<PAGE>   1


                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                 FORM 10-QSB


(Mark One)

X    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
-    Act of 1934 for the quarterly period ended March 31,1997 or

     Transition report pursuant to Section 13 or 15(d) of the Securities
---  Exchange Act of 1934 for the transition period
     from           to
         -----------  --------------

                       Commission file number: 0-15086


                            XYBERNAUT CORPORATION
            (Exact Name of registrant as specified in its charter)
                                      
<TABLE>
<S>                                                  <C>
         DELAWARE                                                 54-1799851
(State or other jurisdiction of incorporation)       (I.R.S. Employer Identification No.)
</TABLE>

                  12701 FAIR LAKES CIRCLE, FAIRFAX, VA 22033
            (Address of principal executive offices with zip code)
                                      
Registrant's telephone number, including area code:             (703) 631-6925

                                     N/A
        (Former name, former address and former fiscal year, if changed
                               since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                              YES  X     NO
                                  -----      ----

                    APPLICABLE ONLY TO ISSUERS INVOLVED IN
                        BANKRUPTCY PROCEEDINGS DURING
                            THE PRECEDING FIVE YEARS:
                                      
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                      YES                       NO
                         ----                     -----
                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest date.

                       CLASS                 OUTSTANDING AT MAY 15, 1997
         Common stock - $0.01 par value               14,259,112


                                       1

<PAGE>   2


                                      INDEX




                                                                           PAGE
                                                                           ----

COVER PAGE                                                                   1

INDEX                                                                        2

PART I - FINANCIAL INFORMATION

         Item 1 - Financial Statements
                  Consolidated Balance Sheets                                3
                  Consolidated Statements of Operations                      4
                  Consolidated Statements of Cash Flows                      5
                  Notes to Consolidated Financial Statements                 6

         Item 2 - Management's Discussion and Analysis of
                  Results of Operations and Financial Conditions             7

PART II - OTHER INFORMATION

         Item 6 - Exhibits and Reports on Form 8-K                          14

SIGNATURES                                                                  15


                                       2

<PAGE>   3

                            XYBERNAUT CORPORATION
                         CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
 
                                                      March 31, 1997         December 31,
                      ASSETS                           (unaudited)                1996
                                                    -------------------    ------------------
<S>                                                  <C>                    <C>       
Current assets:
   Cash and cash equivalents                         $       2,911,938      $      6,274,967
   Accounts receivable                                         408,951               427,790
   Inventories                                                 796,568               402,381
   Prepaid and other current assets                            379,919               197,711
                                                    -------------------    ------------------
         Total current assets                                4,497,376             7,302,849
                                                    -------------------    ------------------
Fixed assets:
   Property and equipment, net of accumulated
    depreciation of $181,921 in 1997 
    and $126,139 in 1996                                       530,588               323,828
                                                    -------------------    ------------------
Other assets:
   Patent costs, net of accumulated amortization
         of $100,573 in 1997 and $82,588 in 1996               293,135               247,612
   Tooling costs                                               376,703               106,738
   Other                                                        39,220                33,547
                                                    -------------------    ------------------
         Total other assets                                    709,058               387,897
                                                    -------------------    ------------------
         Total assets                                $       5,737,022      $      8,014,574
                                                    ===================    ==================

                 LIABILITIES AND
               STOCKHOLDERS' EQUITY

Current liabilities:
   Notes and loans payable                                       5,816      $          7,849
   Accounts payable                                            397,718               250,944
   Deferred licensing revenue                                   60,000                60,000
   Accrued expenses                                            448,021               571,742
                                                    -------------------    ------------------
         Total current liabilities                             911,555               890,535
                                                    -------------------    ------------------
Long-term liabilities:
   Notes and loans payable                                      17,668                44,080
   Deferred licensing revenue                                  175,000               190,000
                                                    -------------------    ------------------
         Total long-term liabilities                           192,668               234,080
                                                    -------------------    ------------------
         Total liabilities                                   1,104,223             1,124,615
                                                    -------------------    ------------------

Commitments and contingencies
Stockholders' equity:
   Common stock, $.01 par value                                142,591               142,591
     Authorized: 30,000,000 shares, 
     Issued: 14,259,112 shares
   Additional paid-in capital                               15,645,736            15,520,245
   Accumulated deficit                                     (11,155,528)           (8,772,877)
                                                    -------------------    ------------------
         Total stockholders' equity                          4,632,799             6,889,959
                                                    -------------------    ------------------
         Total liabilities and stockholders' equity  $       5,737,022      $      8,014,574
                                                    ===================    ==================
</TABLE>


         The accompanying notes are an integral part of the consolidated
                              financial statements.


                                       3


<PAGE>   4

                            XYBERNAUT CORPORATION
                    CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                             


                                              Three Months Ended March 31,       
                                            ---------------------------------    Year Ended       Nine months ended
                                                 1997              1996          December 31,        December 31,
                                              (unaudited)      (unaudited)          1996                1995
                                            ----------------  ---------------  ----------------  --------------------

<S>                                          <C>                <C>             <C>               <C>                  
Revenue:
   Product sales and leases                  $       95,426     $    299,888    $      928,732    $          227,793
   Consulting and license                            15,000           22,034           164,609               124,855
                                            ----------------  ---------------  ----------------  --------------------
               Total revenue                        110,426          321,922         1,093,341               352,648

Cost of sales                                       151,561          230,289         1,081,197               263,621
                                            ----------------  ---------------  ----------------  --------------------
               Gross margin                         (41,135)          91,633            12,144                89,027

Operating expenses:
   Sales and marketing                              759,540          146,172         1,442,146               383,960
   General and administrative                       991,411          303,935         2,158,212               917,533
   Research and development                         631,921          301,263         1,773,015               910,182
                                            ----------------  ---------------  ----------------  --------------------
               Total operating expenses           2,382,872          751,370         5,373,373             2,211,675
                                            ----------------  ---------------  ----------------  --------------------

               Operating loss                    (2,424,007)        (659,737)       (5,361,229)           (2,122,648)

Interest income (expense), net                       41,356          (29,171)          122,693               (18,542)
                                            ----------------  ---------------  ----------------  --------------------

               Net loss                      $   (2,382,651)    $   (688,908)   $   (5,238,536)   $       (2,141,190)
                                            ================  ===============  ================  ====================

Net loss per common share outstanding        $        (0.19)    $      (0.06)   $        (0.47)   $            (0.21)
                                            ================  ===============  ================  ====================

Weighted average number of common
   shares outstanding                            12,459,112       11,803,618        11,121,594             9,993,120
                                            ================  ===============  ================  ====================
</TABLE>





         The accompanying notes are an integral part of the consolidated
                              financial statements.

                                       4



<PAGE>   5

                             XYBERNAUT CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                Three Months Ended March 31,
                                                                       -----------------------------------------------
                                                                               1997                     1996
                                                                       ----------------------   ----------------------
<S>                                                                     <C>                        <C>               
Cash flows from operating activities:
     Net loss                                                           $       (2,382,651)        $        (688,908)

     Adjustments to reconcile net loss to net cash
      used in operating activities:
         Depreciation and amortization                                              74,356                    71,406
         Noncash charges for stock and options                          
           issued for services                                                     125,488                     3,000
         (Increase) decrease in assets:
           Inventories                                                            (394,187)                   54,287
           Accounts receivable                                                      18,839                   (37,896)
           Prepaid and other current assets                                       (182,208)                     (523)
           Other assets                                                             (6,261)                   (7,554)
         Increase (decrease) in liabilities:                            
           Accounts payable and accrued expenses                                    23,053                   100,468
           Deferred licensing revenue                                              (15,000)                  295,000
                                                                       ----------------------   ----------------------
             Net cash used in operating activities                              (2,738,571)                 (210,720)
                                                                       ----------------------   ----------------------

Cash flows from investing activities:
     Acquisition of property and equipment                                        (262,541)                   (4,685)
     Acquisition of patents and related costs                                      (63,508)                  (13,444)
     Capitalization of tooling costs                                              (269,964)                       -
                                                                       ----------------------   ----------------------
             Net cash used in investing activities                                (596,013)                  (18,129)
                                                                       ----------------------   ----------------------

Cash flows from financing activities:
     Proceeds from:
         Notes and loans                                                                 -                    50,635
     Payments for:                                                                           
         Notes and loans                                                           (28,445)                  (50,000)
         Deferred offering costs                                                         -                   (89,421)
                                                                       ----------------------   ----------------------
             Net cash used in financing activities                                 (28,445)                  (88,786)
                                                                       ----------------------   ----------------------

Net decrease in cash and cash equivalents                                       (3,363,029)                 (317,635)
                                                                                             
Cash and cash equivalents, beginning of period                                   6,274,967                   508,666
                                                                       ----------------------   ----------------------

Cash and cash equivalents, end of period                                $        2,911,938         $         191,031
                                                                       ======================   ======================

</TABLE>

         The accompanying notes are an integral part of the consolidated
                              financial statements.


                                        5

<PAGE>   6


                              XYBERNAUT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been reflected in such financial statements. Results of operations for the three
months ended March 31,1997 are not necessarily indicative of results of
operations expected for the full year. The Company's fiscal year ends December
31.

2.       PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of Xybernaut
Corporation ("the Company") and its wholly-owned subsidiary Tech International
of Virginia Inc. ("Tech Virginia"). All significant intercompany accounts and
transactions have been eliminated.

3.       INCOME TAX

         Prior to March 31, 1995 the Company had elected to be subject to
Subchapter S status under the Internal Revenue Code. The Company has revoked its
Subchapter S election and is taxed as a C corporation. To date, the Company has
a history of operating losses and has not had any taxable income. Subject to
realization, the Company has generated net operating losses of approximately
$9.5 million that can be used to offset taxable operating income in the future.
The Company's future operations, if profitable, will be subject to income tax
expense not previously incurred by the Company.

4.       LICENSING AGREEMENT

         In March 1996, the Company entered into a non-exclusive five-year
licensing agreement with Rockwell International. Pursuant to this agreement, the
Company was granted a price reduction of $1,395,000 related to a purchase order
issued in 1995 and received an initial cash payment of $300,000 that was
recorded as deferred licensing revenue and is being recognized as revenue on a
straight-line basis over the five year term. Revenue of $50,000 related to this
licensing agreement was recognized for the year ended December 31, 1996.

                                       6

<PAGE>   7


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
        AND FINANCIAL CONDITION.

OVERVIEW

         The Company was originally incorporated in Virginia in October 1990 as
Contemporary Products & Services, Inc. and changed its name to Computer Products
& Services, Inc. ("CPSI") in 1992. In April 1996, CPSI was merged with Xybernaut
Corporation to change the Company name and reincorporate in Delaware. Since the
commencement of operations in November 1992, the Company has been engaged in the
research, development and commercialization of products intended to bridge the
widening gap between people and knowledge. The first product to be
commercialized by the Company is the proprietary portable computer technology
and related software applications embodied in its Mobile Assistant(R) product.
Additional software products are planned for development and use on the Mobile
Assistant(R) and other personal computers. Since commencing operations, the
Company has incurred significant operating losses.

         The Company's revenues include sales of the Mobile Assistant(R) and
software and consulting services which relate to the Mobile Assistant(R) and to
other software applications. Cost of sales include the cost of Mobile 
Assistant(R) components, direct labor and overhead expense, manuals, diskettes
and duplication, packaging materials, assembly, paper goods and shipping.
Software development costs are expensed as incurred until technological
feasibility is established in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86 (Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed), after which any additional development
costs are capitalized until the software is ready for release. Since the
Company is currently in the planning and development phase for software
toolkits, no costs have been capitalized to date.

         The Company purchases numerous parts and components from various
third-party suppliers, which the Company assembles into its products.

         Product sales are recorded on shipment pursuant to a valid customer
purchase order. For equipment shipped under equipment rental or leasing
agreements, revenue is recognized on a straight-line basis over the term of the
rental or lease agreement. Consulting revenue is recognized as the services are
performed pursuant to a written agreement with the client. The Company generally
provides a 90 day warranty on parts and labor and a one year warranty on parts.
The Company's suppliers for the computing unit and the head mounted display
provide the Company with similar warranties and as a result warranty reserves
are immaterial. Revenues from future software sales will be recognized at the
time the software program is delivered in accordance with Statement of Position
No. 91-1 of the American Institute of Certified Public Accountants.

         Research and development expenses consist primarily of consulting fees
and test components, as well as salaries and related benefits paid to Company
personnel engaged in the research and design of new products. Salaries paid to
Xybernaut employees and fees paid to


                                       7

<PAGE>   8


outside software development consulting firms for further development and
enhancement after technological feasibility of a product has been established,
and related development expenses, will be capitalized in the future in
accordance with SFAS No. 86.

         The Company's consolidated financial statements include the results of
operations for Tech Virginia, a wholly-owned subsidiary that supplies software
and consulting services to the United States government and others. The
consolidated financial statements contain eliminations for all material
transactions between the Company and Tech Virginia.

         The following table sets forth items from the Consolidated Statements
of Income as a percentage of revenues:


<TABLE>
<CAPTION>
                                          3 Months Ended         Year Ended       Nine Months Ended
                                          --------------         ----------       -----------------
                                       3/31/97       3/31/96       12/31/96           12/31/95
                                       -------       -------       --------           --------
                                    (unaudited)  (unaudited)
<S>                                  <C>             <C>            <C>                <C>  
Revenues                                100.0%        100.0%         100.0%             100.0%
Cost of sales                           137.3           71.5          98.9               74.8
                                     --------         ------        ------             ------
         Gross margin                   (37.3)          28.5           1.1               25.2
                                     --------         ------        ------             ------
Operating expenses:
   Sales and marketing                  687.8           45.4         131.9              108.9
   General and administrative           897.8           94.4         197.4              260.2
   Research and development             572.3           93.6         162.2              258.1
                                     --------         ------        ------             ------
Total operating expense               2,157.9          233.4         491.5              627.2
Interest income (expense)                37.5           (9.1)         11.2               (5.3)
                                     --------         ------        ------             ------
Net loss                             (2,157.7)%       (214.0)%      (479.2)%           (607.2)%
                                     --------         ------        ------             ------
</TABLE>


RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 AND 1996

         Revenues. Revenues for the three months ended March 31,1997 were
$110,426, a decrease of $211,496, or 65.7%, compared to $321,922 for the
corresponding period in 1996. This decrease in revenue was related to reduced
sales of the Company's 486-based Mobile Assistant(R) resulting from the end of
the production run for that system, combined with the limited availability and
sales of pre-production 586-based Mobile Assistant(R) II systems.

         Cost of Goods. The cost of goods sold for the three months ended March
31, 1997 were $151,561, a decrease of $78,728, or 34.2%, compared to $230,289
for the corresponding period in 1996. This decrease was related to the
reduction of sales, offset by an approximately $105,000 writedown to realizable
market value for 486-based Mobile Assistant (R) computing units delivered
during the quarter ended March 31, 1997. The reduction in sales and the
writedown of  inventory caused a corresponding reduction in overall gross
margin for the  quarter ended March 31, 1997.

                                       8

<PAGE>   9

         Sales and Marketing. Sales and marketing expenses for the three months
ended March 31, 1997 were $759,540, an increase of $613,368, or 419.6%, compared
to $146,172 for the corresponding period in 1996. This increase resulted from an
increase in personnel and infrastructure, the development of training programs
for Value-Added Resellers ("VARs"), customer service, additional marketing
programs to support the launch of new products, public relations efforts and
related travel.

         General and Administrative. General and administrative expenses for the
three months ended March 31, 1997 were $991,411, an increase of $687,476, or
226.2%, compared with $303,935 for the corresponding period in 1996. This
increase resulted from an increase in personnel and consulting expenses related
to developing the company's infrastructure, travel related to the development
of strategic partnerships, and increases in legal and accounting costs
associated with being a publicly held company.

         Research and Development. Research and development expenses for the
three months ended March 31, 1997 were $631,921, an increase of $330,658, or
109.8%, compared with $301,263 for the corresponding period in 1996. This
increase is the primarily the result of increased research and development
personnel, the use of outside consultants, and the continued planning and
development efforts on the Company's head mounted display and next-generation
computer systems.

         Interest Income(Expense), Net. Net interest income for the three months
ended March 31, 1997 was $41,356, an increase of $70,527 compared with
($29,171) for the corresponding period in 1996. This increase is the result of
interest income from the investment of proceeds from the Company's Initial
Public Offering on July 18, 1996 ("IPO").

         Net loss. As a result of the factors described above, the net loss for
the three months ended March 31, 1997 was $2,382,651 an increase of $1,693,743,
or 245.9%, compared to $688,908 for the three months ended March 31, 1996.

YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED DECEMBER 31, 1995

         Revenues. Revenues for the year ended December 31, 1996 were
$1,093,341, an increase of $740,693, or 210%, compared to $352,648 for the nine
months ended December 31, 1995. This increase resulted primarily from increased
sales of the Mobile Assistant(R) as well as fees related to licensing
agreements. Increased discounts on sales of the Mobile Assistant(R) resulted in
a reduction of average selling prices and a corresponding reduction in overall
gross margin.

         Cost of Sales. The cost of sales for the year ended December 31, 1996
was $1,081,197, an increase of $817,576, or 310%, compared to $263,621 for the
nine months ended December 31, 1995. This increase resulted primarily from
increased sales of the Mobile Assistant(R) and an allowance to reduce December
31, 1996 inventory balances of the Mobile Assistant(R) to market


                                       9

<PAGE>   10

due to the release of the Mobile Assistant(R) II.

         Research and development expenses. Research and development expenses
for the year ended December 31, 1996 were $1,773,015, an increase of $862,833,
or 95%, compared to $910,182 for the nine months ended December 31, 1995. This
increase reflects the Company's ongoing research and development efforts,
including the addition of new personnel, the design center in California, the
internal development of a head-mounted display, the development of a new
body-worn computing unit and planning and development for software toolkits.

         Sales and marketing expenses. Sales and marketing expenses for the year
ended December 31, 1996 were $1,442,146, an increase of $1,058,186, or 276%,
compared to $383,960 for the nine months ended December 31, 1995. This increase
resulted mainly from an increase in personnel, related travel, infrastructure to
support sales, VAR training programs, customer service, additional marketing
programs to support the launch of new products, and public relations efforts,
offset by a reduction in consulting services for sales and marketing.

         General and administrative expenses. General and administrative
expenses for the year ended December 31, 1996 were $2,158,212, an increase of
$1,240,679, or 135%, compared to $917,533 for the nine months ended December 31,
1995. The increase reflects personnel costs and related expenses necessary to
support the Company's business infrastructure, the amortization of issuance
costs related to the private placement of debentures in November 1995 and 
April 1996, and an increase in legal, consulting and travel expenses.

         Interest income (expense), net. Net interest income for the year ended
December 31, 1996 was $122,693, an increase of $141,235 compared to ($18,542)
for the nine months ended December 31, 1995. This increase is the result of
interest income from the investment of proceeds from the IPO and $25,000 of
interest expense that was previously accrued but converted into stock upon the
closing of the IPO, offset by $71,750 in interest costs related to the
debentures and loans of issuance fees for the debentures.

         Net loss. As a result of the factors described above, the net loss for
the year ended December 31, 1996 was $5,238,536, an increase of $3,097,346, or
145%, compared to $2,141,190 for the nine months ended December 31, 1995.
Although the Company was subject to taxation during the year ended December 31,
1996 and the nine months ended December 31, 1995, the Company incurred net
losses during these periods and no provision for taxes was made.

LIQUIDITY AND CAPITAL RESOURCES

         From its inception until the completion of the IPO, the Company has 
financed its operations through the private sale of its securities, from vendor
credits and by short-term loans from management, stockholders and others. From
October 1994 to August 1995 the Company raised $1,243,476 from the private sale
of shares of Common Stock at $6.00 per share.

                                       10


<PAGE>   11

In November 1995, the Company raised $1,505,000 through the private placement of
debentures and in April 1996, the Company raised $1,000,000 through the private
placement of debentures. The Company received $1,201,718 and $2,143,642 from
these financings net of offering costs. Placement fees in respect of these
debentures of $270,500 were carried by the Company as interest-bearing loans and
were repaid from the proceeds of the IPO. On July 18, 1996, the Company
completed its IPO and realized net proceeds of $10,825,652 after related
expenses.

         For the three months ended March 31, 1997, the Company's operating
activities used cash of $2,738,571 compared to a use of $210,720 for the
corresponding period in 1996. The net use of cash for the three month period
ended March 31, 1997 was primarily the result of a $2,382,651 net loss, an 
increase in inventories of $394,187 largely related to the production of the
Mobile Assistant(R)II, an increase in prepaid and other current assets of
$182,208, offset by $125,488 in non-cash charges for the issuance of warrants,
and depreciation and amortization costs of $74,356. Cash used for investing
activities for the three months ended March 31, 1997 was $262,541 for the
acquisition of property and equipment, $269,964 in capitalized tooling costs
related to the production of the Mobile Assistant(R)II, and $63,508 related to
the maintenance and defense of patents. The Company's financing activities for
the three months ending March 31, 1997 consisted of repayment of notes and
loans of $28,445. As a result of the above, cash on hand as of March 31, 1997,
was $2,911,938.

         At March 31, 1997, the Company had no material capital commitments and
working capital of $3,585,821.

                  The Company anticipates that its working capital requirements
and operating expenses will increase as the Company expands production and sales
of the Mobile Assistant(R), continues to establish a full sales, service and
marketing function, expands the Company's ongoing research and development
efforts, and develops the support structure for these activities. The timing of
increases in personnel, research and development expenses, the amount of working
capital consumed by operations and competitive pressures on gross margins will
impact the magnitude and timing of the Company's cash requirements. The proceeds
from the IPO are currently expected to be sufficient to meet the Company's
working capital needs and operating expenses at least through July 1997 at
current levels of cash usage. To meet working capital needs thereafter, the
Company intends to use funds from operations, to obtain a working capital line
of credit, and/or complete additional financings. The Company has received
several offers of financing for up to $10 million, on terms satisfactory to the
Company and subject only to satisfactory documentation. It is the opinion of
the Company's management that such funding arrangements are readily available
to the Company and the execution of such arrangements is a decision that will
depend on timing, market conditions and the terms of such arrangements.
Production of the Mobile Assistant(R) II is expected to begin in the quarter
ending June 30, 1997 and receivables from sales of the Mobile Assistant(R) II
are expected to provide collateral for working capital borrowing facilities at
that point. Company management believes that the combination of cash on hand,
operating cash flows, and outside funding will provide sufficient liquidity to
meet the Company's cash requirements until at least March 1998. However, there
can be no assurance that the Company

                                       11
<PAGE>   12


can or will obtain sufficient funds from operations or from a working capital
line of credit or from closing additional financings on terms acceptable to the
Company.


POSSIBLE IMPACT ON NEAR-TERM REVENUES

         The Company has agreements with third-party suppliers to manufacture
and supply the body-worn computing unit, the head mounted display and the
batteries for the Mobile Assistant(R) II. Production by these suppliers is
expected to begin in the quarter ending June 30, 1997. In the event that the
start of production is delayed for any reason, revenues for the year ending
December 31, 1997 will be adversely affected.

POSSIBLE NON-CASH FUTURE CHARGE

         In connection with the Company's IPO, the representative of the
underwriters for the transaction (the "Representative") required the Company's
officers, directors and certain other stockholders to deposit an aggregate of
1,800,000 shares of Common Stock, of which 1,707,210 are owned by directors and
officers of the Company, into an escrow account (the "Escrowed Shares"). The
Escrowed Shares will be subject to release to such stockholders in increments
over a three-year period only in the event the Company's gross revenues and
earnings (loss) per share for the 12-month periods ending September 30, 1997,
1998 and 1999 meet or exceed targets which have been established through
negotiations with the Representative (the "Performance Targets"). If the
Performance Targets are not met in any of the relevant 12-month periods (and the
price of the Common Stock has not met or exceeded the price described below),
the Escrowed Shares will be returned to the Company in amounts which have been
agreed upon between the Representative and the Company for each period and
canceled. In addition to the foregoing, all then Escrowed Shares will be
released to the stockholders if the closing price of the Common Stock as
reported on The NASDAQ SmallCap Market equals or exceeds $11.00 for 25
consecutive trading days or 30 out of 35 consecutive trading days during the
period ending September 30, 1999. In the event any Escrowed Shares held by
officers, employees or consultants are released, the difference between the
initial offering price and the market value of such shares at the time of
release will be deemed to be additional compensation expense to the Company. If
the price of the Common Stock at the time of any release of the Escrowed Shares
is greater than the value of the Common Stock at the time of the IPO, an
earnings charge could result which would have the effect of reducing or
eliminating any earnings per share and could have a negative effect on the
market price for the Common Stock. The earnings per share target calculation
will be based on the average number of shares issued and outstanding during each
period, but excluding shares issued pursuant to the Representative's option to
purchase units of Common Stock and Warrants issued at the Company's IPO ("Unit")
at a price of $9.075 per Unit (165% of the offering price of the Units) during a
period of four years commencing one year from the closing of the IPO,
extraordinary items, or compensation expense charged to the Company related to
the release of the Escrowed Shares.

         Given the expected start of production in the quarter ending June 
30, 1997, the


                                       12

<PAGE>   13


Company's management believes that it is likely that the Company's gross
revenues and allowable losses will not meet the Performance Targets for the
12-month period ending September 30, 1997. Accordingly, the release of the
Escrowed Shares for this period is only likely if the stock price equals or
exceeds $11.00 for 25 consecutive trading days or 30 out of 35 consecutive
trading days prior to September 30, 1997. If conditions are not met for release
of Escrowed Shares on that date, then 300,000 shares of stock will be returned 
to the Company on September 30, 1997 and canceled, resulting in no earnings 
impact and a commensurately lower number of outstanding shares.


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<PAGE>   14



                           PART II - OTHER INFORMATION

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

        a)    Exhibits:

              27 Financial Data Schedule

        b)    Reports on Form 8-K

        No reports on form 8-K were filed during the quarterly period ended
        March 31, 1997.


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<PAGE>   15



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                     XYBERNAUT CORPORATION

                                     BY

                                     ------------------------------------------
                                     Edward G. Newman
                                     President and Chief Executive Officer



                                     ------------------------------------------
                                     John F. Moynahan
                                     Vice President and Chief Financial Officer