NEW YORK–May 5, 2005- LAWFUEL – The Law News Network -The law firm o…

NEW YORK–May 5, 2005- LAWFUEL – The Law News Network -The law firm of Milberg Weiss Bershad & Schulman LLP announces that a class action lawsuit was filed on May 4, 2005 on behalf of all persons who purchased or otherwise acquired the securities of Xybernaut Corporation (“Xybernaut”) (NasdaqSC: XYBRE), between May 10, 2002 and April 8, 2005, inclusive (the “Class Period”), seeking to pursue remedies under the Securities Exchange Act of 1934 (the “Exchange Act”). A copy of the complaint filed in this action is available from the Court, or can be viewed on Milberg Weiss’s website at:

If you purchased or otherwise acquired the securities of Xybernaut between May 10, 2002 and April 8, 2005, inclusive, and sustained damages, you may, no later than June 14, 2005, request that the Court appoint you as lead plaintiff. A lead plaintiff is a representative party that acts on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member’s claim is typical of the claims of other class members, and that the class member will adequately represent the class. Under certain circumstances, one or more class members may together serve as “lead plaintiff.” Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff. You may retain Milberg Weiss Bershad & Schulman LLP, or other counsel of your choice, to serve as your counsel in this action.

The action, Case No. 05-cv-268, is pending in the United States District Court for the District of Delaware against defendants Xybernaut, Edward G. Newman (CEO and Chairman), Steven A. Newman (President, COO, and Vice Chairman), Thomas D. Davis (former CFO and Senior VP), Bruce C. Hayden (current CFO and Senior VP), and Grant Thornton, the Company’s auditor during the Class Period. According to the complaint, defendants violated sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5, by issuing a series of material misrepresentations to the market during the Class Period.

The complaint alleges that throughout the Class Period, Xybernaut was engaged in the research, development, manufacture, marketing and sales of mobile, wearable computing and communication systems, and software and service solutions. During the Class Period, Xybernaut consistently reported positive results in press releases and filings with the SEC. The Company attributed the result to, among other things, strong product sales, cost-cutting programs, financings, intellectual property licensing strategies, strategic partnerships and securing key accounts in the transportation, retail, military and homeland security sectors.

The truth began to emerge on February 17, 2005. On that day, after weeks of decline in the price of Xybernaut stock, the Company issued a press release denying knowledge of any reason for the decline. On March 14, 2005, Xybernaut announced that it would be unable to file its 2004 annual report on time. In reaction to this news, the price of Xybernaut stock fell $0.12 from the previous day’s closing price to close at $0.60 on March 14, 2005. On March 31, 2005, after the market closed, defendants issued a press release revealing that it had discovered material weaknesses in Xybernaut’s internal controls with respect to expense reimbursement, revenue recognition, and the monitoring of business risks. The Company stated that it had engaged independent legal counsel to conduct an internal investigation of these matters and that, as a result, it could not predict when it would be able to file its 2004 annual report. In addition, the Company revealed for the first time that, on February 1, 2005, nearly two months earlier, it had received a subpoena from the SEC seeking documents relating to the sale of securities by an unidentified shareholder. Xybernaut also announced that it had received notification from Nasdaq that the Company’s stock was subject to delisting. In reaction to this news, the price of Xybernaut dropped another $0.18 per share from its closing price of $0.42 on March 31, 2005, to close at $0.24 on April 1, 2005. On April 8, 2005, the last day of the Class Period, defendants disclosed that the Company had received a letter from its auditor, defendant Grant Thornton LLP, questioning the accuracy and reliability of the Company’s accounting and related disclosures; the Company’s historical financial statements for fiscal 2002 and 2003; and the Company’s financial statements for the interim first, second, and third quarters of 2002 and 2003. In reaction to this news, the price of Xybernaut stock fell another $0.06 to close at $0.13 on the next trading day, April 11, 2005.

On April 19, 2005, the Company announced the completion of its internal investigation. The report made clear that the Company’s management had engaged in serious undisclosed wrongdoing, including improper use of substantial company funds by defendant Edward Newman; material related party transactions; a breakdown in the Company’s internal controls; and defendants’ Edward and Steven Newman’s affirmative steps to impede the internal investigation. The Company stated that it had removed, or had requested the resignation of, certain officers and directors. Moreover, the Company stated that Grant Thornton had resigned as auditor because “in its professional judgment, it can no longer rely on management’s representations.” The complaint charges Grant Thornton with participating in the alleged fraudulent conduct by certifying, with knowledge or reckless disregard, Xybernaut’s materially false and misleading financial statements and providing unqualified Independent Auditors’ Reports included in the Company’s SEC filings and publicly disseminated statements. The Company warned investors that “no reliance should be placed upon certain of the Company’s historical financial statements, together with the related audit reports the Company received from its outside auditors.” On April 25, 2005, Xybernaut announced that the United States Attorney’s Office for the Eastern District of Virginia had commenced an investigation of the Company.

Milberg Weiss Bershad & Schulman LLP ( is a firm with over 100 lawyers with offices in New York City, Los Angeles, Boca Raton, Delaware, Seattle and Washington D.C. and is active in major litigations pending in federal and state courts throughout the United States. Milberg Weiss has taken a leading role in many important actions on behalf of defrauded investors, consumers, and others for nearly 40 years. Please contact the Milberg Weiss website for more information about the firm. If you wish to discuss this action with us, or have any questions concerning this notice or your rights and interests with regard to the case, please contact the following attorneys:

Steven G. Schulman

Peter E. Seidman

Andrei V. Rado

One Pennsylvania Plaza, 49th fl.

New York, NY 10119-0165

Phone number: (800) 320-5081

Email: [email protected]


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