- The Washington Times - Wednesday, April 20, 2005

The stock price of Xybernaut Corp. stabilized yesterday, a day after the Fairfax company announced the sacking of its president and its chief executive officer for improperly using company funds and violating its policy against nepotism.

The company, which manufactures wearable computer technology, announced Tuesday that an internal audit committee investigation concluded that board Chairman and Chief Executive Officer Edward G. Newman used “substantial” company funds for personal expenses and did not properly “substantiate expenses charged to the company.”

In addition, the three-member committee found that Mr. Newman and his brother Steven A. Newman, who is the company’s president and chief operating officer, obstructed the investigation.

Xybernaut’s board of directors removed both officers from their positions and requested their resignations as directors of the company, but neither has agreed to resign, the company said.

Shares of Xybernaut, which trade on Nasdaq, fluctuated yesterday, closing at 27 cents per share — up 2 cents.

The company, which has 91 employees and offices overseas, has posted disappointing sales in the past four years, showing a net income loss each year despite slowly increasing net sales.

The company’s board named retired Army Gen. William Tuttle as interim chairman and chief executive officer yesterday. He could not be reached for comment.

Grant Thornton LLP announced its resignation as Xybernaut’s independent accounting firm last week.

According to Xybernaut, Grant Thornton sent a letter on April 14 saying “it can no longer rely on management’s representations.”

The accounting firm also sent a letter April 8 telling Xybernaut that neither it nor its investors should rely on its historical financial statements, the company said.

A Grant Thornton spokesman would not comment about the company’s decision.

Xybernaut’s board is actively pursuing a new independent auditor, according to Michael Binko, vice president of corporate development.

The company’s swift move is “a reflection of a somewhat new atmosphere” in corporate governance, said Lawrence Mitchell, a professor at George Washington University who specializes in corporate law and securities regulation.

“I would expect that the kind of action the board has taken should in fact protect the company’s financial performance,” Mr. Mitchell said.

Mr. Binko was not able to say how much money Edward Newman is thought to have misused.

“I don’t know amounts,” Mr. Binko said. “I don’t even know if those amounts are known yet.”

The investigation also found that members of the company’s senior management entered “major transactions” in violation of internal controls.

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