exv10w1



 






EXHIBIT 10.1




SECURED PROMISSORY NOTE




			
	$5,000,000
	 	October 31, 2005






     FOR VALUE RECEIVED, XYBERNAUT CORPORATION, a Delaware corporation, and XYBERNAUT SOLUTIONS,
INC., a Virginia corporation, debtors and chapter 11 debtors-in-possession (together, “Borrower”)
(Case No. 05-12801), hereby unconditionally and jointly and severally promise to pay to the order
of LC CAPITAL MASTER FUND, LTD., a Cayman Islands company (“Holder” or “LC Fund”), in lawful money
of the United States of America and in immediately available funds, the lesser of (i) the principal
sum of Five Million Dollars ($5,000,000) (the “Commitment Amount”) and (ii) the aggregate unpaid
principal amount of all loans made by or through Holder to Borrower pursuant to this Note (the
“Loans”), together with interest accrued thereon and fees and expenses payable hereunder (the
“Obligations”).



     This Promissory Note (this “Note”) is the Note referred to in and is executed and delivered in
connection with that certain Security Agreement dated as of October 31, 2005, by and between
Borrower and Holder (as the same may from time to time be amended, modified or supplemented or
restated, the “Security Agreement”), a copy of which is attached hereto as Exhibit A. Additional
rights of Holder are set forth in the Security Agreement. All capitalized terms used herein and
not otherwise defined herein shall have the respective meanings given to them in the Security
Agreement.



1. Borrowings. Holder agrees to make Loans from time to time on each requested
borrowing date on and after the date hereof until 30 days before the Maturity Date in
an aggregate principal amount not to exceed the Commitment Amount on the terms and
conditions set forth herein. As a condition precedent to the making of each Loan, the
Holder shall have received a loan request (in the form of Exhibit B attached hereto,
together with a schedule of the payments to be made by the Borrower with the proceeds
thereof, a “Loan Request”) , together with telephonic notice thereof, from the Borrower
on or before 12:00 noon at least three (3) business days prior to the requested date of
such borrowing. Amounts repaid hereunder may not be reborrowed. Each request must be
in a minimum amount of $50,000 and, if greater, shall be in integral multiples of
$10,000.



2. Repayment. Except for those obligations payable on an earlier date, the
Obligations shall be due and payable in full on October 31, 2006 (the “Maturity Date”).



3. Interest. The outstanding principal balance of this Note shall bear interest
from the date of advancement thereof at a rate per annum (computed on the
basis of a 360-day year, actual days elapsed) of nine percent (9.0 %).
Interest accrued on this Note shall be payable in cash monthly in arrears.



 









 








4. Place of Payment. All amounts payable hereunder shall be payable by wire
transfer to Holder in accordance with wire transfer instructions to be separately
provided to Borrower in writing, unless another manner of payment shall be specified in
writing by Holder.



5. Application of Payments, Default Rate. Payment on this Note shall be applied
first to accrued interest, if any, and thereafter to the outstanding principal balance
hereof. Any repayment on the Loan hereunder not paid when due, whether at stated
maturity, by acceleration or otherwise, shall bear interest at the rate per annum equal
to five percent (5.0%) above the stated interest.



6. Security. The full amount of the Obligations are secured by the Collateral
identified and described as security therefor in the Security Agreement executed by and
delivered by Borrower. Borrower shall not, directly or indirectly, create, permit or
suffer to exist, and shall defend the Collateral against and take such other action as
is necessary to remove, any Lien on or in the Collateral, or in any portion thereof,
except as permitted pursuant to the Security Agreement.



7. Use of Proceeds. (a) Borrower covenants that the Loans shall be used solely as
follows: working capital needs, general corporate purposes, the costs and expenses
associated with the bankruptcy cases of Borrower, all to the extent permitted under the
Budget (“Operating Uses”), in each case, as approved by the Holder in accordance with
the procedures set forth in the last sentence of this paragraph 7 (which approval will
not be unreasonably withheld) and then only in the amounts and for the items set forth
in the Budget; provided, however, that up to but not exceeding $1.5 million of
Loans (the “GUC Loan”) shall be made available to the Borrower in the manner described
in the following sentence for the sole purpose of establishing an escrow to pay general
unsecured creditors a distribution under a chapter 11 plan(s) (the “GUC Escrow”). The
GUC Escrow shall be funded in the following manner: For each $1.00 of Loans advanced
for Operating Uses (and not for Loans advanced to pay fees and expenses payable to
Holder hereunder or under the Security Agreement or to pay fees and expenses of
professionals retained in the Case pursuant to order of the Court), an additional $1.00
of Loans shall be advanced to the GUC Escrow.




(b) Borrower further covenants that, except with respect to the GUC Loan,
the Borrower will only make a Loan Request hereunder to the extent the
Borrower has insufficient cash from operations to make the payments set
forth on the payment schedule attached to the relevant Loan Request after
utilization and application of all available trade credit. Borrower further
covenants that the Loans shall not be used to pay any obligation not
contemplated by the Budget and set forth in the schedule attached to the
Loan Request. Holder agrees to notify the Borrower by 5:00 p.m. on the day
following the date such Loan Request is made whether or not it consents to
the payment of such scheduled payments as provided in the first sentence of
this paragraph 7.



2









 





8. Fees. On the date hereof, Borrower shall pay to Holder an advance commitment
fee of three percent (3%) of the Commitment Amount (the “Commitment Fee”).



9. Collateral Sales. Borrower is presently engaged in and will continue to engage
in efforts to sell Collateral (particularly, Collateral consisting of intellectual
property identified on Exhibit 2 to the Security Agreement). The proceeds of the sale
or other disposition of Collateral (subject only to the final sentence of this Section
9), net only of the expenses directly attributable (excluding any commission, incentive
or similar fee payable to IPI (defined below)) to such sale or disposition (“Collateral
Proceeds”), shall upon Borrower’s receipt be paid to Holder to reduce the Obligations.
In addition, Holder shall be entitled to receive and shall be paid in cash fifteen
percent (15%) of the gross sales price or consideration to be paid or transferred to
Borrower or the Borrower estates in respect of the sale or other disposition of
property, whether directly or indirectly and including by way of a sale of Borrower’s
business (including by way of a section 363 sale as part of a chapter 11 plan(s)), that
had been included in the Collateral (even if the Loans have been repaid) (the “Sale
Premium”).1 For avoidance of doubt, (a) while no Event of Default exists,
Collateral consisting of accounts receivable and inventory created in the ordinary
course of business may be used by Borrower as permitted in the Budget, and (b) the Sale
Premium shall be a continuing obligation of Borrower after all other Obligations of
Borrower hereunder are paid in full, which continuing obligation shall expire one (1)
year after confirmation of a chapter 11 plan(s) for Borrower.



10. Warrants. Should both or either of the entities comprising Borrower reorganize
through a chapter 11 plan, Holder shall be entitled to receive warrants for the
purchase of ten percent (10%) of the capital stock of Borrower (on a
fully diluted basis), with a seven (7) year term and strike price of $0.01,
and such warrants (the “Warrants”) shall be subject to anti-dilution
protection and customary minority shareholder protections. The Warrants
shall entitle LC Fund to appoint, at its election, a member of, or observer
to, the reorganized Borrower Board of Directors.





 




			
	1	 	For purposes of illustration of the Sale
Premium, (a) in the case of a sale of Collateral that yields gross proceeds of
$1,000,000 and net proceeds (net of the direct costs of sale) of $900,000 at a
time when $2,000,000 in Loans is outstanding under the Note, $900,000 would be
applied against the $2,000,000 in the following manner: $150,000 would be for
the Sale Premium and $750,000 would be applied against outstanding accrued
interest and the balance against outstanding principal; (b) in the same case as
set forth in part (a) above but where the Loans made under the Note had already
been paid in full, LC Fund would be paid $150,000.




3









 










11. Sales Process/Plan Milestones. Borrower covenants to take the actions to cause
the events set forth on Exhibit C to occur by the dates indicated thereon (the
“Milestones”).



12. Conditions Precedent. Holder’s obligation to make the initial and each
successive Loan hereunder is subject to the satisfaction of the following conditions
precedent:




	 	(a)	 	Interim and Final Orders. The Court shall have issued the
Financing Orders, including an interim or final order, as appropriate, (1)
approving the terms of this Promissory Note, authorizing the transactions
contemplated hereby and by the Security Agreement, and granting Holder
perfected, valid, and enforceable first priority liens and security interests
upon all real and personal property, including intellectual property, of
Borrower, all on terms and conditions acceptable to Holder; (2) granting Holder
a superpriority administrative expense claim in the amount of the Obligations;
(3) prohibiting any liens that would be senior to or pari passu with the Liens
securing the Obligations (except as permitted under this Note and the Security
Agreement); (4) authorizing and directing Borrower to pay Holder’s fees and
expenses in connection with or payable under this Note and the Security
Agreement; (5) containing such other terms and conditions as Holder may
determine; and (6) such Financing Orders shall be in full force and effect and
shall not have been amended, stayed or vacated. The Financing Orders or a
separate order of the Court shall provide that portions of this Note and
motions related hereto that describe the Milestones shall be filed under seal,
although such information shall be available to the committees appointed under
Section 1102 of the Bankruptcy Code and the Office of the United States
Trustee.
	 
	 	(b)	 	Security Agreement and Ancillary Documents. Borrower shall
have executed and delivered to Holder the Security Agreement and such other
documents necessary to grant to Holder a perfected first priority security
interest in and lien on the Collateral, all in form and substance satisfactory
to Holder.
	 
	 	(c)	 	Collateral Value/Appraisals. Borrower has delivered to Holder
(1) the Intellectual Asset Valuation Report, dated June 27, 2005, prepared by
IPI Innovations Financial Services, Inc. (“IPI”) that values the Collateral
consisting of the intellectual property identified on Exhibit 2 to the Security
Agreement (the “IPI Valuation”) and (2) current certified inventory and accounts receivable reports, demonstrating that the Collateral
supports repayment of the Obligations. IPI has not withdrawn or modified or
disavowed the IPI Valuation.




4









 






	 	(d)	 	No Defaults. No Default or Event of Default shall have
occurred and be continuing or would result from the proposed Borrowing.
	 
	 	(e)	 	Representations and Warranties. All representations and
warranties contained herein or in the Security Agreement shall be true and
correct on and as of the date of such Borrowing (or if such representation or
warranty expressly relates to an earlier date, then as of such earlier date).
In addition to the representations and warranties set forth below, Borrower
shall be required to present to Holder, in a form and with such detail as is
satisfactory to Holder (certified as being true and accurate) a September 30,
2005 balance sheet for Xybernaut Solutions, Inc. that shall not indicate a
material adverse change in the assets and liabilities of Xybernaut Solutions,
Inc. in comparison to the Xybernaut Solutions, Inc. balance sheet at Exhibit D
hereto.
	 
	 	(f)	 	Fees and Expenses Paid. Holder’s fees and expenses, including
the Commitment Fee, shall have been paid in full in cash.





13. Default. Each of the following events shall be an “Event of Default”
hereunder:




	 	(a)	 	Borrower fails to pay timely any principal amount when due
under this Note on the date the same becomes due and payable or any other
amounts due under this Note on the date the same becomes due and payable;
	 
	 	(b)	 	A breach by Borrower of any covenant, agreement, representation
or warranty under this Note, the Security Agreement or any Financing Order;
	 
	 	(c)	 	Any challenge in a legal proceeding to the validity or
enforceability of this Note, the Security Agreement or any Financing Order or
any term hereunder or thereunder;
	 
	 	(d)	 	Alfred Fasola or a replacement satisfactory to Holder shall no
longer be employed or retained by Borrower as its financial advisor;
	 
	 	(e)	 	IPI or a replacement satisfactory to Holder shall no longer be
employed or retained by Borrower as its financial advisor with respect to the
disposition of intellectual property;
	 
	 	(f)	 	An “Event of Default” has occurred and is continuing under and
as defined in the Security Agreement;
	 
	 	(g)	 	Failure of the Borrower to meet any of the Milestones;




5









 






	 	(h)	 	The filing of any motion to approve a sale of all or a
substantial portion of the Borrower’s assets, unless the Holder consents or the
motion is accompanied by a Bona Fide Offer that would yield sufficient proceeds
to pay the Obligations in full (including, for the avoidance of doubt, the Sale
Premium);
	 
	 	(i)	 	The filing of any plan(s) of reorganization for the Borrower
which does not provide for the payment in cash in full of the Obligations on or
before the Maturity Date and the issuance of the Warrants;
	 
	 	(j)	 	Action by the Official Committee Unsecured Creditors appointed
in the Borrower’s chapter 11 cases (the “Case”) to cause or support, whether
directly or indirectly, or to consent to, a conversion of the Case to a chapter
7 liquidation or the appointment of a trustee or an examiner in the Case with
expanded powers;
	 
	 	(k)	 	Dismissal of the Case, conversion of the Case to a chapter 7
liquidation or the appointment of a trustee or an examiner in the Case with
expanded powers;
	 
	 	(l)	 	The occurrence of a material adverse change in (1) the
condition or business prospects (financial or otherwise) of Borrower, or (2)
the value or salability of the Collateral, each taken as a whole, since the
Petition Date; and
	 
	 	(m)	 	The filing of a motion to approve post-petition financing that
will be secured by Liens on the Collateral that are equal or senior to the
Liens granted to Holder in connection herewith.





     Upon the occurrence of an Event of Default hereunder, but subject to the terms of the
Financing Orders, all unpaid principal, accrued interest and other amounts owing hereunder shall,
at the option of Holder, be immediately due, payable and collectible by Holder pursuant to
applicable law and the commitments hereunder terminated. Upon the occurrence of an Event of
Default based upon: (x) a breach of the representations and warranties contained in Section 14; or
(y) Section 13(j) of the Note, the funds, if any, in the GUC Escrow shall immediately be refunded,
irrevocably, to LC Fund. Upon an Event of Default under Sections 13(g), (j), (k) or (l), Borrower
consents to the immediate modification of the automatic stay of Section 362 of the Bankruptcy Code
to the extent necessary to permit Holder to exercise all rights and remedies under this Note and
the Security Agreement. Upon an Event of Default under the other parts of Section 13, if after
five (5) days written notice from Holder the default has not been cured, Borrower consents to the
immediate modification of the automatic stay of Section 362 of the Bankruptcy Code to the extent
necessary to permit Holder to exercise all rights and remedies under this Note and the Security
Agreement.



6









 





14. Representations and Warranties of Borrower. Borrower hereby represents and
warrants to the Holder that:




	 	(a)	 	Organization and Good Standing. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has all requisite corporate power and authority to carry on its business as now
conducted.
	 
	 	(b)	 	Authorization. The execution, delivery and performance by
Borrower of this Note and the Security Agreement are within Borrower’s
corporate power; have been duly authorized by all necessary or proper corporate
action and, on the date of initial funding of the Loan hereunder and on each
subsequent funding date, will be authorized by a Financing Order which remains
in full force and effect and has not been amended, stayed or vacated; will not
violate any applicable law; does not require the consent or approval of any
governmental authority or any other person (other than entry of the applicable
Financing Order) and except such consents as have been obtained.
	 
	 	(c)	 	Valid Obligation. This Note and Security Agreement constitute
valid and legally binding obligations of Borrower, enforceable against Borrower
in accordance with their terms.
	 
	 	(d)	 	Non-contravention of Other Instruments. Borrower is not in
violation or default (i) of any provision of its Certificate of Incorporation
or Bylaws, or (ii) in any material respect of any post-petition instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound which violation or default would have a material adverse effect on
Borrower or its subsidiaries, taken as a whole. The execution, delivery and
performance of this Note and the Security Agreement, and the consummation of
the transactions contemplated hereby and thereby, will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such post-petition
provision, instrument, judgment, order, writ, decree or contract (including but
not limited to any credit agreements, guaranties or debt related agreements to
which Borrower or any affiliate of Borrower may be a party) or an event that
results in the creation of any lien, charge or encumbrance upon any assets of
Borrower or its Subsidiaries or the suspension, revocation, impairment,
forfeiture, or nonrenewal of any material permit, license, authorization, or
approval applicable to Borrower, its business or operations or any of its
assets or properties.
	 
	 	(e)	 	Title to Collateral. Borrower owns and holds good and
marketable title to the assets and property, including, without limitation,
intangible property and contract rights (including without limitation the
intellectual property identified on Exhibit 2 to the Security Agreement),
constituting the Collateral and that there are no liens, claims or encumbrances
on the Collateral other than those consisting of Permitted Liens and with
respect to the intellectual property identified on Exhibit 2 to the Security




7









 






	 	 	 	Agreement, other than the licenses, assignments or other transfers of
rights or interests, covenants not to sue, or adverse claims, with respect
to such property (“Adverse Interests”) that are identified as Permitted
Liens, there are no Adverse Interests, and any maintenance fees with respect
to such property are current.
	 
	 	(f)	 	Balance Sheets. The balance sheets attached as Exhibit C
hereto (as of September 30, 2005 for Xybernaut Corporation and August 31, 2005
for Xybernaut Solutions, Inc.) in all material respects fairly represent the
assets and liabilities of Borrower as of the dates set forth therein.





15. Waiver. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection w hen incurred, including, without limitation, reasonable attorneys’ fees,
costs and other expenses.



     The right to plead any and all statutes of limitations as a defense to any demands hereunder
is hereby waived to the full extent permitted by law.



16. Indemnification. Borrower agrees to indemnify Holder for any fees, costs and
expenses (including counsel fees and expenses) incurred in connection with this Note,
the Security Agreement and any order approving same, other than fees, costs and
expenses arising directly as a result of Holder’s gross negligence or willful
misconduct.



17. Governing Law. This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction, except
to the extent governed by the Bankruptcy Code.



18. Successors and Assigns. The provisions of this Note and the Security Agreement
shall inure to the benefit of and be binding on any successor to Borrower and to any
successor or assign of Holder; provided, however, that the Borrower’s rights
and obligations hereunder may not be assigned without the consent of Holder, and
provided further that Holder may only assign its rights and obligations
hereunder to an affiliate of Holder, or to any other person provided that Holder’s
obligations hereunder to make Loans to the Borrower have then been terminated.



19. Payment Procedures. Payments of principal and interest on this Note shall be
made to the Holder at its principal office in New York City, in such coin or currency
of the United States of America as at the time of payment shall be legal tender for the
payment of public and private debt. If any payment of principal or interest on this
Note shall become due on a day that is not a business day, such payment shall be made
on the next succeeding day that is a business day.



8









 








20. Press Releases. Borrower will not use Holder’s or its affiliates’ name(s) in
any press release without Holder’s prior written consent.



	 	 	 	 	 	 	 
	BORROWER	 	XYBERNAUT CORPORATION	 	 
	 	 	XYBERNAUT SOLUTIONS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Perry L. Nolen
 

	 	 
	 
	 	 	 	 	 	 
	 	 	Name: Perry L. Nolen	 	 
	 
	 	 	 	 	 	 
	 	 	Title: President & CEO	 	 
	 
	 	 	 	 	 	 
	HOLDER	 	LC CAPITAL MASTER FUND, LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Richard F. Conway
 

	 	 
	 
	 	 	 	 	 	 
	 	 	Name: Richard F. Conway	 	 
	 
	 	 	 	 	 	 
	 	 	Title: Director	 	 






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EXHIBIT A




Security Agreement




 









 








EXHIBIT B




Loan Request Form





 










 






LOAN REQUEST




Date:                     , ___




	 	 	 
	To:

	 	LC CAPITAL MASTER FUND, LTD. (“LC Fund”), under that certain
Secured Promissory Note, dated as of October ___, 2005 (as
amended, restated, or otherwise modified from time to time, the
“Note Agreement”), among Xybernaut Corp. and Xybernaut
Solutions, Inc. and LC Fund.





Ladies and Gentlemen:




          Reference is made to the above described Note Agreement. Terms defined in the Note Agreement,
wherever used herein unless otherwise defined herein, shall have the same meanings herein as are
prescribed by the Note Agreement. The undersigned Borrower hereby irrevocably notifies you of the
borrowing specified below:





	 	1.	 	The Business Day of the proposed Borrowing is                     , ___.
	 
	 	2.	 	The aggregate amount of the proposed Borrowing is $                    .





          The undersigned hereby certifies that the following statements are true on the date hereof,
and will be true on the date of the proposed borrowing, before and after giving effect thereto and
to the application of the proceeds therefrom;





	 	a)	 	The representations and warranties of Borrower contained in the Note Agreement
and the related Security Agreement are true and correct in all material respects as
though made on and as of the date hereof, other than any such representation or
warranty which relates to a specified prior date, and except to the extent that LC Fund
has been notified by Borrower that any representation or warranty is not correct and
explicitly waived in writing compliance with such representation or warranty; and
	 
	 	b)	 	No event has occurred and is continuing, or would result from the proposed
borrowing, which constitutes a Default or an Event of Default.




 









 










This Loan Request is issued pursuant to and is subject to the Note Agreement.



EXECUTED as of the date first written above.




	 	 	 	 	 	 	 	 	 
	 	 	BORROWER:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	XYBERNAUT CORP.	 	 
	 	 	XYBERNAUT SOLUTIONS, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 






 









 






EXHIBIT C




[CONFIDENTIAL]2






 




			
	2	 	Confidential Treatment has been requested for
the redacted portion. The confidential, redacted portions have been filed
separately with the SEC.




 









 










EXHIBIT D




Balance Sheets




 









 








Xybernaut Corporation

Balance Sheet

9/30/2005




	 	 	 	 	 	 	 	 	 
	 	 	2005	 	 	 	 
	 	 	September	 	 	 	 
	ASSETS
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Current assets:
	 	 	 	 	 	 	 	 
	Cash In Banks
	 	 	232,934	 	 	 	 	 
	Petty Cash
	 	 	300	 	 	 	 	 
	Restricted Cash
	 	 	—	 	 	 	 	 
	Pre Petiton Accounts receivable
	 	 	223,714	 	 	 	 	 
	Post Petiton Accounts receivable
	 	 	351,745	 	 	 	 	 
	Less AR — Other, Reserve, Contra
	 	 	(500,221	)	 	 	 	 
	Inventory
	 	 	2,358,800	 	 	 	 	 
	Prepaid and other current assets
	 	 	830,187	 	 	 	 	 
	DTDF — Japan
	 	 	680,099	 	 	 	 	 
	DTDF — GmbH
	 	 	12,533,177	 	 	 	 	 
	DTDF — Gmbh R&D
	 	 	4,820,238	 	 	 	 	 
	DTDF — China
	 	 	286,197	 	 	 	 	 
	DTDF — XSI
	 	 	(354,977	)	 	 	 	 
	DTDF — Korea
	 	 	293,924	 	 	 	 	 
	DTDF — Reserve
	 	 	(18,000,000	)	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total current assets
	 	 	 	 	 	 	3,756,117	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Fixed assets:
	 	 	 	 	 	 	 	 
	Property and equipment
	 	 	2,148,276	 	 	 	 	 
	Less: accumulated depreciation
	 	 	(1,947,084	)	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total fixed assets
	 	 	 	 	 	 	201,192	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Other assets:
	 	 	 	 	 	 	 	 
	Investment in subsidiaries
	 	 	605,584	 	 	 	 	 
	Patents, net
	 	 	772,092	 	 	 	 	 
	Trademarks, net
	 	 	31,996	 	 	 	 	 
	Tooling, net
	 	 	—	 	 	 	 	 
	Other
	 	 	189,411	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total other assets
	 	 	 	 	 	 	1,599,083	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	TOTAL ASSETS
	 	 	 	 	 	 	5,556,392	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	LIABILITIES AND EQUITY
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Current liabilities:
	 	 	 	 	 	 	 	 
	Post-Petition Liabilities
	 	 	 	 	 	 	 	 
	Accounts payable
	 	 	203,184	 	 	 	 	 
	Accrued restructuring costs
	 	 	53,465	 	 	 	 	 
	Deferred product and warranty revenue
	 	 	261,396	 	 	 	 	 
	Accrued Professional fees
	 	 	232,377	 	 	 	 	 
	Accrued Purchases
	 	 	252,833	 	 	 	 	 
	Salaries / commission payable
	 	 	120,971	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total Post Petition Liabilities
	 	 	 	 	 	 	1,124,226	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Pre-Petition Liabilities
	 	 	 	 	 	 	 	 
	Priority Claims
	 	 	120,322	 	 	 	 	 
	Secured Debts
	 	 	—	 	 	 	 	 
	Unsecured Debt
	 	 	1,622,079	 	 	 	 	 
	Accrued expenses
	 	 	476,162	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total Pre Petition Liabilities
	 	 	 	 	 	 	2,218,563	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total current liabilities
	 	 	 	 	 	 	3,342,789	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Long term liabilities:
	 	 	 	 	 	 	—	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total liabilities
	 	 	 	 	 	 	3,342,789	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Stockholders’ equity:
	 	 	 	 	 	 	 	 
	Common stock
	 	 	1,946,209	 	 	 	 	 
	Additional paid-in capital
	 	 	183,745,591	 	 	 	 	 
	Cumulative translation adjustment
	 	 	38,695	 	 	 	 	 
	Accumulated other comprehensive income (XSI)
	 	 	37,130	 	 	 	 	 
	Retained earnings, beginning
	 	 	(171,411,927	)	 	 	 	 
	Current earnings
	 	 	(12,142,094	)	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total stockholders’ equity
	 	 	 	 	 	 	2,213,604	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	TOTAL LIABILITIES AND EQUITY
	 	 	 	 	 	 	5,556,392	 
	 
	 	 	 	 	 	 	 	 






 









 






Xybernaut Solutions, Inc.

BALANCE SHEET

As of August 31, 2005




	 	 	 	 	 	 	 	 	 
	Current Assets
	 	 	 	 	 	 	 	 
	Cash
	 	$	251,425.91	 	 	 	 	 
	Pre-Petition Accounts Receivable
	 	 	198,026.21	 	 	 	 	 
	Post-Petition Accounts Receivable
	 	 	438,593.65	 	 	 	 	 
	Receivables from Officers
	 	 	—	 	 	 	 	 
	Employees, Affiliates
	 	 	 	 	 	 	 	 
	Note Receivables
	 	 	—	 	 	 	 	 
	Inventory
	 	 	—	 	 	 	 	 
	Other Current Assets:
	 	 	 	 	 	 	 	 
	Due to / From Xybernaut
	 	 	423,799.16	 	 	 	 	 
	Unbilled Accounts Receivable
	 	 	372,769.34	 	 	 	 	 
	Prepaid Other
	 	 	21,141.01	 	 	 	 	 
	Accounts Receivalbe Other XSI
	 	 	337.00	 	 	 	 	 
	Employee Advances
	 	 	(287.00	)	 	 	 	 
	Total Current Assets
	 	 	 	 	 	 	1,705,808.28	 
	 
	 	 	 	 	 	 	 	 
	Fixed Assets
	 	 	 	 	 	 	 	 
	Land
	 	$	—	 	 	 	 	 
	Buildings
	 	 	—	 	 	 	 	 
	Equipment, Furniture & Fixtures
	 	 	425,790.48	 	 	 	 	 
	Less Accumulated Depreciation
	 	 	(341,878.93	)	 	 	 	 
	Total Fixed Assets
	 	 	 	 	 	 	83,911.55	 
	 
	 	 	 	 	 	 	 	 
	Other Assets
	 	 	 	 	 	 	 	 
	Retainage
	 	 	22,738.00	 	 	 	 	 
	Deposits
	 	 	6,750.10	 	 	 	 	 
	Total Other Assets
	 	 	 	 	 	 	29,488.10	 
	 
	 	 	 	 	 	 	 	 
	Total Assets
	 	 	 	 	 	 	1,819,207.93	 
	 
	 	 	 	 	 	 	 	 
	Post-Petition Liabilities
	 	 	 	 	 	 	 	 
	Accounts Payable
	 	 	105,713.27	 	 	 	 	 
	Salaries Payable
	 	 	68,785.00	 	 	 	 	 
	Commissions Payable
	 	 	332.64	 	 	 	 	 
	Accrued Vacation
	 	 	74,035.76	 	 	 	 	 
	Accrued Rent & Storage
	 	 	16,236.13	 	 	 	 	 
	Taxes Payable
	 	 	207.66	 	 	 	 	 
	Accrued Interest


	Deferred Revenue
	 	 	139,015.01	 	 	 	 	 
	Total Post-Petition Liabilities
	 	 	 	 	 	 	404,325.47	 
	 
	 	 	 	 	 	 	 	 
	Pre-Petition Liabilities
	 	 	 	 	 	 	 	 
	Priority Claims
	 	 	21,888.15	 	 	 	 	 
	Secured Debts
	 	 	0.00	 	 	 	 	 
	Unsecured Debtor
	 	 	26,523.99	 	 	 	 	 
	Total Pre-Petition Liabilities
	 	 	48,412.14	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Owners Equity (Deficit)
	 	 	 	 	 	 	 	 
	Capital Stock or Owner Investment
	 	 	15,849.68	 	 	 	 	 
	Paid In Capital Surplus
	 	 	605,059.88	 	 	 	 	 
	Retained Earnings (Deficit)
	 	 	 	 	 	 	 	 
	Pre-Petition
	 	 	762,123.22	 	 	 	 	 
	Post-Petition
	 	 	(16,562.45	)	 	 	 	 
	Total Owners Equity
	 	 	 	 	 	 	1,366,470.33	 
	 
	 	 	 	 	 	 	 	 
	Total Liabilities and Owner’s Equity
	 	 	 	 	 	 	1,819,207.93