XYBERNAUT
(NASD-XYBR)
12701
Fair Lakes Circle
Suite
550
Fairfax,
VA 22033
(703)
631-6925
(888) 992-3777
(January, 2003) -- Xybernaut is back to a BUY, having apparently finished digesting its late Fall surge. The 50-cent per share area has seemingly developed as at least a psychological support area for the stock.
Good news continues to come out suggesting that this company could still have explosive upside potential. On Tuesday, the company announced that it had received one of its largest hardware orders ever; $2.25 million worth of its Atigo hardware and associated services from a major transportation company. Just today—and demonstrating the many existing and potential new military and security-related applications of the company’s technology and products—the company announced it had been granted a patent that gives new meaning still to “wearable” computing.
The patent is for protective garments that are integrated with communications and computing systems. Called “Wearable Computer and Garment System,” the patent, according to a XYBR press release, “highlights a wide variety of current and potential military, government, commercial and recreational applications” that integrate technological capabilities of communications and computing with things such as body armor, biological/chemical protective clothing and more.
(April, 2003)
-- In all of
these preceding cases it’s understandable, no matter how unpleasant, that we’ve
seen these various stocks continue to suck wind. However,
I remain mystified as to why shares of Xybernaut remain under 50 cents each.
For starters, the company
continues to improve its financial condition. As
announced late last month, 2002 saw XYBR increase its revenues modestly over 2001, to $10
million. At the same time, the company has
been working hard to reduce overhead, so as not to have its cash “burn rate”
becoming too threatening to the company’s health; in the fourth quarter, the company
was able to cut net operating expenses by more than half from the year-ago period. Further, XYBR recently raised an additional $6.1
million through a private placement of stock, debt, and the exercise of previously-issued
warrants.
A constant
stream of good news has come out of late (all of which is archived at the company’s
web site, www.xybernaut.com.) Most noteworthy of late was a five year
arrangement with the federal government’s General Services Administration (GSA) which
will help the company increase its business with the government, and particularly with the
military.
Rebounding a bit
more over the last few days, XYBR shares now threaten to finally break above their 200-day
moving average, an impregnable obstacle for some time now.
If they make it, we could enjoy a run rivaling that of late last year!
(May, 2003) -- Xybernaut briefly sold off following its May 15 conference call, though it has since bounced back. New President Steve Newman highlighted the company’s cost-cutting initiatives, which saw total operating expenses for the first quarter come in at $4.2 million, a 52% reduction from the year-earlier period. However, revenues were disappointing: the $1.8 million gross represented a 36% drop from the first quarter of 2002. Put together, the bottom line for this year’s first quarter showed a net loss of $5.4 million, or 4 cents per share, compared to $8 million, or 13 cents per share, in 2002’s first quarter.
Newman in the
conference call unveiled new plans that the company has to boost business, and overcome a
weak spending environment. Though the first
quarter revenue numbers were impacted by some delays in orders expected to close during
the second quarter, the company is cognizant of the need to find new ways to have XYBR
realize its full potential. Among other
things, the company realizes that, in the current business environment, it needs to focus
on partnerships that will boost revenues more in the near term (via, in part, greater up
front licensing and related fees) even if that means taking less in the long run. One of the keys to this strategy will be an
enhanced working relationship with IBM, which seems ready to “carry” Xybernaut’s
technology in a bigger way.
The next quarter or two will determine whether Xybernaut has sufficient success in re-working existing vendor agreements and capitalizing on its many new opportunities with both the federal government and a recent deal with Daimler in Germany to keep it from having to raise significant amounts of new financing. Thankfully, the company has enough promise as to be able to accomplish the latter as necessary; most recently, XYBR was able to obtain $1.75 million in unsecured debt financing at very favorable terms. As of the end of March, the company had $4 million of unrestricted cash on hand.
Though speculative, Xybernaut continues to be compelling for aggressive accounts, with a patent portfolio appraised at $1.9 billion. I remain hopeful that management will be able to begin translating at least some of this into more visible shareholder value.
(July, 2003) -- . . .shares of Xybernaut also shot up in the past few days, in spite of the overall weakness on Wall Street. The company announced yesterday morning that it expects final revenue figures for the second quarter ended June 30 to increase more than 50% above first quarter revenue. This would be the highest quarterly percentage increase in revenue for the company since its acquisition of Xybernaut Solutions, Inc. in 2000. The preliminary results consist of both increased hardware and consulting revenue. Final results are scheduled to be released during the week of August 11.
“These results reinforce our previous expectations that the second quarter would be a pivotal quarter in setting the stage for the Company's future,” said Steven A. Newman, the company’s president. “Based on what we have seen in the second quarter and the first few days of the third quarter, we anticipate increased momentum and success through 2003 and beyond.”
(September, 2003) -- That same day, Xybernaut
fulfilled expectations by reporting of dramatically improved results for the company. Total revenue for the second quarter came in at
$2.8 million, a 56% increase from the preceding first quarter of 2003, and a 38% increase
from the comparable period in 2002. The net
loss for the second quarter of 2003 decreased over 50% to $3.3 million from the second
quarter of 2002; the per-share loss of 2 cents was down from last year’s 10 cent per
share loss.
In addition to the higher
revenues for the company, results were also helped by an increase in margins. Margins from hardware sales, for example, jumped
to 33% in the second quarter from 12% in the first. Those
for consulting services also rose to 38%, from 34% in the first quarter. Further, the company continued cutting overhead. These developments combined will help the company
get further along with its cash; cash on hand at the end of the quarter was over $5
million. The company also announced that
since the second quarter ended it had raised an additional $3 million through the exercise
of warrants.
“From recent
meetings with executives of some of the world's largest companies, I've seen first hand
that these business leaders recognize that wearable computing has moved from a possible to
a preferred mobile computing solution,” said Chairman and C.E.O. Ed Newman. “Our primary objective is to steadily
increase stakeholder value by leveraging these relationships and others as well as our
expertise and successes to produce tangible results.”
Over the last several
weeks, the company has come out with one announcement after another demonstrating that its
technology was gaining a wider acceptance and usage.
Stockholders have noticed, driving the company’s shares back up some
after ages in the doldrums. Among the
developments (full details of which and more can be read at the company’s web site, www.xybernaut.com) have been:
-- A deal with Anteon International to provide wearable on-scene photographic documentation kits to the U.S. Coast Guard.
-- New hardware sales to army to be used for a variety of
inspection, maintenance and repair functions related to military equipment currently on
“active-duty.”
-- A patent grant in
Japan for protective garments integrated with portable computing/communications systems
(this is similar to a U.S. patent the company was granted a few months ago.)
-- A display of Xybernaut
equipment and technology in South Carolina, showcasing the company’s technology for
disaster, homeland security and other applications.
(October, 2003) -- Though the gold sector has been the standout performer again of late until the shake-out of the last several days, the real fireworks for us have come from other quarters in the form of two long-depressed (but recently strengthening) little companies both of which suddenly took off like rockets!
I’ll start with the one I’ve by far spent the most ink on over time—Xybernaut.
As you can see here—and, hopefully, as you experienced—XYBR’s shares TRIPLED in mere days this past month, hitting $2.60 each at one point before taking a well-deserved rest. They closed this past week at $1.83, well off those recent highs but still more than twice their level of a month ago.
Accelerating the
advance was the company’s September 10 announcement that it had received a $1.62
million award from the Defense Department “to provide an assessment
of wearable computing technologies and solutions for select U.S. military aircraft and air
defense maintenance systems.” Further
business in the form of actual hardware and other equipment sales are expected to be
announced later.
“We are clearly proving that we have the desired mix of products, professional services and industry expertise to successfully compete for and win large contract awards from the U.S. military,” stated Chairman and C.E.O. Ed Newman. “Our years of effort invested in cultivating opportunities in this sector are yielding tangible, quantifiable results and demonstrate that Xybernaut is indeed being viewed as the preferred solution provider of wearable/computing solutions for our military forces.”
Also attracting
considerable industry attention has been the company’s new Atigo product, recently
unveiled at an industry trade show and scheduled for general market release in the coming
few weeks. The company bills this is a new
niche product, between a full-size, “laptop” personal computer on the one hand,
and a Blackberry or Palm Pilot on the other. At
the DEMOmobile Conference in San Diego, California the middle of last month, the company
showed off one version of the new product and received rave reviews for its durability. The company’s Dewayne Adams reveled in
dropping the machine several feet, banging it on tables and more, all while the Atigo
continued to perform without a flaw. The unit
has complete wireless capabilities for Internet and other communications, and is now the
smallest “webpad” computer available that’s loaded with Windows XP.
This past week, the
company announced it had bolstered its cash position by completing a private placement of
stock with institutional investors, raising approximately $7 million. The sale brings the company’s current cash
balance to around $13 million. Concurrently,
Xybernaut announced that it had received notification from NASDAQ that it now complies
with listing requirements including specified levels of stockholders' equity and bid share
price; and no longer faces the prospect of being bumped down to the OTC Bulletin Board.
As stated in my September
22 update, I have gone to a HOLD on XYBR, also suggesting at the time that those of you
especially who are a bit top-heavy in the stock following its meteoric rise sell off at
least some of your position to lock in profits.
(December, 2003) -- Xybernaut was panned in this week’s (December 8) issue of Barron’s, as one of a few examples of previously-trashed stocks trading for mere pennies per share which had roared back to life in 2003—but whose prices are supposedly too expensive. That may still be the case with XYBR in the short term, which is why I am still at a “hold.” However, it was encouraging that investors shrugged off the story, and that XYBR’s shares have stayed fairly steady in the $1.50-$1.60 area.
Seemingly two or three times per week, the company has been putting out news of one product improvement, contract and new patent after another; much of the recent news has been of the company’s higher profile now in Asian markets. It would take this entire issue to go down the list; I suggest that if you’re not keeping up with news on the company already, you do so at www.xybernaut.com, where you can also sign up to receive free e-mail news each time the company makes an announcement.
The company’s financial health continues to improve as well. On November 13, XYBR announced that third quarter revenues came in at $2.7 million, up 6% from the year-earlier period. Further, net operating expenses declined for the seventh consecutive quarter, to $3.8 million. At the end of the day, the company’s net loss per share was down to 3 cents, from 10 cents per share in last year’s third quarter.
At September 30, Xybernaut had no long-term debt,
record quarter-end cash of over $13 million and record stockholders’ equity of over
$17 million.
(January, 2004) -- Though its shares have been much less volatile over the last few months than they were for much of 2003, Xybernaut is nevertheless garnering a lot of attention. Not all of it has been good; but I’ll get to a couple additional recent “pans” of the stock in a few minutes.
Where the company is concerned, the constant flow of news it’s put out has been unanimously good. Though official numbers and its full-year 2003 results are still weeks away, the company has confidently told investors to expect the best operating news yet in the company’s life.
Among other things, XYBR recently announced that the total of new services contracts awarded during 2003 exceeded $5 million in value, an increase of approximately 50% over 2002. The increase comes from a broadening and solidifying of its customer base, and includes deals with the Defense Department, several state Departments of Transportation, and increasing overseas business with both public and private sector entities.
This past week, the company’s shares—which have been quite static in the recent past, hovering around an average of $1.60 each—got a brief pop following a company news release wherein it promised its upcoming financials will show record revenue for both the fourth quarter and full year.
There are a few detractors, though, who feel XYBR, like so many technology-related stocks that have come back from the dead in the last year or so, is unrealistically priced. Last month I talked about such an opinion coming from Barron’s. Over the last couple of days, pans on the company’s current share valuation have come from both the Motley Fool web site, as well as from CBS MarketWatch senior columnist Chuck Jaffe. Both have pointed primarily to the slow pace until now with which the company has grown its business, pointing to the fact that XYBR’s current price-sales ratio of around 30 is very high. True enough.
I of all people agree with the notion that a great many tech stocks have seen their shares go back to levels just as dopey as they were in early 2000. That’s why you don’t see bushels of tech stocks on my recommended list; though in retrospect, I obviously wish there had been more over the last year to go with our others. If XYBR can show in its upcoming quarterly report and the next one or two that its rate of revenue growth is accelerating—and, together with the company’s successful cost-cutting and streamlining is finally about to lead to net earnings—current and even higher share price levels will prove justified.
With the exception of this last week’s brief pop back over $2.00 each, XYBR’s shares have for a few months now been undergoing as orderly a correction as I’ve ever seen following the kind of torrid run they had (peaking in September, XYBR soared some 1,000% from its late-2001 bottom.) At this point, there are two near-term questions for the stock, which I went to a HOLD on near that September peak, together with advising selling part of your position.
First, will the coming year-end report be so good as to discourage people from “selling on the news,” choosing instead to ride XYBR to bigger and better things. Part of this will need to be encouraging growth in equipment as well as service orders. Second, will any eventual correction in the Nasdaq take XYBR with it? Finally, looking at the share price on its—and the company’s—own merits, will the apparent recent support between $1.50-1.60 per share hold?
I remain quite upbeat on the company longer-term. However, were this support to give way, especially as part of a broader market downturn, I may well recommend selling the rest, with the hopes of getting back in again later at a lower price. For now, hold what you still have.
(March, 2004) -- Xybernaut – as with our long relationship with INVESTools, that with Xybernaut has also turned out to be akin to one of the wilder rides at a Great America theme park! After plunging along with most other technology shares, XYBR in the last year more than made up for itself, for those who listened to my pleadings to add to positions when shares hit their lows around 20 cents each.
The conference call of this past Tuesday (March 9) was fairly upbeat. However—in spite of all the excitement over the company’s foray into China and further into homeland security-related areas—revenue growth has not yet accelerated at a sufficient pace to keep support under XYBR shares in an overall declining market. Last but not least, the stock’s breaking below the $1.50 area—which a while back was quite reliable support—suggests it could have considerably farther to fall before it once again bottoms.
(The preceding comments followed my recommendation to SELL Xybernaut, given on 3/11/04.)
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