StockTalk:
TMF Interview With Xybernaut Vice Chairman Steve Newman
With Yi-Hsin Chang (TMF Puck)
and Brian Graney (TMF Panic)

May 20, 1998

Hello and welcome to StockTalk with Yi-Hsin Chang and Brian Graney. Our guest this week is Steve Newman, vice chairman of Xybernaut Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XYBR)") else Response.Write("(Nasdaq: XYBR)") end if %>, a company developing small, wearable, voice-activated computers as well as software systems. The Fairfax, Virgina-based company was founded in 1990 and originally designed products for the U.S. military, but now the company's scope has expanded to also include commercial and industrial customers.

The company changed its name to Xybernaut from Computer Products & Services in 1996, with "Xyber" meaning information and "naut" meaning navigation. The company's stock popped up $5 15/32 to $8 7/16 last Thursday -- that's about an 184% increase -- after announcing that Sony Digital will manufacture its wearable computer.

TMF: Thanks for joining us, Mr. Newman. We've seen pictures of the Xybernaut 133P, which consists of a mini-computer with an Intel Pentium 133 processor, a battery pack, and a headset that has a display that goes over one eye, a microphone, and earphones. Could you please explain how this works and who actually uses wearable computers?

Mr. Newman: Sure. What's important to say is that it's a computer. It's a WinTel platform, with Intel inside, and it runs all of the applications that you run on your corporate desktop, on your server, or any notebook. It's not a stripped down operating system, so if you can run it now [on your own computer], you can also run the same applications on our platform. The fact of the matter is, most of the personnel in our offices and in others are using our computers. The current P133 has your standard materials: a mouse, ports, you can plug in a normal keyboard, and you can run two monitors on it of any size. And if you chose to (as many do), you can connect to the Web and do all of things that people do with computers today.

In addition, it can function as a notebook because it does have wearable keyboards, portable keyboards, as well as a digitizing tablet. Probably some of the more interesting applications have to do with its ability to function in a totally hands-free and voice-activated manner, which is what we think the world will come to be utilizing for their communications and computerizing needs. Right now, the applications literally are in the hundreds, anything you can think of -- from a mechanic, to an inspector, to an inventory person, to any type of mobile application, from medicine to transportation and routing, police, customs, fire, etc.

You have the uniqueness of this product in that it allows you to use your eyes and your hands and your legs as God meant them to be used. We don't think that people were meant to be tethered to death and we have demonstrated that they don't have to be.

"...it runs all of the applications that you run on your corporate desktop, on your server, or any notebook."

TMF: Can you tell us how many of the units you have sold so far and who the buyers have been?

Mr. Newman: Well, we have publicly announced some of the buyers, such as people like Mercedes, State Farm, Lufthansa, Mitsubishi, and NTT [Japan's Nippon Telegraph & Telephone]. It's a long list. It's been introduced into, I'd say, probably 200 different corporate entities worldwide. The military forces have been utilizing them in a variety of platforms, from Apache helicopters to tanks, for maintenance, inspection, and repair of M1A1 [tanks] or howitzers or what have you.

TMF: Can you quantify the number of units that you have sold?

Mr. Newman: I don't know. It's hard for me to know the exact number of units sold. What we had been mostly concerned with is pricing the units as opposed to necessarily generating revenues. It's in the hundreds. I don't know if it's 400 or more. We have been deploying Mobile Assistant 1s, then 2s, and then 586s, and the 133s. Actually before then, there was something we called the POMA (Portable Operations Manual Assistant) in the '80s. So I can't tell you the number, because I don't know the actual number. It's more a question of how people will be deploying these and who will be deploying these, particularly the Mobile Assistant 4.

We just had a really fabulous conference, which Xybernaut hosted -- the 1998 International Conference on Portable Computing. We had more than 60 speakers from all over the world, representing such major companies as Hewlett Packard, IBM, Mercedes-Benz, General Motors, General Dynamics [and others]. In addition to that, many of the speakers were on the cutting edge in computing at major universities, like Steve Mann at the University of Toronto, [speakers from] Georgia Tech, Virginia Tech. Actually Ted Nelson, who invented hypertext, the language which people utilize to move around on the Web, was one of our speakers. These were people who were here to describe how they are currently using the platform, to describe the benefits they were deriving, to describe their plans for deployment [of the Mobile Assistant].

We invited everyone we know of that could possibly be involved in the industry. And, of course, we used it to showcase our own products as well, specifically the Mobile Assistant 4, which was there for people to use or marvel at or throw stones at or whatever. Let me not leave out that Siemens Nexdorf, our manufacturing partner in Europe, and many European companies were here to also demonstrate their relationships [with Xybernaut].

TMF: With your recent manufacturing deals, are you expecting a dramatic increase in sales?

Mr. Newman: We have stated publicly and we reiterate that we expect to have significant revenues in the fourth quarter. We have taken the Mobile Assistant 4 to a select group of clients, OEMs, distributing and marketing entities. We haven't commented publicly at this point on their reactions. But let me comment publicly now that they will all be positive, and I'll leave it at that.

TMF: Is there anyone else working on mobile computers? And if so, what differentiates your product?

"We have stated publicly and we reiterate that we expect to have significant revenues in the fourth quarter."

Mr. Newman: There are a couple of other companies that are. And, frankly, what we were trying to do with the conference and the world gathering was to present really to all of the analysts, the investment banking community, and, more importantly, to those making the buying decisions, that 1998 is the year of the wearable [computer].

We're not talking about the future. We're not talking about Star Wars or science fiction. We're talking about world-class, manufactured, volume products by world-class manufacturers, distributed by world-class OEMs and distributors, with the service and support behind them. It's going to be introduced on three continents simultaneously. There are some other companies that have been working in this area and that were at the conference as well. One is called Mentis, another is VIA. There are others. I think what differentiates perhaps some of them from [us] is that, number one, we feel that we are the leader. I will say that we threw the party.

More importantly, we showed [the product] in public: to be seen, to be felt, to be utilized. With the Mobile Assitant 4, we're talking about a package that is a little over a pound. It comes with a 200, 233, 266 mhz Intel MMX Pentium processor, with up to 128 megs of RAM, a two, four, or six [gigabyte] hard drive, total cellular and telephonic capabilities, and a nice magnesium case. If you want it to function as your cell phone, fine, it does. If you want it to function as your desktop or your server, go ahead.

Do we think there are additional software applications that would be better or best suited for wearable and mobile computing applications? We do, and there were software developers there [at the conference]. But frankly, it will run anything that your desktop or your server runs. So if you have [Microsoft] NT, or if you have Windows, or if you have UNIX, we do not have to convince people that they should be doing something different. Now, none of the other competitors that we know of can make that statement. We are making it, we hope, an easy decision for the corporate buyer, for the mobile workforce, for perhaps the consumer. It will do what it is you think computers are supposed to do because, after all, it is one. A real one. It does what computers do. It also happens to do what cell phones do and what beepers do. On the other hand, [it has] the ability to literally move as a very small package. From your desktop, you can flip it onto your belt, throw it into your car radio, take it into the field, or use it as your notebook.

The way I think most analysts would look at a company or a product like this is, they would wonder what percentage of the computer market is this likely to capture. Frankly, we think we'll capture whatever percentage it is that allows you to fill in the boxes, so that you'll be able to stand by your growth rates, your projected piece of the pie, and the Fool ratios and all of those things.

TMF: We're out of time. This has been Yi-Hsin Chang and Brian Graney.

Mr. Newman: I hope I'm a Motley Fool.

TMF: Thank you.

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