Xybernaut Corp. executives are pretty sure they've developed the next big thing. But for the Fairfax company, the question is, can they last long enough to convince everyone else?

Xybernaut is one of the pioneers in the "wearable computer" market and has developed devices that attach to a belt and allow people to engage in hands-free computing. Companies in the airline and automobile industry have tested -- if not made massive purchases of -- Xybernaut's products for use by mechanics, who can use voice commands to access vast amounts of data that pop up on an eyepiece attached to a headband.

But so far Xybernaut's products have not moved very far beyond the testing stage, and the company's finances are wearing thin, as is shareholder patience. Xybernaut stock is trading at about $1 a share on the Nasdaq Stock Market. The company, meanwhile, has had consistent losses because of the high cost of research and development. Last year the company had losses of about $13 million. For the six months that ended in June, the company reported losses of $9.4 million.

According to Securities and Exchange Commission documents, the company's former auditor, PricewaterhouseCoopers, raised "substantial doubt" the company could continue to operate. Xybernaut fired PricewaterhouseCoopers in September.

As one faithful, but frustrated, owner of several shares put it in a posting on the World Wide Web site Stock-Talk.com, "This stock is heading to zero fast. . . . Is this company ever going to stop partnering up and `seeding' the market and actually start selling any product?"

Company founder Edward Newman, however, believes his company can survive.

"We're not going anywhere," said the 56-year-old former CIA operative who used to help design technology that would help the "Company" identify key personality traits of world leaders.

In May, Newman hired a new chief financial officer, John Moynahan, who is in the process of scrambling to raise more capital for the company, including investments from other companies and securing additional credit, although the company's poor financial performance could make the latter more expensive.

As the disgruntled shareholder on Stock-Talk pointed out, Xybernaut has formed a wide array of partnerships. Last year, for example, the company announced Sony had asked it to design a wearable computer -- an announcement that caused the company's stock to spike higher than $8 a share. Last week the company announced that American Systems Corp. would provide product training and support as part of a "strategic alliance" between the companies.

It is not for lack of interest or fascination that Xybernaut suffers, but rather lack of market, as one analyst put it.

"It's an emerging area where you have to put in a lot of research and development into a market that is just starting to grow," said Diana Huang, an analyst with International Data Corp. in Framingham, Mass.

The market for wearables is expected to top off at about $49 million this year, a small market made up of very specific customers such as airline mechanics and surgeons. By 2003, the market is expected to grow to about $630 million, according to International Data, although Huang admitted that could be a high estimate.

To really take off, companies such as Xybernaut will have to cross over to the mass consumer market, which views wearables as little more than a curiosity, Huang said.

Xybernaut is working on its first mass market product, one it refers to as a "PC Walk-Man" type of device. It plans to introduce the tiny computer in the fall of 2000 at the huge technology trade show, Comdex, although the device will not be ready for sale until several months later.

Designed to be more powerful and lighter than Xybernaut's current product, the somewhat awkward Mobile Assistant, the product would allow users to access e-mail, surf the Web and make telephone calls.

Of course, the company will have to wrest consumers' attention away from myriad other products, such as hand-held computers and cellular telephones that may not be hands-free, but offer similar applications and are already widely accepted.

Newman believes other such smart devices, though, will soon move toward the wearable area, where he thinks he can fend off competitors because of several patents his company holds. One of these patents covers a computer that is worn, has a display and that a user navigates by voice.

So far, a number of companies have challenged this patent, said Xybernaut chief technology officer Michael Jenkins, but have not been successful in getting it thrown out. Still, he admits that fighting off potential competitors would be costly and said the company is more likely to act early in aligning itself with potential competitors rather than waiting to fight them in court.

The company does derive some revenue through licensing agreements. One such license was sold to Teltronics Inc. of Sarasota, Fla., which manufactures remote maintenance products. When it began developing wearable products, Xybernaut sued.

The companies settled, but Teltronics maintains the settlement was one of convenience on its part, not an admission of patent infringement.

"It was easier to settle," Teltronics president Ewen Cameron said. "It would have cost us hundreds of thousands of dollars" to fight the lawsuit.

Cameron said he'll leave it to the large corporations to fight Xybernaut's patents, some of which he thinks are too broad. "It's a bit like trying to patent a laptop computer," he said.

Jenkins said that while the patents will not save Xybernaut from competition in the long run, they have given the company a jump on competitors and time to learn about the potential market for wearables.

Newman and Moynahan agree, although they still are a bit fuzzy on how they will pitch their concept on a wider scale. So far, "we don't know what it's going to do," said Moynahan, repeating a phrase Newman has often uttered. "But we know it's going to be big."

A Look at . . .


Business: Makes wearable computers, devices that attach to a user's belts and allow for hands-free, voice-activated computing.

Headquarters: Fairfax

Founded: 1990

Ticker symbol: XYBR on Nasdaq

President: Edward G. Newman

1998 earnings: - $13.1 million