Xybernaut Corporation, founded in 1990 and headquartered in Fairfax, Virginia, is the most technically advanced company in the wearable computer industry worldwide, with offices in San Francisco, Tokyo and Germany. Trading on the NASDAQ since the IPO in 1996 under the symbol XYBR, the Company's stock has attracted great investor enthusiasm. The Company provides hardware, software and service solutions to leading corporations and government agencies for many mobile knowledge delivery system applications, including maintenance and repair, inspection, inventory control, healthcare, manufacturing and data collection. Xybernaut.'s innovative and comprehensive patented systems pioneer the evolution of the wearable computer market, an emerging platform for mobile computing.

The Company's premier product line, the Mobile Assistant., enjoys high acclaim in the computer industry. Associated Press vowed it "one of the most striking products on display" at Comdex '96 and Microsoft's Bill Gates wrote favorably about the Company in The New York Times. Xybernaut's fully integrated system includes a body-worn computer featuring speech-activated applications, telecommunications hardware/software, and a lightweight head-mounted display that allows users hands-free access to information in the computer's high-capacity internal hard-drive, in local area networks, and on the Internet on an as-needed, where-needed basis.

The launch of Xybernaut's newest version, the Mobile Assistant. IV (MA IV) is scheduled for the fourth quarter of this year. This innovative platform is based on Intel's Pentium. 233 MHz MMX mobile processor known as the "Tillamook", which is built using an advanced 0.25 micron fabrication process that allows for smaller size, significantly lower power consumption and longer battery life. The MA IV is supported with Xybernaut's numerous peripherals for advanced computing and telecommunications capacity, as well as application-specific patented software using consistent navigation techniques and optimal screen presentations. Two groundbreaking software features, which greatly optimize mobile computing are linkAssistTM, a delivery tool for viewing information or data from a variety of remote sources, and webAssistTM, a unique hypertext interface for Internet browsing, both speech-operated, of course.

Xybernaut is positioned as the worldwide leader in the wearable computer industry by means of its widespread partnerships and strategic alliances with companies possessing breakthrough technologies. Due to remarkable technological improvements, including speed, power, size, and weight, the industry will accelerate the shift to wearables in vertical markets such as health care, public safety, utilities and field service, and even the vast consumer market. The most notable of Xybernaut's alliances is a recent partnership with IBM Corporation, which combines the giant's expertise in multilingual speech recognition with Xybernaut's intellectual property in designing and manufacturing speech-activated wearable computers.

The Company outsources its production, with Sony Digital Products being the primary manufacturer in Asia, and Siemens Nixdorf the primary manufacturer in Europe and the Mid-East. Xybernaut has also reached agreements in the areas of long-term research, development, manufacturing and supply with a number of other highly regarded Japanese corporations, including Fujitsu, Hitachi, Shimadzu, Hoshiden, Toshiba, Citizen and Sharp.

Xybernaut's marketing efforts have recently shifted towards establishing global strategic relationships with multi-billion dollar sales, marketing, distribution, and support organizations. These companies include SBS (Xybernaut's software affiliate in Germany), SORD (Toshiba), Omron, Ricoh, Nissho Iwai and divisions of Mitsubishi. Domestically, Xybernaut has formed an alliance with a powerful national distributor En Pointe.

All these relationships demonstrate Xybernaut's commitment to international placement of its products, and support for its Value Added Resellers, Distributors, and Original Equipment Manufacturers, all of whom should profit enormously from the numerous applications specifically authored for the Mobile Assistant. wearable platform. As a consequence of its cutting-edge technology and its strong alliance network, Xybernaut could dominate the growing wearable computer market.

The Gartner Group, a technology information and consulting company, stated that "[wearables] will have grown to become a mainstream technique for maintenance, inspection, warehousing and other mobile industrial applications." With over 6 million mechanics in the United States, just the demand for the repair and maintenance functions will catapult Xybernaut.'s revenues in the years to come.

Forrester Research analysts are even more optimistic about relatively quick acceptance of wearable computers in the vast consumer market. A July '98 CNN Internet Poll supports these growth predictions, reporting a 60% positive response rate to the question: "Would you buy a wearable computer?"

Currently, there are only two visible companies with comparable products competing against Xybernaut. ViA, Inc. is marketing its ViA II, a belt-worn PC, after having sold over 2,000 units of its original product at about $5,000 per unit. MentisTM, the other rival system, was created by Interactive Solutions, a subsidiary of Teltronics, Inc. Both of these competitors teamed with Xybernaut recently at the May 1998 International Wearable Computer Conference, sponsored by Xybernaut in Fairfax, Virginia. The perception by most analysts is that Xybernaut leads the competition in technology, and its patents should place it in an enviable position to achieve market share leadership

The leadership of the Company abounds in entrepreneurial spirit, creative innovation, technological expertise, and decades of managerial and industry experience. Xybernaut is headed by Edward G. Newman, President, CEO, and Chairman of the Board since 1990, with a remarkable technology background and a wealth of organizational training. Ed Newman was a senior manager at Xerox, orchestrating the development of office automation programs and networking systems. Earlier in his career he served with the Central Intelligence Agency. Steven A. Newman, M.D., Vice Chairman, concentrates on financing, mergers and acquisitions, business development, contract negotiations, and investor relations.

Other members of the Board include James J. Ralabate, Esq., former Intellectual Property counsel to Xerox Corporation, as well as Phillip E. Pearce, a veteran financier who previously held positions of the Chairman of the Board of Governors at the National Association of Securities Dealers, and also served as a Governor of the NYSE. Adding to the orderly leadership are Lt. Gen. Harry Soyster, who retired as a Director of the United States Defense Intelligence Agency, and George Allen, the technology-oriented former Governor of Virginia and potential Republican candidate for President in the year 2000.

The Senior Management Team also includes experts in product planning: Michael Jenkins, the co-founder of Xybernaut, and Kaz Toyosato, a 26-year Sony veteran who led the development of the Sony WalkmanTM and CamcorderTM products, and now runs Xybernaut's Tokyo office.

Xybernaut is well positioned to ride the tidal wave of the mobile computing revolution. Although revenues are currently at the $1 million annual level, we expect Xybernaut to enjoy significant growth from the roll-out of the MA IV platform beginning in Q4 1998. The Company has high-volume production capacity in place for this new system and has established worldwide sales and marketing relationships to match this production capacity. It has also recently completed private financing in excess of $4 million in separate transactions with institutional investors, who purchased restricted common stock at a significant premium to market levels

A typical industrial order of 1,000 units from large companies, at a price of $5,000 will result in $5 million revenue per order, with a $ 2 million in profit to Xybernaut. Considering there are thousands of target customers worldwide, we would expect growth to ramp-up very fast once production is in place, resulting in substantial profits beginning in year 1999.

Xybernaut is an excellent buy opportunity for aggressive investors with vision in new technologies and mobile computing. The growth potential in the next few years is virtually unlimited, and just two or three large targeted orders would take the Company out of the red instantaneously. With expansion in 1999, the Company is on track to reach estimated $.25 per share EPS, assuming the revenue growth materializes as expected


Alan Stone,                                                       Joseph E. Jones
Director of Research                                        CFA, Senior Analyst

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