Xybernaut Corp., the Fairfax company that makes wearable computers, yesterday said it was unable to secure the financing necessary to operate under bankruptcy protection.
Last month, in preparation for a possible bankruptcy filing, the company asked an undisclosed lender to start work on the loans and paperwork that would ensure the company "debtor-in-possession" financing if it pursues Chapter 11 protection. Xybernaut also sent the lender a $125,000 deposit.
But yesterday, Xybernaut said in a filing with the Securities and Exchange Commission that the lender returned about $54,000 and declined to commit to the debtor financing.
The Fairfax company has been in turmoil since April, when Edward G. and Steven A. Newman, the brothers who served as chief executive and president, respectively, were forced to resign. The board's audit committee had undertaken an investigation that found the executives hired family members despite an anti-nepotism policy, improperly used company funds for personal expenses and impeded the committee's investigation.
Debtor-in-possession financing is generally used as a source of cash for companies in bankruptcy. The loan offers lenders protection not available in other types of financings. Jay L. Gottlieb, a partner with Brown Raysman Millstein Felder & Steiner who specializes in corporate bankruptcy law, said a company like Xybernaut can seek financing from other sources, but may have to consider other options if it does not find a willing lender.
"They may have to look for other alternatives, like sale of the company, sale of assets or liquidation," said Gottlieb.
William Beecher, a spokesman for Xybernaut, said the company is "aggressively examining all options," but would not comment further on the firm's plans.
The company, which was delisted from the Nasdaq stock market in May, agreed earlier this month to sell some of its inventory to a reseller at a "significant negotiated discount," and told investors it faces a severe liquidity crisis.
Xybernaut also said yesterday that two more of its directors, Phillip E. Pearce and Noritsugu Yamaoka, resigned from the board. Former directors Martin Eric Weisberg and James J. Ralabate resigned in May. And last week, Bruce C. Hayden resigned from his position as chief financial officer.
Beecher said the company now has 45 employees. That is down from 145 in the spring of 2002.