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Xybernaut says stock plunge overblown

Xybernaut Corp. (Nasdaq: XYBR) revived from an 11 percent dip Monday morning after it issued a statement saying that the drop in its stock price Friday was unmerited.

Shares in the maker of wearable computing and communications solutions were up 3/8 to 16 15/16. The stock got some positive attention recently after it posted strong sales growth in its fourth quarter.

Xybernaut blamed the drop in stock price on Friday to overblown concerns about the company's financial position.

In a Bloomberg article Friday entitled "Xybernaut Shares Decline 25 percent After Auditor's Warning," the news service said an outside auditor warned of "substantial doubt" about the wearable computer maker's ability to continue because of "continuing losses and need for more capital."

The company's stock had already fallen 5 7/16 to 16 9/16 in trading of 7.5 million shares, almost three times its three-month average daily trading volume before the article was released.

Auditor Grant Thornton LLP warned about Xybernaut's future in a letter dated Feb. 25. The letter was filed by the company Friday in its Securities and Exchange Commission annual report. Grant Thornton cited Xybernaut's "recurring losses from operations" and said the company, which has accumulated losses of $48 million, will need more cash to fund its operations.

In its annual report, Xybernaut said the company "has incurred significant recurring losses from operations since inception and will require additional capital to fund its operations and meet its ongoing obligations for 2000 and potentially beyond. Management believes they will be successful in their efforts to obtain such financing."

CEO Edward G. Newman insisted in Friday's statement that the loss warning was common in companies' filings, and has been in Xybernaut's reports since inception of the company.

A scan of Xybernaut's filings backs up Newman. In a November filing, Xybernaut cited the need for additional funding.

Xybernaut tried to reassure investors by saying the company has never been in a stronger position from a product, sales or cash position with a current $8 million cash on hand.

"We are not a company at risk, and we have a number of financing alternatives available to us to ensure that the company remains adequately capitalized. In fact, during the first couple of months of 2000 we have raised an additional $13 million," Newman said.

According to the Bloomberg article, funding arrangements for the $13 million Xybernaut raised so far this year was made partly through shares sold for well below market price. Xybernaut sold 647,500 unregistered shares in January for $2.46 million, for an average price of $3.80 a share -- less than half the $11.20 average weighted price for the 60.1 million shares traded in January, according to Bloomberg analytics.

Xybernaut's competitors include Palm (Nasdaq: PALM), Teltronics (Nasdaq: TELT) and Toshiba, according to Hoover's.