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Technology Stocks : XYBR - Xybernaut -- Ignore unavailable to you. Want to Upgrade?

To: who cares? who wrote (5530)	4/9/2003 9:08:45 PM
From: StockDung	Respond to of 6847

Xybernaut Calls Off $50 Million IBM Deal Cash-Strapped Fairfax Firm Plans to Cut Prices on Its Wearable Computers By Ellen McCarthy Washington Post Staff Writer Wednesday, April 9, 2003; Page E05 Fairfax-based Xybernaut Corp., unable to sell as many wearable computers as anticipated, backed out of a deal to pay International Business Machines Corp. $50 million to build 24,000 of its devices. The company also announced that it will cut the price on its products by about 20 percent. Strapped for cash, Xybernaut has turned to IBM Global Finance for a line of credit in exchange for a security interest in its assets. Although the firm has raised $6.1 million so far this year and $22 million last year in stock and debt deals, Xybernaut expects that it will need to raise more money later this year. The curtailment of the IBM deal marks a dramatic change in tone for Xybernaut. When the manufacturing-and-marketing deal was announced in November 2001, Xybernaut officials expected the partnership to help them sell the strap-on computers to consumers. Investors seemed to agree, driving Xybernaut's stock price up 42 percent to close at $2.89 in heavy trading the day the deal was announced. But the consumer market never really appeared, and, while its cash dwindled, Xybernaut couldn't break out of the red. It lost $26.6 million (37 cents per share) on $10 million in revenue in 2002. It had lost even more, $32.2 million (63 cents) on $9.8 million in revenue, in 2001. Shares of Xybernaut closed yesterday at 39 cents. Xybernaut typically takes small computers and packages them into systems that can be attached to belts or vests or worn like a backpack. The company has had some success selling to business and government users, but chief executive Edward G. Newman said yesterday that its products may have been "too rugged, too strong, too hard for consumers." Despite the company's initial failure in appealing to individuals, Newman continues to believe the market will come around. The company will reduce the cost of its products to about $4,000 from its current starting price of $5,000. "It's probably about another year and a half before we get to consumers," he said. The renegotiated deal, revealed in a March 28 filing with the Securities and Exchange Commission, says Xybernaut now plans to buy only $4.9 million worth of equipment from IBM. The new deal allows Xybernaut to avoid a $4 million cancellation penalty. Xybernaut had more than $1.9 million in cash at the end of December, down from $3.2 million the year before. Last year, Xybernaut bought about $2.8 million worth of equipment from IBM, which in turn purchased about $1.1 million of Xybernaut's wearable computers. In 2001, the Fairfax company paid IBM $4.1 million, and IBM bought $532,675 worth of Xybernaut products. "Given that there is not a big market for Xybernaut today anyway, I'm not sure [the deal] makes that much of a difference" to the company's business, said Jack E. Gold, vice president of Meta Group Inc., a research firm in Stamford, Conn. "I think this is a realization on IBM's part that this is an immature market and that it's not going to grow very rapidly." "Xybernaut sells an expensive product for a niche market; that's really the bottom line," Gold said. "This is not going to be a true mainstream market in the short term."