog expenses

Catalog production costs include expenses related to printing paper, and production of the SkyMall in-flight catalog and various loyalty program catalogs the Company produces. The Company expenses catalog production costs over the circulation period of the catalog, which is generally three months.

Advertising

The Company expenses advertising costs when such costs are incurred.

Stock-based Compensation

The Company accounts for stock-based compensation by using the Black-Scholes-Merton option valuation model to estimate the fair value of stock options issued, estimating the expected forfeiture rate, and recognizing expense for the options expected to vest over the requisite service/vesting period. Refer to Note 13 for further information and required disclosures related to stock-based compensation.

Concentrations and Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and accounts receivable. All cash balances are maintained in two financial institutions that have been determined by management to maintain a high credit rating. From time to time, the Company’s cash balances may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance limits. As part of its cash management process, the Company performs periodic evaluations of these financial institutions. Regarding trade accounts receivable, the Company minimizes its credit risk by performing credit evaluations of its customers and /or limiting the amount of credit extended. Accounts receivable balances are carried net of any allowances for doubtful accounts.

Intangible Assets

Intangible assets consist primarily of the “SkyMall” tradename, the SkyMall loyalty program, merchant relationships, customer relationships, purchased technology and non-compete agreements which are recorded at their estimated fair value at the date of acquisition. For intangible assets with finite lives, the pattern in which the economic benefit of the assets will be consumed is evaluated based on projected usage or production of revenues. The Company considers certain factors when assigning useful lives such as legal, regulatory and contractual provisions as well as management’s judgment, the effects of obsolescence, demand, competition and other economic factors. Intangible assets are amortized using the straight-line method over their estimated useful lives ranging from two to eight years. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. There were no impairment charges for intangible assets for the six months ended June 30, 2013 and 2012.

Goodwill

Goodwill represents the excess of the cost of an acquired entity over the net fair value of the identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but rather is assessed for impairment annually or whenever events or changes in circumstances indicate that an impairment may have occurred. The Company performs an annual impairment assessment, or whenever events or circumstances indicate impairment may have occurred. Effective January 1, 2013, the Company began operating two reporting segments (Internet Marketing and Nutraceutical Products) and upon consummation of the SkyMall Merger in May 2013, the Company began operating a third reporting unit (SkyMall). Beginning in 2013, the Company evaluates the need for an impairment charge for goodwill recorded in each reporting unit based on the fair value of the respective reporting unit. No impairment charge for goodwill was recorded during the three month period ended June 30, 2013 but goodwill was substantially impaired at December 31, 2013 (Note 18).

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Business Combination

The Company’s completion of its merger with the SkyMall Companies on May 16, 2013 has resulted in the recording of goodwill and identifiable definite-lived intangible assets. The Company recognizes all of the assets acquired and liabilities assumed at their fair values on the acquisition date. The Company has used significant estimates and assumptions, including fair value estimates, as of the merger date and may refine those estimates that are provisional, as necessary, during the measurement period. The measurement period is the period after the acquisition date, not to exceed one year, in which new information may be gathered about facts and circumstances that existed as of the acquisition date to adjust the provisional amounts recognized. Measurement period adjustments are applied retrospectively. All other adjustments are recorded to the consolidated statements of operations. The Company did not record any measurement period adjustments during the six month period ended June 30, 2013. Acquisition-related costs are recognized separately from the acquisition and expensed as incurred and are generally included in general and administrative expenses in the consolidated statements of operations. The Company determines the useful lives for definite-lived tangible and intangible assets and liabilities assumed using estimates and judgments.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. This method requires that the current or deferred tax consequences of all events recognized in the financial statements be measured by applying the provisions of enacted tax laws to determine the amounts of taxes payable or refundable currently, and the deferred tax assets and liabilities attributable to temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be recovered.

The Company recognizes and measures uncertain tax positions using a more-likely-than-not approach. The Company had no material uncertain tax positions at June 30, 2013 or December 31, 2012.

Comprehensive Income (Loss)

Components of comprehensive income or loss, including net income or loss, are reported in the financial statements in the period in which they are recognized. Comprehensive income or loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss) are reported net of any related tax effect to arrive at comprehensive income (loss). The Company did not have any items of comprehensive income (loss) for the six month periods ended June 30, 2013 or 2012.

Reclassification

Certain amounts in the 2012 financial statements have been reclassified to conform to the 2013 financial presentation. Such reclassifications were not material individually or in the aggregate.

Recent Accounting Pronouncements

The FASB has issued Accounting Standards Update (ASU) No. 2012-02, Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30, Intangibles-Goodwill and Other General Intangibles Other than Goodwill. Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.

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Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.

NOTE 4 - ACCOUNTS RECEIVABLE

Accounts receivable consist of the following at June 30, 2013 and December 31, 2012:

	6/30/2013			12/31/12
Trade receivables	$	10,863,370		$	699,207
Merchant bank receivables		296,381			-
Placement fees billed in advance of distribution		(4,354,111	)		-
Allowance for doubtful accounts		(942,405	)		-
	$	5,863,235		$	699,207

The Company had outstanding balances in accounts receivable from two customers representing 51% of trade receivables at June 30, 2013. Revenues from these two customers represented 36% and 29% of total revenues for the three and six month periods ended June 30, 2013, respectively. No other customers represented greater than 10% of net revenues in the three and six months ended June 30, 2013 or total trade receivables at June 30, 2013.

During the three and six month periods ended June 30, 2012 the Company had two customers in each period that represented approximately 66% (37% and 29%) and 60% (31% and 29%) of revenues for the respective periods. At December 31, 2012 trade receivables from two customers represented approximately 67% (55% and 12%) of the total trade receivable balance. No other customers represented greater than 10% of net revenues for the three and six month period ended June 30, 2012 or total trade accounts receivable at December 31, 2012.

NOTE 5 - INVENTORIES

Inventories consist of the following as of June 30, 2013:

Gift cards	$	13,549,971
Prepaid gift cards		10,082
Paper and other		158,782
	$	13,718,835

Prior to its merger with SkyMall, the Company carried no inventory. The Company does not hold any nutraceutical product inventory. Nutraceutical products are contract manufactured, packaged and stored by third parties. Finished product is invoiced to the Company at the time of direct shipment, by the third-party fulfillment center, to the customer. Prepaid gift cards consist of gift cards which have been paid for but not yet received by the Company.

NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of June 30, 2013 and December 31, 2012:

	6/30/2013			12/31/12
Computers, office equipment and software	$	863,414		$	102,170
Furniture, fixtures and other		194,993			104,522
Buildings and improvements		3,971,878			-
Leasehold improvements		1,422,851			1,344,595
		6,453,135			1,551,287
Less accumulated depreciation		(328,067	)		(121,514	)
Construction in progress		850,980			-
	$	6,976,047		$	1,429,773

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Depreciation expense was $106,490 and $5,351 for the three month periods ended June 30, 2013 and 2012, respectively and was $176,276 and $10,890 for the six month periods ended June 30, 2013 and 2012, respectively.

NOTE 7 - INTANGIBLE ASSETS

Intangible assets consist of the following at June 30, 2013 and December 31, 2012:

		6/30/13			12/31/12
Amortizing intangible assets:
Loyalty partner relationships	8 years	$	13,800,000		$	-
Merchant relationships	5 years		4,570,000			-
Technology	3 years		1,666,399			1,666,399
Non-compete agreements	2 years		1,531,801			1,241,801
Internally developed software	4 years		550,000			-
Customer database	4 years		220,000			-
			19,338,200			2,908,200
Accumulated amortization			(836,364	)		(155,226	)
			18,501,836			2,752,947
SkyMall tradename			7,170,000			-
Goodwill			141,568,726			-
		$	170,240,562		$	2,752,974

On September 24, 2012, the Company acquired certain intellectual property it intends to incorporate into its social network product. The agreements contained various covenants by the sellers, including with respect to certain sellers, non-compete agreements. As consideration for the intellectual property and non-compete agreements, the Company issued 727,050 of its common shares to the sellers with a deemed value of $2,908,200. Amortization of the technology asset will commence once the social network is ready for its intended use.

Amortization expense was $563,031 and $718,257 for the three and six month periods ended June 30, 2013, respectively. No amortization expense was recorded for the three and six month periods ended June 30, 2012.

Future expected amortization expense for each of the five succeeding calendar years and thereafter is:

Year	Amount
2013	$	1,948,192
2014		4,018,892
2015		3,463,841
2016		3,249,350
2017		2,758,271
Thereafter		6,413,289
	$	21,851,835

NOTE 8 - NOTES PAYABLE - RELATED PARTIES

On March 27, 2012, the Company’s wholly-owned subsidiary Xhibit Interactive issued a promissory note in the amount of $500,000 to one of its members. The note had a maturity date, as amended, of December 31, 2012 and included interest at a simple rate of 10% per annum. On January 11, 2013 the note was cancelled. In exchange for the cancellation, the Company issued 71,429 shares of common stock to the note holder and issued a new note in the amount of $250,000, which bears interest at a 10% annual rate and has a maturity date of December 31, 2013. The note holder signed a waiver of default for the period December 31, 2012 to the date the note was cancelled. Through June 30, 2013, the Company has made principal payments totaling $40,000. At June 30, 2013 the remaining outstanding balance due on the note is $210,000.

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On May 29, 2012, the Company’s wholly-owned subsidiary Xhibit Interactive issued a promissory note in the amount of $200,000 to one of its members. The note had a maturity date, as amended, of December 31, 2012 and included interest at a simple rate of 10% per annum. On January 14, 2013 the note was cancelled. In exchange for the cancellation, the Company issued 57,143 shares of common stock to the note holder. The note holder signed a waiver of default for the period December 31, 2012 to the date the note was cancelled.

On March 28, 2013, the Company issued a promissory note in the amount of $100,000 to one of its shareholders. The note bears interest at a simple rate of 10% per annum and is due and payable on March 28, 2014.

On April 15, 2013, the Company issued unsecured promissory notes in the aggregate principal amount of $375,000 to four of its shareholders. The notes bear interest at a fixed amount equal to 10% of the principal amount and are due and payable on March 31, 2014.

On April 30, 2013, the Company issued unsecured promissory notes in the aggregate principal amount of $210,000 to two of its shareholders. The notes bear interest at a fixed amount equal to 10% of the principal amount and are due and payable on March 31, 2014.

On May 29, 2013, the Company issued unsecured promissory notes in the aggregate principal amount of $350,000 to two of its shareholders. The notes bear interest at a fixed amount equal to 10% of the principal amount and are due and payable on May 31, 2014.

NOTE 9 – REVOLVING LINE OF CREDIT

On May 10, 2013, the SkyMall Companies entered into a $7,650,000 revolving line of credit note with JPMorgan Chase Bank, N.A. that refinanced an existing line of credit (the “Bank Line”). The Bank Line expires on June 30, 2014 and interest on outstanding borrowings is payable monthly at a rate of LIBOR plus 0.5%. The Bank Line is fully guaranteed by, and secured by all of the assets of, Xhibit and its subsidiaries, including the SkyMall Companies, pursuant to Continuing Guarantees and Continuing Security Agreements of Xhibit and each of its subsidiaries. In addition to the guaranties provided by the Company, the Credit Facility is also guaranteed an affiliate company controlled by Jahm Najafi, a member of the Company's Board of Directors and the Company’s majority shareholder through beneficial ownership. At June 30, 2013, there was $7,650,000 outstanding under the Bank Line.

NOTE 10 - SHAREHOLDERS’ EQUITY

On February 14, 2012, the Company's Board of Directors approved an 8 for 1 forward stock split of its Common Stock with a record date of March 1, 2012. In connection with the stock split the Board of Directors also approved an increase in the Company’s authorized shares of Common Stock from 60,000,000 shares to 480,000,000 shares and its Preferred Stock from 10,000,000 to 80,000,000 shares. Pursuant to Nevada Revised Statutes 78.207, a forward stock split that is conducted at the same time as a corresponding increase in the authorized shares of the Company’s capital stock does not require shareholder approval. The Company filed a Certificate of Change with the Nevada Secretary of State showing the changes to the Company's authorized capital stock on February 23, 2012, with an effective date of the close of business on February 29, 2012. The stock split has been retroactively reflected in these financial statements.

On June 4, 2012, pursuant to the Merger Agreement with Xhibit Interactive, the Company issued 55,383,452 shares of its common stock to holders of Units of Xhibit Interactive.

On August 30, 2012 the Company’s Board of Directors adopted the Xhibit Corp. 2012 Stock Option Plan (“Plan”). Under the Plan the Company may issue up to an aggregate total of 13,000,000 incentive or non-qualified options to purchase the Company’s common stock.

On September 24, 2012, pursuant to the Settlement and Release Agreement in conjunction with the Company’s acquisition of certain intellectual property rights related to its social media platform, the Company issued 727,050 shares of its common stock.

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On January 11, 2013 the Company cancelled its $500,000 note payable due one of its shareholders. In exchange for the cancellation, the Company issued 71,429 shares of common stock to the note holder and issued a new note in the amount of $250,000, which bears a 10% annual interest rate and has a maturity date of December 31, 2013. As a result, the Company recorded a loss on the conversion of debt in the amount of $32,145.

On January 14, 2013 the Company cancelled its $200,000 note payable due one of its shareholders. In exchange for the cancellation, the Company issued 57,143 shares of common stock to the note holder. As a result, the Company recorded a loss on the conversion of debt in the amount of $34,286.

On May 16, 2013, pursuant to the SkyMall Merger Agreement with SHC, the Company issued 44,440,000 shares of its common stock to shareholders of SHC. In addition, the Company issued 400,000 shares of its common stock on July 9, 2013 to an individual with a value of $1,600,000 (based upon the quoted trading price of $4.00 per share) as consideration for consulting services provided to the Company in connection with the SkyMall Merger.

NOTE 11 - FAIR VALUE MEASUREMENTS

The carrying value of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued expenses and notes payable approximate fair value because of the short maturities of those instruments.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

On November 9, 2011 the Company’s wholly-owned subsidiary Xhibit Interactive entered into a lease agreement for corporate office space in Tempe, Arizona. Under the terms of the agreement, the Company made a payment of $250,000 in 2011 for prepaid rent to be applied to the first nine months’ rent beginning with the commencement date of June 1, 2012. The lease has pre-established annual rent increases and the original lease term ends in December 2018. The lease has an option to extend for an additional five years. The Company was also granted a $790,550 tenant improvement allowance. This allowance was used for the leasehold improvements completed on August 1, 2012. Accordingly, the Company has recorded the tenant improvement allowance as a deferred lease incentive, and began amortizing the costs on August 1, 2012, which will continue through the remaining term of the lease agreement.

In August 2012, the Company entered into a lease agreement with ABC Internet Media (“ABC”), owned by its Chief Technology Officer, to lease approximately 4,900 square feet of office space in Banja Luka, Bosnia and Herzegovina. The lease requires monthly payments of 13,500 denominated in the Bosnian Mark; however it is paid in USD, and can fluctuate month to month depending on the exchange rate. This lease has a term of seven years and terminates on August 1, 2019.

The Company entered into a non-cancelable automobile lease in April 2012 for a car for an employee. The lease requires fixed monthly payments of $1,063 and expires in April 2015. The Company has the option to purchase the vehicle at the end of the lease.

The Company has entered into a lease for land on which SkyMall’s offices are located. The Company has negotiated a renewal of its land lease in which the renewal term extends through 2015 for the entire leased property and through 2035 for the portion of the land currently used by the Company. The Company receives rents through a sublease on a portion of the leased land.

Future minimum payments, not including the lease extension discussed above, net of receipts due under related subleases are as follows:

Year	Amount
2013	$	312,471
2014		641,198
2015		656,751
2016		583,250
2017		604,854
Thereafter		1,575,162
	$	4,373,686

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NOTE 13 - STOCK-BASED COMPENSATION

On August 30, 2012, the Company’s Board of Directors adopted the Xhibit Corp. 2012 Stock Option Plan (“Plan”). Under the Plan the Company may issue up to an aggregate total of 13,000,000 incentive or non-qualified options to purchase the Company’s common stock. On May 13, 2013, the Company’s Board of Directors authorized the grant of non-qualified stock options to certain of its employees and contractors to purchase 1,910,000 of its common shares under the Plan. A total of 1,895,000 options were granted with an exercise price of $4.02, which is equal to the closing price of the common stock on the grant date, and a contractual term of ten years. The options vest and become exercisable ratably over a two year period on each anniversary of the grant date. At June 30, 2013, there were 11,105,000 options available for future grants under the Plan.

In order to estimate the fair value of stock options on the date of grant, the Company applied the Black-Scholes-Merton option valuation model. Inherent in the model are certain highly subjective assumptions related to the expected term of the options, the expected volatility of the Company’s stock price, expected dividends, and a risk-free interest rate. The fair value of the stock options granted was estimated to be $2.27, based upon the following assumptions:

Expected term	5.75 years
Expected stock price volatility		62.55	%
Dividends	None
Risk free interest rate		1.30	%

These assumptions were determined based upon the following considerations:

Company has no historical stock option experience that would serve as a basis to estimate expected term and the stock options granted have the “plain-vanilla” characteristics described in SEC Staff Accounting Bulletin No. 107 (SAB 107). Therefore, the simplified method described in SAB 107, which uses an average of the options’ contractual term and their weighted average vesting periods, has been used to calculate an estimated expected term.

Company has a limited trading history for its common stock. Therefore, expected stock price volatility has been estimated based upon the historical stock price volatility of another public company that operates in its industry, using daily price observations over a period equivalent to the expected term of the Company’s stock options. This peer company is similar to the Company, but it is larger in size and has been publicly-traded for a longer period. Thus, it is anticipated that the historical period used to observe the peer company’s volatility will reasonably correspond with the Company’s life cycle stage during the expected term of the options.

·	As the Company has paid no dividends, and has no present plans to pay dividends in the future, no dividends were assumed for purposes of the fair value estimate.

·	The risk-free rate is based on the implied yield of 7-year U.S. Treasury notes as of the grant date, as this period would reasonably coincide with the expected term.

Stock-based compensation expense is recorded over the service/vesting period based on the estimated value of the options that are ultimately expected to vest. An initial estimated forfeiture rate of 3% has been assumed for this calculation, and stock-based compensation expense will be adjusted as necessary in subsequent periods to reflect actual forfeiture activity.

For the three month period ended June 30, 2013, the Company recorded $406,597 of stock-based compensation expense within the consolidated statement of operations, as follows:

Sales and marketing expenses	$	272,495
General and administrative expenses		26,820
Research and development expenses		107,282
	$	406,597

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No stock-based compensation expense was recorded for any period prior to April 1, 2013.

The estimated unrecognized compensation cost related to non-vested stock option awards of $3,695,025 is expected to be recorded over the remaining weighted average vesting period of 1.36 years.

Stock option activity for the six month period ended June 30, 2013 was as follows:

	Shares Under Option			Weighted Average Exercise Price
Outstanding at beginning of period		-
Granted		1,895,000		$	4.02
Forfeited		(5,000	)	$	4.02
Exercised		-
Outstanding at end of period		1,890,000		$	4.02

Remaining contractual life	9.87 years
Options exercisable at end of period		-

The estimated number of options outstanding as of June 30, 2013 and expected to vest was 1,810,578 and their aggregate intrinsic value was calculated as $706,125. This aggregate value is based on the positive difference between the closing price of $4.41 for the Company’s stock on June 30, 2013 and the exercise price of the options, assuming the option holders had been able to exercise as of that date.

NOTE 14 – RETIREMENT PLAN

The SkyMall Companies have a retirement savings 401(k) plan (the “Plan”) covering all their employees with at least 6 months of service. Participants are eligible to defer the maximum allowable percentage of eligible compensation under the Internal Revenue Code.

The Company made no matching contributions to the Plan during the six month period ended June 30, 2013.

NOTE 15 – RELATED PARTY TRANSACTIONS

During the three and six month periods ended June 30, 2013, the Company paid ABC Internet Media, an entity owned by the Company’s Chief Technology Officer, approximately $27,000 and $54,000, respectively in lease payments for office space in Banja Luka, Bosnia-Herzegovina.

During the six months ended June 30, 2013 the Company paid WAT Works, LLC, an entity 50% owned by one of our employees, $108,704 for reimbursement of certain expenses incurred on the Company’s behalf pursuant to a Marketing Services Agreement.

On May 10, 2013, SkyMall, LLC ("SkyMall"), a wholly owned subsidiary of SHC Parent Corp. ("SHC"), which is a wholly-owned subsidiary of the Company, entered into a $7.65 million credit agreement (collectively, the "Credit Facility") with JPMorgan Chase Bank, N.A. (the "Lender"). In addition to the guaranties provided by the Company, the Credit Facility is also guaranteed by an affiliate company controlled by Mr. Najafi, a member of the Company's Board of Directors and the Company’s majority shareholder through beneficial ownership.

NOTE 16 – BUSINESS COMBINATION

On May 16, 2013, the Company completed its acquisition of SHC Parent Corp. The Company issued 44,440,000 of its shares of common stock in exchange for 100% of the outstanding shares of common stock of SHC Parent Corp. The Company valued the 44,440,000 shares issued in the SkyMall Merger at fair value. With the assumption of liabilities, the total purchase price for the assets was $200,954,670 as of May 16, 2013. As required by the terms of the acquisition, Mr. Richarde resigned as Chief Executive Officer and was replaced by Kevin Weiss who also joined the Board.

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The purchase price allocation, which was based on a qualified independent valuation as of the merger date, is as follows:

Cash	$	4,369,535
Accounts receivable		3,893,179
Inventories		17,385,846
Prepaid expenses		1,649,220
Property and equipment		5,267,121
Amortizing intangible assets		19,430,000
SkyMall tradename		7,170,000
Goodwill		141,568,726
Other assets		221,043
Liabilities assumed		(49,858,670	)
	$	151,096,000

The following is the unaudited proforma statement of operations data of the combined entity as though the business combination had been effected as of the beginning of the comparable annual reporting period for the six-month periods ended June 30, 2013 and 2012.

	6/30/13			6/30/12

Proforma revenues	$	48,832,059		$	45,638,240
Proforma net loss		(9,146,273	)		(5,736,428	)
Proforma net loss per share (basic and diluted)		(0.08	)		(0.05	)

NOTE 17 – SEGMENT INFORMATION

In January 2013, the Company began operating in two reportable segments: Internet Marketing and Nutraceutical Products. Effective May 16, 2013, upon consummation of the merger with SHC Parent Corp. and its subsidiaries, referred to collectively as the “SkyMall Companies”, the Company began operating a third reportable segment, SkyMall Products. Each segment is managed separately and provides different products and services.

The accounting policies of the segments are the same as described above, but research and development costs and certain selling, general and administrative costs have not been allocated to the segments. As a result, the segment information presented below is reflective of the manner in which management evaluates profitability for the segments. Further, the Company manages its working capital on a consolidated basis and does not allocate long-lived assets to the segments. Accordingly, total assets by segment have not been disclosed.

The following table presents information by segment for the six and three months ended June 30, 2013:

For the six months ended June 30, 2013

	Internet		Nutraceutical
	Marketing		Products			SkyMall			Corporate			Consolidated
Revenues	$	3,083,263	$	6,860,936		$	10,346,666		$	-		$	20,290,865
Cost of revenues		1,107,327		6,528,360			6,586,102			-			14,221,789
Gross profit		1,975,936		332,576			3,760,564			-			6,069,076
Research and development		-		-			-			628,808			628,808
Selling, general and administrative		904,995		809,587			4,739,668			4,290,894			10,745,144
Segment operating income (loss)		1,070,941		(477,011	)		(979,104	)		(4,919,702	)		(5,304,876	)
Interest and other expense		2,629		-			8,595			91,522			102,746
Net income (loss)	$	1,068,312	$	(465,579	)	$	(987,699	)	$	(5,011,224	)	$	(5,407,622	)

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For the three months ended June 30, 2013

	Internet		Nutraceutical
	Marketing		Products			SkyMall			Corporate			Consolidated
Revenues	$	1,580,984	$	4,604,091		$	10,346,666		$	-		$	16,531,741
Cost of revenues		922,038		4,087,300			6,586,102			-			11,595,440
Gross profit		658,946		516,791			3,760,564			-			4,936,301
Research and development		-		-			-			357,242			357,242
Selling, general and administrative		287,658		530,043			4,739,668			3,331,483			8,888,852
Segment operating income (loss)		371,288		(13,252	)		(979,104	)		(3,688,725	)		(4,309,793	)
Interest and other expense		1,642		-			8,595			17,883			28,120
Net income (loss)	$	369,646	$	(13,252	)	$	(987,699	)	$	(3,706,608	)	$	(4,337,913	)

	June 30,
Property and equipment, net	2013		2012

SkyMall	$	5,516,189	$	-
Internet marketing		52,587		-
Nutraceutical products		5,502		-
Corporate		1,401,769		1,374,827
	$	6,976,047	$	1,374,827

	Six Months Ended
	June 30,
Additions to property and equipment		2013		2012

SkyMall	$	309,276	$	-
Internet marketing		24,576		-
Nutraceutical products		6,568		-
Corporate		173,973		564,131
	$	514,393	$	564,131

NOTE 18 - SUBSEQUENT EVENTS

On July 31, 2013, Mr. Richarde resigned from his positions as President and Chairman of the Company and from all positions held in the Company’s subsidiaries. On August 6, 2013, the Company, and certain of its subsidiaries, entered into a Mutual Release Agreement (the "Release Agreement") with Mr. Richarde. As a condition of the Release Agreement, Mr. Richarde sold 5,000,000 of his shares to a shareholder of the Company, 15,000,000 shares to X Shares, LLC (“X Shares”), an entity controlled by Mr. Najafi who is a member of the Company’s Board of Directors and the Company’s majority shareholder through beneficial ownership, and canceled 4,440,064 of his shares. Mr. Richarde’s sale of the 15,000,000 shares to X Shares was done partially for the benefit of the Company and Mr. Richarde such that the Company would have a clear control shareholder who would be incentivized to, and could, assist in the future financing of the Company. Accordingly, the Company recorded a contribution to capital by Mr. Richarde and non-cash stock compensation of $27,037,500 in September 2013, when the sale occurred, for the difference between the actual price paid and fair value of the shares. While the closing market value of the Company’s common stock was $2.15 per share on the date the sale occurred, the Company determined the market value should be reduced by a 15% discount for trading restrictions associated with such a large number of shares to a fair value amount of $1.8275 per share. Upon completion of the sales and cancellation of the shares at closing, Mr. Richarde retained 20,000,000 shares of the Company’s common stock and was the Company’s second largest shareholder.

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On September 18, 2013, the Company borrowed $5,000,000 from SMXE Lending, LLC (“SMXE”), an entity controlled by Mr. Najafi, (the “Term Debt”). The Term Debt matures on September 18, 2014 and interest is payable monthly at a rate of LIBOR plus 4.5%. The Term Debt is junior to the existing Bank Line, which continued in its current form, but is fully guaranteed by, and secured by all of the assets of, the Company and its subsidiaries, including the SkyMall Companies pursuant to Continuing Guarantees and Continuing Security Agreements of each of the Company and its subsidiaries; a Leasehold Deed Of Trust, Assignment Of Rents And Leases, Security Agreement And Fixture Filing executed by SkyMall, LLC; a Trademark Collateral Agreement executed by SkyMall, LLC; and a Trademark And Copyright Collateral Agreement executed by the Company.

In accordance with the Company’s accounting policy, an impairment review was undertaken of goodwill and intangible assets during the 2013 year-end financial statement closing process. The Company determined that a review of the qualitative factors of its recorded goodwill as described in ASC 350-20-35-3 was not going to benefit its analysis since the acquisition had occurred so recently. However, the Company determined that the following conditions surrounding the fair value of the SkyMall reporting unit raised concerns that the fair value of the SkyMall reporting unit could be less than the carrying value, including goodwill:

·	From the SkyMall Merger closing to December 31, 2013, the Xhibit market share price had decreased by 63% (from $4.00 to $1.50 per share), despite significant increases in all major market indexes during this same period.

·	Revenue growth in both SkyMall’s Commerce and Loyalty business units did not occur as anticipated during the latter part of 2013.

·	SkyMall executed a reduction in force in the third quarter of 2013 in which 13 corporate positions, including SkyMall’s President, who had served in that role since 2003, were eliminated. These position eliminations represented 14% of SkyMall’s corporate staff.

Based on the factors noted above, the Company believed an impairment test was required. The Company engaged an independent valuation firm to assist the Company in conducting the impairment test. A quantitative Step 1 test was first performed by comparing the fair value of the SkyMall reporting unit at December 31, 2013 to the related carrying value, including goodwill. This Step 1 test showed that the carrying value of the SkyMall reporting unit did exceed fair value and accordingly, an impairment analysis of the implied fair value of the SkyMall reporting unit’s goodwill and other intangible assets using customary valuation methodologies, including income (i.e., discounted cash flow) and market analyses was performed. Based on the results of the impairment analysis, the Company determined that an impairment had occurred in the SkyMall reporting unit with respect to the restated goodwill and certain other intangible assets. An impairment charge of $137,764,842 for goodwill and certain other intangible assets was recorded at December 31, 2013.

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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 the undersigned, thereunto duly authorized, on September 10, 2014.

	XHIBIT CORP. (Registrant)

	By:	/s/ Scott Wiley
		Scott Wiley
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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