Xybernaut Corp., the troubled Fairfax company that makes wearable computers, has filed for bankruptcy protection.

The company has hired a team of investment bankers and reorganization specialists, and its executives say they will consider selling off Xybernaut's assets in parts or as a whole.

The company, which filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Eastern District of Virginia late Monday night, has assets worth $40 million and debt totaling $3.2 million, according to the filing.

Bad news has been pouring out of the 15-year-old Fairfax company since April, when Edward G. and Steven A. Newman, the brothers who served as chief executive and president, respectively, were forced to resign. An audit committee investigation determined that the brothers had improperly used company funds, hired family members despite an anti-nepotism policy and interfered with the investigation.

A lawyer for Steven Newman declined to comment. Calls to lawyers representing Edward Newman were not returned yesterday.

Xybernaut has since become the subject of a Securities and Exchange Commission investigation as well as a U.S. attorney's investigation. Its staff was cut in half in April, and its stock was delisted from the Nasdaq stock market in May. Seven members of the company's board of directors resigned.

Perry L. Nolen, who was named chief executive in April, said the company's finances were in disarray when he took the top spot.

"I tried to dig up a business plan, but there was no business plan. There was no cohesive strategy, no direction for the company," he said. "They had never made a profit in 33 quarters -- they weren't even close."

Nolen hired IP Innovations Financial Services Inc., a Charlotte investment bank, and Alfred Fasola, a reorganization specialist, to help devise a plan for the company. The group determined that bankruptcy protection was the only option for Xybernaut, Nolen said.

But the 45-person firm hit another roadblock this month when it was rejected for "debtor-in-possession" financing, which is often used to provide capital to companies operating in bankruptcy. The company filed for Chapter 11 without such financing.

"As a general rule, when a company is unable to get [debtor-in-possession] financing, that's a sign that the future may be bleak," said Harlan Platt, a professor of finance at Northeastern University who specializes in bankruptcy. He added that investors are unlikely to recoup big returns from Xybernaut stock, even if the assets are liquidated, because the intellectual property assets of technology companies can be difficult to sell at a high price.

"Generally speaking, in bankruptcy, shareholders make out pretty poorly, and in high tech, they make out even worse," Platt said.

Nolen said the company's major asset is its portfolio of 166 global patents and an additional 600 that are waiting for approval. A 20-person subsidiary that provides technology services could also be broken off and sold, he said.

"I'm considering anything that makes sense and that is valuable for the shareholder," Nolen said.

Shares of Xybernaut, which now trade on the Over-the-Counter Bulletin Board, closed at 9 cents yesterday, down 3 cents.

Xybernaut makes wearable computers. The company has been in turmoil since spring, when its chief executive and president were forced to resign and its stock was delisted from the Nasdaq.