SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB/A


(MarkOne)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended September 30, 1996 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)

        Delaware                                                 54-1799851
----------------------------                                  ----------------
(State or other jurisdiction                                  (I.R.S. Employer
      of incorporation)                                      Identification No.)

                   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 September 30, 1996
           -----                               ---------------------------------
Common stock - $0.01 par  value                            14,254,359
    

<PAGE>



                                      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                       13

SIGNATURES                                                                 14




                                       2
<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                              Xybernaut Corporation
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                              September 30,
                                                              December 31,       1996
                                                                  1995        (unaudited)
                                                              ------------    ------------
<S>                                                           <C>             <C>         
ASSETS
Current assets
     Cash                                                     $    508,666    $  9,044,079
     Accounts receivable                                            90,725         365,687
     Inventory                                                     249,950         184,670
     Prepaid and other current assets                               20,617         270,535
                                                              ------------    ------------
           Total current assets                                    869,958       9,864,971
Fixed assets
     Property & equipment, net of accumulated                       88,802         131,809
           depreciation of $75,508 and $66,758 respectively
Other assets
     Patent costs, net of accumulated                              184,565         205,707
           amortization of $31,017 and $66,758 respectively
     Debenture Issuance Costs                                      196,542            --
     Other                                                          53,671          33,415
                                                              ------------    ------------
           Total other                                             434,778         239,122
                                                              ------------    ------------
     Total assets                                             $  1,393,538    $ 10,235,902
                                                              ============    ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
     Current license fee                                      $       --      $     60,000
     Notes payable                                                 263,425          86,465
     Accounts payable                                              420,801         450,012
     Accrued expenses                                              224,266         465,674
                                                              ------------    ------------
           Total current liabilities                               908,492       1,062,151
Long term liabilities:
     Deferred licensing revenue                                       --           205,000
     Notes and loans payable                                        72,999          83,410
     Debentures                                                  1,505,000            --
                                                              ------------    ------------
           Total long term liabilities                           1,577,999         288,410
                                                              ------------    ------------
     Total liabilities                                           2,486,491       1,350,561
Commitments & Contingencies

   
Stockholders' equity (deficit)
     Common Stock
           authorized 30,000,000; issued 14,254,359                103,725         103,895
    
     Additional Paid-in capital                                  2,337,663      15,484,690
     Accumulated Deficit                                        (3,534,341)     (6,703,244)
                                                              ------------    ------------
                                                                (1,092,933)      8,885,341
                                                              ------------    ------------
     Total liabilities and stockholders' equity (deficit)     $  1,393,538    $ 10,235,902
                                                              ============    ============
</TABLE>
                          The accompanying notes are an
                        integral part of the consolidated
                              financial statements.


                                       3
<PAGE>


                              Xybernaut Corporation
                      Consolidated Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                      Three Months Ended September 30,  Nine Months Ended September 30,
                                            1995            1996             1995           1996
                                        ------------    ------------    ------------    ------------
<S>                                     <C>             <C>             <C>             <C>         
Revenue
     Product sales and leases           $    156,042    $    326,020    $    209,461    $    903,733
     Consulting and license                   63,738          22,049          82,116          60,683
                                        ------------    ------------    ------------    ------------
           Total revenues                    219,780         348,069         291,577         964,416

Cost of sales                                112,741         290,480         171,559         785,193
                                        ------------    ------------    ------------    ------------
     Gross margin                            107,039          57,589         120,018         179,223

Operating expenses:
     Sales and marketing                     253,016         322,456         401,938         784,185
     General and administrative              282,491         692,109         702,454       1,375,302
     Research and development                723,659         528,522         955,321       1,226,905
                                        ------------    ------------    ------------    ------------
           Total operating expenses        1,259,166       1,543,087       2,059,713       3,386,392
                                        ------------    ------------    ------------    ------------

     Operating margin                     (1,152,127)     (1,485,498)     (1,939,695)     (3,207,169)
Interest income (expense), net                   (23)        109,120            (594)         38,266
                                        ------------    ------------    ------------    ------------
Net Loss                                $ (1,152,150)   $ (1,376,378)   $ (1,940,289)   $ (3,168,903)
                                        ============    ============    ============    ============

   
Net Loss per common share and common
equivalent shares outstanding           $      (0.10)   $      (0.10)   $      (0.17)   $      (0.25)
                                        ============    ============    ============    ============
Weighted average number of common and
common equivalent shares outstanding      11,884,194      13,776,754      11,757,307      12,469,139
                                        ============    ============    ============    ============
    

</TABLE>



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


                                       4
<PAGE>

                              Xybernaut Corporation
                      Consolidated Statements of Cash Flows
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                         Nine Months Ended September 30,
                                                                         -------------------------------
                                                                             1995            1996
                                                                        ------------    ------------
<S>                                                                     <C>             <C>          
Cash flows from operating activities
     Net loss                                                           $ (1,940,289)   $ (3,168,903)
Adjustment to reconcile net loss to net cash from
     (used in) operating activities:
     Depreciation and amortization                                            59,502         203,334
     Non cash charges for stock and options
           issued for services                                               848,849          85,037
(Increase) decrease in assets:
     Inventories                                                             (44,632)         65,280
     Accounts receivable                                                    (125,507)       (274,962)
     Other current assets                                                    (28,691)       (249,918)
Increase in liabilities:
     Accounts payable and accrued expenses                                   320,938         220,618
     Deferred licensing revenue                                                 --           265,000
                                                                        ------------    ------------
           Net cash used in operating activities                            (909,830)     (2,854,514)

Cash flows from investing activities:
     Acquisition of property and equipment, net                               (3,141)        (81,866)
     Acquisition of patents and related costs                                 (4,118)        (56,883)
     Other assets                                                            (15,325)         20,256
                                                                        ------------    ------------
           Net cash provided by (used in) investing activities               (22,584)       (118,493)

Cash flows from financing activities: 
           Proceeds from payment of:
           Sale of Stock                                                     560,000            --
           Initial Public Offering, gross                                       --        13,282,500
           Debentures                                                           --         1,000,000
           Notes and Loans payable                                           275,571        (166,549)
     Initial Public Offering & Debenture Fees                                   --        (2,607,531)
                                                                        ------------    ------------
           Net cash provided by financing activities                         835,571      11,508,420
                                                                        ------------    ------------
Net increase in cash                                                         (96,843)      8,535,413

Cash, beginning of period                                                    124,205         508,666
                                                                        ------------    ------------
Cash, end of period                                                     $     27,362    $  9,044,179
                                                                        ============    ============
</TABLE>

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


                                       5

<PAGE>


                              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 of
the  Company's   financial  position  have  been  reflected  in  such  financial
statements.  Results of  operations  for the three  months and nine months ended
September  30,  1996 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 Company's  consolidated  financial statements include the results
of operations of Tech  International  of Virginia,  Inc.  ("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.

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  revoked its
Subchapter  S election in  February  1995 and is taxed as a C  corporation.  The
change in the Company's  tax status will likely result in the Company  recording
current  and  deferred  income  taxes.  To date,  the  Company  has a history of
operating  losses and has not had any taxable  income.  The Company's  financial
statements  do not  contain  a  provision  for  income  tax  expense  due to the
Company's  status as a Subchapter S Corporation  from its inception  through the
revocation of its Subchapter S election. Subject to realization, the Company has
generated net operating losses of approximately $5.3 million that can be used to
offset taxable operating income in the future.

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  received an initial  payment of $300,000 and the release of the Company
from the  obligation  to pay  Rockwell  International  $1,395,000  pursuant to a
purchase  order  between  the Company and  Rockwell  International.  The initial
payment of $300,000 has been recorded as deferred licensing revenue and is being
recognized as revenue on a straight-line basis over the five-year term.





                                       6
<PAGE>



5.         SALE OF DEBENTURES

           On November 16, 1995, the Company sold $1,505,000 principal amount of
7% Convertible  Debentures due in 1997 (the "November  Debentures") and incurred
fees and expenses of approximately  $210,500  therewith.  On April 16, 1996, the
Company sold  $1,000,000  principal  amount of 7% Convertible  Debentures due in
1997 (the "April  Debentures")  and incurred fees and expenses of  approximately
$140,000  therewith.   Collectively,  the  November  Debentures  and  the  April
Debentures  are  referred to herein as the  "Debentures".  The  Debentures  were
converted  into Units (as defined in footnote 6)  concurrent  with the Company's
Initial Public Offering at the rate of one Unit for every $1.75 of principal and
accrued interest.

6.         INITIAL PUBLIC OFFERING

           On July 18, 1996, the Company  completed its Initial Public  Offering
and sold  2,415,000  Units at a price of $5.50 per Unit.  Each Unit consisted of
one share of common stock and one warrant to purchase a share of common stock at
a warrant  exercise price of $9.00  ("Unit").  Gross proceeds from the sale were
$13,282,500 and net proceeds were $10,825,652.  Concurrently with the closing of
the Initial Public Offering, the Company exercised its option to purchase all of
the capital stock of Tech International of Virginia, Inc. for $50,000.


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

OVERVIEW

           The Company was  incorporated in Virginia in October 1990 to develop,
manufacture and sell mobile computing systems and commenced active operations in
November 1992 as Computer  Products & Services,  Inc. In April 1996, the Company
was reincorporated  under the laws of the State of Delaware and its name changed
to Xybernaut Corporation.  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.  The Company has
expensed all software development costs to date.

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


                                       7
<PAGE>



           Revenues are  recognized  when  products are shipped.  The  Company's
sales  agreements  generally  do not  involve  any  significant  obligations  to
customers  subsequent  to delivery  except as  provided  in separate  service or
support  agreements.  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 the Company's  software  programmers  and fees paid to 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 of Tech  International  of Virginia,  Inc.  ("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.

           Certain statements in this Management's  Discussion and Analysis (the
"MD&A") are not historical  facts or information and certain other statements in
the MD&A are forward  looking  statements  that involve  risks and  uncertainty,
including, without limitation, the Company's ability to develop, manufacture and
sell Mobile  Assistant(R) units and such business risks from time to time may be
detailed in the Company's Securities and Exchange Commission reports.

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


                                  Three Months Ended          Nine Months Ended
                                     September 30               September 30
                                     ------------               ------------
                                  9/30/95     9/30/96       9/30/95     9/30/96
                                   ----        ----          ----        ----

Revenues                            100%        100%          100%        100%
Cost of sales                        51          83            59          82
                                   ----        ----          ----        ----
      Gross margin                   49          17            41          18
                                   ----        ----          ----        ----
                                                                      
Operating expenses:                                                   
      Sales and marketing           115          92           138          81
      General and administrative    129         199           241         143
      Research and development      329         152           327         127
                                   ----        ----          ----        ----
Total operating expenses            573         443           706         351
Interest income                    --            31          --             4
                                   ----        ----          ----        ----
Net loss                           (524)%      (395)%        (665)%      (329)%
                                   ====        ====          ====        ====
                                                                   



                                       8
<PAGE>





RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996

           Revenues. Revenues for the three months ended September 30, 1996 were
$348,069,  an  increase  of  $128,289,  or 58%,  compared  to  $219,780  for the
corresponding period in 1995. This increase in revenues was primarily the result
of  shipments  of the Mobile  Assistant(R)  as well as fees related to licensing
agreements and, to a lesser extent, consulting services.  Increased discounts on
shipments of the Mobile Assistant(R)  resulted in a reduction of average selling
prices and a corresponding reduction in overall gross margin.

           Cost of  Goods.  The cost of goods  sold for the three  months  ended
September 30, 1996 were $290,480,  an increase of $177,739, or 158%, compared to
$112,741 for the  corresponding  period in 1995.  These increases  resulted from
increased sales of the Mobile Assistant(R).

           Sales and  Marketing.  Sales  and  marketing  expenses  for the three
months ended September 30, 1996 were $322,456,  an increase of $69,440,  or 27%,
compared  to  $253,016  for the  corresponding  period  in 1995.  This  increase
resulted from an increase in personnel,  public relations  efforts,  and related
travel offset by a reduction in consulting services.

           General and Administrative.  General and administrative  expenses for
the three  months  ended  September  30,  1996 were  $592,109,  an  increase  of
$309,618,  or 110%, compared with $282,491 for the corresponding period in 1995.
This  increase is largely due an increase in  personnel,  travel,  legal  costs,
public  relations  and to the  amortization  of  issuance  costs  related to the
debentures.

           Research and Development.  Research and development  expenses for the
three months ended September 30, 1996 were $528,522, a decrease of $195,137,  or
27%,  compared with  $723,659 for the  corresponding  period in 1995.  Increased
expense  for  personnel  and  activity  related  to  development  efforts on the
Company's head mounted display and  next-generation  computer system were offset
by  $494,500  of  compensation  expense  related  to the  issuance  of  stock to
employees  and a consultant  during the three months ended  September  30, 1995.
Excluding this compensation  expense,  research and development expenses for the
three months ended  September 30, 1996 increased by $299,363,  or 131%, from the
corresponding period in 1995.

           Interest  Income  (Expense),  Net. Net interest  income for the three
months ended September 30, 1996 was $109,120, an increase of $109,143,  compared
with ($23) for the corresponding  period in 1995. This increase is the result of
interest  income from the investment of proceeds from the IPO, plus the reversal
of $25,000 for interest  expense that was previously  accrued but converted into
stock upon the closing of the Initial Public Offering.



                                       9
<PAGE>



NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996

           Net  Revenues.  Net  revenues  for the first nine months of 1996 were
$964,416,  an increase of  $672,839,  or 231%,  compared  with  $291,577 for the
corresponding period in 1995. This increase in revenues was primarily the result
of increased unit shipments of the Mobile  Assistant(R)  as well as fees related
to licensing agreements and, to a lesser extent, consulting services.  Increased
discounts  on shipments  of the Mobile  Assistant(R)  resulted in a reduction of
average selling prices and a corresponding reduction in overall gross margin.

           Cost of Goods.  The cost of goods sold for the first  nine  months of
1996 were $785,193, an increase of $613,634, or 358%, compared with $171,559 for
the  corresponding  periods in 1995. This increase resulted from increased sales
of the Mobile Assistant(R).

           Sales and Marketing.  Sales and marketing expenses for the first nine
months of 1996 were  $784,185,  an increase of $382,247,  or 95%,  compared with
$401,938  for the  corresponding  period in 1995.  This  increase  for sales and
marketing resulted from an increase in personnel,  public relations efforts, and
travel offset by a reduction in consulting services for sales and marketing.

           General and Administrative.  General and administrative  expenses for
the first nine months of 1996 were  $1,275,302,  an increase of $572,848 or 82%,
compared with $702,454 for the  corresponding  period in 1995.  This increase is
largely due to the  amortization  of issuance  costs related to the  Debentures,
public  relations  consulting,  an  increase  in legal,  consulting  and  travel
expenses.

           Research and Development.  Research and development  expenses for the
first nine months of 1996 were  $1,226,905,  an increase  of  $271,584,  or 28%,
compared with $955,321 for the corresponding  period in 1995. Increased expenses
for personnel and activity related to development  efforts on the Company's head
mounted display and  next-generation  computer system were offset by $494,500 of
compensation  expense  related  to the  issuance  of  stock to  employees  and a
consultant  during the three months ended  September  30, 1995.  Excluding  this
compensation  expense,  research  and  development  expenses for the nine months
ended September 30, 1996 increased by $766,084,  or 166%, from the corresponding
period in 1995.

           Interest  Income  (Expense),  Net. Net interest  income for the first
nine months of 1996 was $38,266,  an increase of $38,860,  compared  with ($594)
for the  corresponding  period in 1995.  This increase is the result of interest
income from the investment of proceeds from the IPO plus the reversal of $25,000
for interest  expense that was previously  accrued but converted into stock upon
the closing of the Initial Public Offering,  offset by $46,917 in interest costs
related to the Debentures and loans of issuance fees for the Debentures.



                                       10
<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

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

           For the nine months ended September 30, 1996, the Company's operating
activities  used cash of $2,854,514  compared to $909,830 for the  corresponding
period in 1995.  Cash used for  investing  activities  for the nine months ended
September 30, 1996 was $81,866 for the  acquisition  of property and  equipment,
$56,883  related to the  maintenance  and defense of patents offset by a $20,256
decrease in other assets. The Company's financing  activities in the nine months
ending September 30, 1996 primarily consisted of $13,282,500 gross proceeds from
the Initial Public Offering,  $1,000,000 proceeds from the issuance of the April
Debentures,  $300,000 from the issuance of a license to Rockwell  International,
of which  $35,000 was taken into  revenue the nine months  ended  September  30,
1996, offset by issuance costs for the Initial Public Offering of $2,607,531. As
a result of the above,  cash of $8,535,413  was  generated  for this  nine-month
period.

           At  September  30,  1996,   the  Company  had  no  material   capital
commitments  and working  capital of  $8,802,820.  Notes and loans payable as of
September 30, 1996 was $83,410.

           The Company  anticipates that its working capital needs and operating
expenses  will  increase as the Company  implements  its business plan to expand
production  and sales of the Mobile  Assistant(R),  establishes a full sales and
service  function,  expands research and  development,  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  Initial  Public
Offering are currently  expected to be sufficient to meet the Company's  working
capital needs and operating  expenses  until June 1997. To meet working  capital
needs thereafter,  the Company intends to use funds from operations, to obtain a
bank working  capital line of credit,  and/or  complete  additional  financings.
However,  there  can  be no  assurance  that  the  Company  can or  will  obtain
sufficient  funds from  operations  or a bank working  capital line of credit or
additional financings on terms acceptable to the Company.



                                       11
<PAGE>



POSSIBLE NON-CASH FUTURE CHARGE

           As a condition of the Initial Public Offering,  the representative of
the underwriters  ("Representative") required the Company's officers,  directors
and certain other  stockholders  to deposit an aggregate of 1,800,000  shares of
common stock 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 equal or
exceed  targets  which  have  been  established  through  negotiations  with the
Representative  ("Performance  Targets"). If the Performance Targets are not met
on 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  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 of $5.50 per unit
and the market  value of such shares at the time of release will be deemed to be
additional  compensation  expense to the  Company.  Assuming the price of common
stock at the time of such  release is equal to or greater  than that  portion of
the  offering  price of $5.50 per Unit  attributable  to the common  stock,  the
release of the Escrowed  Shares  could result in an earnings  charge which would
have the effect of reducing or eliminating  any earning per share and could have
a negative effect on the market price for the common stock.

POTENTIAL IMPACT OF NEW MODELS ON NEAR-TERM REVENUES

           The Company  expects to complete sales of the remaining  units of its
current  model  of the  Mobile  Assistant(R),  which  is  based  on a Cyrix  486
processing  chip,  prior to December 31, 1996.  The Company has  developed a new
model of the Mobile  Assistant(R) that is based on an AMD 5x86 processor and has
contracted with a third-party  vendor for a limited production run scheduled for
delivery in December  1996 and January  1997,  for delivery to customers  and as
demonstration  units.  Negotiations are underway with several  potential vendors
for  high-volume  production  of this model  with  initial  deliveries  expected
starting in the first quarter of the next fiscal year. If deliveries of this new
model are delayed,  revenues for the quarters ending December 31, 1996 and March
31, 1997 will be adversely affected.



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<PAGE>


           SIGNATURES


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




                                             XYBERNAUT CORPORATION


                                             BY 
                                                /s/  Edward G. Newman
                                               ---------------------------------
                                                Edward G. Newman
                                                President and Chief Executive
                                                Officer


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



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