CRIMMS FAIRY TALES:FAB Capital Corp. Issues 'Buy' Recommendation-on Xybernaut Corporation
Xybernaut Corp. (ticker: XYBR, exchange: Nasdaq) News Release - Thursday, January 28, 1999
FAB Capital Corp. Issues 'Buy' Recommendation-on Xybernaut Corporation
FAIRFAX, Va., Jan. 28 /PRNewswire/ -- Xybernaut Corporation- (Nasdaq: XYBR), the leader in wearable computing, announced- today that FAB Capital Corp. a New York-based investment- banking firm, has issued a research recommendation with a- buy'' on Xybernaut Corporation.
The opinions stated in this independent research report solely- represent those of FAB Capital Corp.
The full text of the report follows:
FAB CAPITAL CORP
50 BROADWAY, NEW YORK, NY 10004
GLOBAL EQUITIES RESEARCH
SALES NOTES
XYBERNAUT (XYBR)-
MARK BERGMAN (212) 785-3200
CHIEF OF GLOBAL EQUITIES BUY PRICE $4 5/8
Market Cap (Mil) 100.52M Return on Equity -342%
Avg Daily Volume 391,000 LT Debt to Total Capital N/A
Shares Out (Mil) 20.753M Projected 5 Yr Growth Rate 70%+
Float Shares (Mil) 13.26M 52 Week Range 1 5/16 - 12 1/2
Revenues
FY Dec. 1997 1998 1999 E
Mar .110M .128M 4.0ME
June .140M .231M 6.5ME
Sept .356M .259M 11.8ME
Dec .207M 1.0ME 18.0ME
Total .813M 1.62ME 40.3ME
FY Dec. 1997 1998 1999 E
EPS (0.78) (0.65) (0.17)
Recommendation
Given the well documented, emerging multibillion dollar market for- wearable computers, and Xybernaut's unique patented and- strategic market position, we are initiating coverage with a BUY- recommendation. We are recommending purchase of its shares- for long-term, moderately high-risk investment.
FAB Capital Corp.
This material is for your private information, and we are not- soliciting any action based upon it. This report is not to be- construed as an offer to sell or the solicitation of an offer to buy- any security in any jurisdiction when such an offer or solicitation- would be illegal. Certain transactions, including those involving- futures, options, and high yield securities, give rise to substantial- risk and are not suitable for all investors. The material is based- upon information that we consider reliable, but we do not- represent that it is accurate or complete, and it should not be- relied upon as such. Opinions expressed are our current opinions- as of the date appearing on this material only. While we endeavor- to update on a reasonable basis the information discussed in this- material, there may be regulatory, compliance, or other reasons- that prevent us from doing so. We and our affiliates, officers,- directors, and employees, including persons involved in the- preparation or issuance of this material may, from time to time,- have long or short positions in, and buy or sell, the securities, or- derivatives (including options) thereof, of companies mentioned- herein. FAB Securities is a wholly owned subsidiary of FAB Capital- and makes a market in this stock.
Company Background
Xybernaut is located in Fairfax, Virginia (703-631-6925) and went- public in 1996. The Company designs, holds patents, and- manufactures a lightweight, 233K-236K MHz (MMX Pentium- processor) wearable computer. The computer most often is worn- on a belt with either an HMD (head mounted display -- a small- lightweight headset that projects a 15" full color VGA image) or a- small pen tablet with excellent resolution and form factors. The- best way to think of the unit is as a powerful general purpose- computer about the size of a SONY walkman with a headset that- contains both a speaker and regular/cell phone along with- full-screen viewing projected into the air. Some of the Company's- major customers include Mercedes Benz, Philip Morris, NTT, and- Lockheed Martin. Xybernaut is the leader in wearable,- voice-activated, hands-free systems that support Windows, NT,- and Unix SCO. The retail price of the unit is approximately $5,000- and is primarily sold into vertical markets, including- manufacturing, aerospace, inspection and maintenance,- troubleshooting, sales automation, and possibly telemedicine- along with a host of emerging markets. The possible uses are- virtually limitless. No other computer manufacturer in the world has- a complete system with the speed, performance, and form factors- of the MA IV. The product was first introduced in the U.S. at- Comdex. Q4'/CY 1998 revenue estimates (see Financial Model)- project a dramatic comparative increase in purchased systems, up- approximately 300% from traditional quarterly product revenues.- Orders appear to be strong (especially from Europe), and for the- first time, the Company has built a backlog of over $1 million.
Viewpoint
The Company's shares currently have a market value of- approximately $101 million. However, since going public, it has- neither shown a profit nor achieved product revenues on a- quarterly basis exceeding about $250,000. The high-end value- has been ascribed to the Company's shares as a result of two- factors: First, the huge potential of the wearable market has now- been well- documented although historical sales have not been- greater than approximately $250,000 per quarter over the last two- years; second, the Company has well-protected patent rights which- have been successfully defended on two occasions. Now, with Sony- Digital Products manufacturing its new MA IV model, with major- strategic and distribution agreements in place (including those with- IBM, TI, HP and En Pointe Technologies), and with new- experienced management supporting its marketing and- engineering efforts, we are projecting Q4/1998 revenues of about- $1 million, and CY 1999 revenues of $40 million compared to an- estimated $1.6 million in CY 1998.
Reasons to Invest
There are several very compelling reasons to invest in the- Company. These include:-- Explosive Growth in the Wearable Market: According to major- consulting houses and independent studies, the wearable market- along with the mid-to-high end VAD (value-added device) market- are the two fastest growing segments of the portable computer- market. Estimates for general-purpose wearables range from $1- billion by 2001 to $1.5 billion. Although there will continue to be- various types of competitive products, including specialized- hand-helds (mainly CE and proprietary operating system-based)- and all types of thin clients alternatives, the Company has a clear- market and technological lead.
Dramatic Revenue Growth: For CY 1999 and over the next several- years, we are projecting continued revenue growth in the 100%- range. As a result of a necessary build-up in worldwide- infrastructure coupled with continued re-investment in marketing- and sales, we are estimating a net profit by Q4/CY 1999. The- Company's internal projections call for revenues in CY1999 to- exceed $100 million and higher margins, which would result in a- pre-tax profit by Q3/CY1999. In any case, since the Company has- transitioned from a development to a marketing enterprise, and is- now demonstrating substantial growth in reveues, we believe that- its full market potential could well be measured in the billions of- dollars over the next several years.
Valuation
The Company's market capitalization is approximately $100- million. However, due to its unique market position within the- emerging, multibillion wearable market, its dramatic projected- growth in revenues beginning in Q4/CY1998, and its current- backlog, we are recommending purchase of its shares for- long-term accumulation.
XYBERNAUT- BALANCE STATEMENT
December 31, 1997 September 30, 1998
Current Assets:
Cash and Cash Equivalents 952 814
Accounts Receivable, Net 217 257
Inventories, Net 1,608 741
Prepaid and Other Assets 334 697
Total Current Assets 3,111 2,510
Fixed Assets:
Property and Equipment: 506 444
Other Assets:
Patent Costs, net 384 491
Tooling Costs, net 377 192
Other 153 190
Total Other Assets 915 873
Total Assets 4,532 3,827
Current Liabilities:
Notes and Notes Payable 20 --
Accounts Payable 430 201
Deferred Revenue -- 13
Accrued Expenses 908 931
Total Current Liabilities 1,358 1,145
Total Liabilities 1,358 1,145
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock 4,193 273
Common Stock 143 202
Additional Paid-in Capital 17,181 27,732
Deferred Compensation (92) --
Accumulated Deficit (18,253) (25,526)
Total Stockholders' Equity 3,174 2,682
Total Liabilities and- Stockholders' Equity 4,532 3,827
XYBERNAUT (XYBR)
HISTORICAL AND PROJECTED FINANCIAL DATA
1997
1Q 2Q 3Q 4Q YR
Revenues 110 140 356 207 813
Cost of Sales 152 258 170 646 1,226
Gross Profit (41) (118) 187 (441) (413)
Operating Expenses
Sales and Marketing 760 730 1,010 780 3,280
General and Administrative 991 899 933 696 3,519
Research and Development 632 564 568 586 2,350
Total Operating Expenses 2,383 2,188 2,511 2,067 9,149
Operating Income (Loss) (2,424) (2,306) (2,325) (2,508) (9,563)
Non Operating Income (Expense) 41 8 25 9 83
Net Profit (Loss) (2,383) (2,306) (2,325) (2,508) (9,563)
Provision for Preferred Stock Dividends -- -- 38 45 83
Provision for Accretion of Preferred Stock Beneficial Conversion Feature -- -- 165 324 489
Net Profit (Loss) Applic to Common Stock (2,383) (2,298) (2,502) (2,869) (10,052)
Per Common Share Net Loss before Provision for Preferred Stock (0.19) (0.18) (0.20) (0.22) (0.74)
Total Provisions for Preferred Stock -- -- (0.02) (0.02) --
Net Profit (Loss) Applicable to Holders of Common Stock (0.19) (0.18) (0.22) (0.24) (0.78)
WEIGHTED NUMBER OF SHARES-(000) 12,459 12,459 12,759 12,759 12,845
Growth Rates
Net Sales -66% -64% 2% 614% -26%
Gross Profits -145% -493% 222% 163% -3542%
Operating Income -267% -117% -57% -16% -78%
Net Income -246% -109% -69% -21% -83%
EPS ($) Primary -217% -100% -100% 0% -57%
Profitability Ratios
Gross Margin -37% -84% 53% -213% -51%
Operating Margin 2166% 1563% 705% 999% 1125%
Net Margin -2166% -1647% -653% -1212% -1176%
Expense Ratios
Cost of Sales 138% 184% 48% 312% 151%
Sales and Marketing 691% 521% 284% 377% 403%
General and Administration 901% 642% 262% 336% 433%
Total Operating Expenses 2166% 1563% 705% 999% 1125%
1998
1Q 2Q 3Q 4Q YR
Revenues 128 231 259 1,000 1,618
Cost of Sales 108 272 795 900 2,075
Gross Profit 20 (40) (536) 100 (456)
Operating Expenses
Sales and Marketing 495 656 935 1,400 3,486
General and Administrative 652 966 1,182 1,310 4,110
Research and Development 367 643 852 1,290 3,152
Total Operating Expenses 1,514 2,266 2,968 4,000 10,748
Operating Income (Loss) (1,494) (2,306) (3,504) (3,900) (11,204)
Non Operating Income (Expense) 5 3 24 10 42
Net Profit (Loss) (1,489) (2,303) (3,480) (3,890) (11,162)
Provision for Preferred Stock Dividends 36 21 3 -- 60
Provision for Accretion of Preferred Stock Beneficial Conversion Feature 374 533 -- -- 907
Net Profit (Loss) Applic to Common Stock (1,899) (2,857) (3,484) (3,890) (12,130)
Per Common Share Net Loss before Provision for Preferred Stock (0.10) (0.13) (0.18) (0.19) (0.67)
Total Provisions for Preferred Stock (0.03) -- -- -- --
Net Profit (Loss) Applicable to Holders of Common Stock (0.13) (0.03) (0.18) (0.20) (0.65)
WEIGHTED NUMBER OF SHARES- (000) 15,168 17,344 19,446 20,000 17,990
Growth Rates
Net Sales 16% 65% -27% 383% 99%
Gross Profits 149% 66% 387% 123% -10%
Operating Income -93% 5% 85% 133% 61%
Net Income 38% 0% -50% -55% -17%
EPS ($) Primary 47% 28% 10% 12% 9%
Profitability Ratios
Gross Margin 16% -17% -207% 10% -28
Operating Margin 1167% -998% -1353% -390% -692%
Net Margin -1163% -997% -1344% -389% -690%
Expense Ratios
Cost of Sales 84% 118% 307% 90% 128%
Sales and Marketing 387% 284% 361% 140% 215%
General and Administrative 287% 278% 329% 129% 195%
Total Operating Expenses 1183% 981% 1146% 400% 664%
1999
1Q 2Q 3Q 4Q YR
Revenues 4,000 6,500 11,800 18,000 40,300
Cost of Sales 2,800 4,485 8,024 11,880 27,189
Gross Profit 1,200 2,015 3,776 6,120 13,111
Operating Expenses
Sales and Marketing 1,425 1,450 1,566 1,918 6,359
General and Administrative 1,350 1,360 1,450 1,500 5,660
Research and Development 1,310 1,400 1,300 1,400 5,410
Total Operating Expenses 4,085 4,210 4,316 4,818 17,429
Operating Income (Loss) (2,885) (2,195) (540) 1,302 (4,318)
Non Operating Income (Expense) -- -- -- -- --
Net Profit (Loss) (2658) (2219) (540) 1,502 (3915)
Provision for Preferred Stock Dividends -- -- -- -- --
Provision for Accretion of Preferred Stock Beneficial Conversion Feature -- -- -- -- --
Net Profit (Loss) Applic to Common Stock (2658) (2219) (540) 1,502 (3915)
Per Common Share Net Loss before Provision for Preferred Stock (0.12) (0.10) (0.02) 0.06 (0.17)
Total Provisions for Preferred Stock -- -- -- -- --
Net Profit (Loss) Applicable to Holders of Common Stock (0.13) (0.10) (0.02) 0.06 (0.16)
WEIGHTED NUMBER OF SHARES- (000) 22,600 23,200 23,800 23,800 23,350
Growth Rates
Net Sales 3025% 2714% 4456% 1700% 2391%
Gross Profits 5900% 1549% 909% 1220% 1410%
Operating Income -93% 5% 85% 133% 61%
Net Income -78% 4% 84% 139% 65%
EPS ($) Primary -18% 26% 87% 132% 75%
Profitability Ratios
Gross Margin 30% 31% 32% 34% 33%
Operating Margin -72% -34% -5% 7% -11%
Net Margin -66% -34% -5% 8% -10%
Expense Ratios
Cost of Sales 0.7 69% 68% 66% 67%
Sales and Marketing 36% 22% 13% 11% 16%
General and Administrative 34% 21% 12% 8% 14%
Total Operating Expenses 102% 65% 37% 27% 43%
"Safe Harbor" Statement under the Private Securities Litigation- Reform Act of 1995: Statements in this press release regarding- Xybernaut Corp.'s business which are not historical facts are- "forward-looking statements" that involve risks and uncertainties.- For a discussion of such risks and uncertainties, which could- cause actual results to differ from those contained in the- forward-looking statements, see "Risk Factors" in the Company's- Annual Report or Form 10-K for the most recently ended fiscal- year.
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Xybernaut Corporation
12701 Fair Lakes Circle, Suite 550, Fairfax, Virginia 22033
Sales E-mail: sales@xybernaut.com
Webmaster E-mail: webmaster@xybernaut.com
NASDAQ symbol: XYBR
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