Filed Pursuant
to 424(b)(1)
PROSPECTUS
4,844,797 Shares
Socket Communications, Inc.
Common Stock
This prospectus relates to 4,844,797 shares of our common stock which may be sold from time to time by certain stockholders set forth in "Selling Stockholders" section of this prospectus. Of the shares offered by this prospectus, such shares include shares issuable as dividend distributions in respect of the Series F Convertible Preferred Stock and 1,547,107 shares of common stock issuable upon exercise of warrants. The balance of the shares offered pursuant to this prospectus represent the maximum number of shares of our common stock that may be issued upon conversion of shares of our Series F Convertible Preferred Stock held by the selling stockholders or their transferees.
The prices at which the selling stockholders or their transferees may sell the
shares will be determined by the prevailing market prices for the shares or
in negotiated transactions. While we may receive proceeds upon the exercise
of the warrants, we will not receive any proceeds from the sale of the shares
offered by this prospectus.
Our common stock is quoted on the
Nasdaq National Market under the symbol "SCKT" and is listed on the
Pacific Exchange under the symbol "SOK." On July 14, 2003, the last
reported sale price for our common stock on the NASDAQ National Market was $2.80
per share.
Investment in the securities
involves a high degree of risk. See "Risk Factors".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is July 17, 2003.
TABLE OF CONTENTS
INFORMATION CONTAINED IN THIS PROSPECTUS
DESCRIPTION OF SERIES F CONVERTIBLE PREFERRED STOCK
THE COMPANY
We design, manufacture and sell products that connect handheld and notebook
computers to the Internet, computer networks, and peripherals through both wireless
and cable connections. Our products are designed for use with a broad range
of handheld and notebook computers, and employ innovative designs that reduce
battery power consumption and make them easy to install and use. Our products
have been designed specifically for handheld computers and other battery-powered
devices with standard expansion slots for plug-in cards. We believe that growth
in the mobile workforce, combined with technical advances and cost reductions
in handheld computers and networking technologies, are driving broader adoption
of mobile data communications. Our products are designed to address the growing
need for connectivity by enabling the use of handheld devices to extend data
communications capabilities beyond location-dependent wired networks or telephone
lines, thereby enabling mobile computer users to enhance their productivity,
exploit time sensitive opportunities and improve customer satisfaction. Our
products allow consumers to easily integrate hardware, software and services
into complete mobile connectivity solutions.
Our products can be classified into four broad product families:
Our network connection products are connection devices that can be plugged into standard expansion slots in handheld and notebook computers. These products allow users to connect their handheld and notebook computers to the Internet via mobile phone services, or to private networks, or to communicate with other electronic devices such as desktop computers and printers. Our bar code scanning products plug into handheld or notebook computers and turn handheld or notebook computers into portable bar code scanners that can be used in various retail and industrial workplaces. Our serial products add connection ports to a notebook or handheld computer that allows users to connect these portable computers to standard peripherals designed for desktop PCs. Our embedded products and services allow manufacturers of mobile phones, handheld computers and other devices to build wireless connection functions into their products.
Handheld computers have evolved over the past several years from simple devices
used mainly to hold personal information into small portable computers with
functionality similar to desktop PCs. Advances in mobile network access and
transfer speeds are enabling handheld computer users to access the Internet,
send and receive email, access corporate data files, and exchange mobile instant
messages anywhere and at any time. Growth in the mobile workforce and increasing
reliance on the Internet and email are increasing the demand for mobile data
communications. Advances in wireless connection technologies, particularly Bluetooth
and Wireless LAN (WiFi), are being commercialized to allow handheld computers
to interact wirelessly with nearby computers and with a wide array of electronic
appliances, including mobile phones, printer, digital cameras, LAN access points,
automobile communications systems, bar code scanners, home entertainment and
security systems, public kiosks, public Internet access locations and vending
machines. We believe we are well positioned to benefit from expected growth
in mobile data communications by maintaining a leadership position in connection
solutions for mobile devices. Our marketing and product development strategy
is to capitalize on strategic partner relationships, offer a comprehensive range
of products, build a strong brand name, diversify our distribution channels
and support product developers.
We have an experienced management team and Board of Directors. Many of our senior
officers joined us during the years 1992 through 1994, including Kevin Mills,
President and CEO; co-founder Micheal Gifford, Business Unit Manager of our
embedded and industrial business unit; David Dunlap, Chief Financial Officer;
Len Ott, Chief Technical Officer; and Peter Phillips, Vice President of Marketing.
Kevin Mills and Micheal Gifford serve on our Board of Directors. Our Board of
Directors also includes cofounder Charlie Bass as Chairman, who has served in
that capacity since 1992, along with four other independent directors. Two of
our independent directors, Enzo Torresi and Gianluca Rattazzi, are former chief
executive officers of high technology companies and our two other independent
directors, Leon Malmed and Peter Sealey, are former senior sales and marketing
executives.
We were incorporated
in California in March 1992, and reincorporated in Delaware at the time of our
initial public offering in June 1995. We have approximately 60 full time employees,
and our headquarters are located at 37400 Central Court, Newark, California
94560. Our telephone number is (510) 744-2700. We have established two marketing
and support subsidiaries, Socket Communications, Europe, located in Grenoble,
France, and Socket Communications K.K., located in Tokyo, Japan.
RISK FACTORS
An investment in the common stock offered by this prospectus involves a high
degree of risk. You should carefully consider the risks described below, as
well as the risks described in our annual and quarterly reports filed with the
Securities and Exchange Commission, before deciding to purchase shares of our
common stock. The risks described below are not the only ones that we face.
Additional risks that generally apply to publicly traded companies, that are
not yet identified or that we currently think are immaterial, may also adversely
affect our company.
If any of the events, contingencies, circumstances or conditions described in the following risks actually occur, our business, financial condition or results of operations could be seriously harmed. The trading price of our common stock could, in turn, decline and you could lose all or part of your investment.
We have a history of operating losses, we cannot assure you that we will achieve ongoing profitability and we have monthly payment obligations.
We have incurred significant operating losses since our inception. We expect to incur operating losses through the second quarter of 2003 and possibly longer. For the fiscal year ended December 31, 2002 and the first quarter of 2003, we incurred net losses of $2,971,830 and $612,507 respectively. To obtain profitability, we must accomplish numerous objectives, including the development of successful new products. We cannot foresee with any certainty whether we will be able to achieve these objectives in the future. Accordingly, we cannot assure you that we will generate sufficient net revenue to achieve ongoing profitability.
We also have debt payment obligations to Nokia Corporation under a Business Transfer Agreement that we entered into with Nokia in March 2002. These payments are in the amount of approximately $107,300, plus accrued interest, per month through November 2003, with a final payment of approximately $437,300 plus accrued interest, due in December 2003. In addition, we sold 100,000 shares of Series E redeemable convertible preferred stock in a private placement financing in October 2002. We are obligated to pay one-fifteenth of the original value of the Series E ($66,667) in cash or shares of Common Stock, together with accrued dividends, at the end of every month through March 31, 2004. We have paid all such obligations in the first quarter of 2003 in cash. If we cannot achieve profitability, we will not be able to support our operations from positive cash flows, and we would use our existing cash to support operating losses, make debt payments to Nokia and make cash redemption payments on the Series E redeemable convertible preferred stock. We do not anticipate the need to raise additional capital in 2003 to fund our operations, but should the need arise we cannot assure you that additional capital will be available on acceptable terms, if at all, and any such terms may be dilutive to existing stockholders. If we are unable to secure the necessary capital, we will need to suspend some or all of our current operations.
We may require additional capital in the future and we cannot assure you that capital will be available on reasonable terms, if at all, or on terms that would not cause substantial dilution to your stock holdings.
We have historically needed to raise capital to fund our operating losses. We expect to continue to incur operating losses through the second quarter of 2003 and possibly longer. Our forecasts are highly dependent on factors beyond our control, including market acceptance of our products and sales of handheld computers. If capital requirements vary materially from those currently planned, we may require additional capital sooner than expected. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us, if at all. Any sale of a substantial number of additional shares will cause dilution to our stockholders' investments and could also cause the market price of our Common Stock to fall.
A significant portion of our revenue currently comes from two distributors, and any decrease in revenue from these distributors could harm our business.
A significant portion of our revenue comes from two distributors, Ingram Micro and Tech Data, which represented approximately 36 percent of our worldwide revenue in the first quarter of 2003, and 30 percent of our worldwide revenue in fiscal 2002. We expect that a significant portion of our revenue will continue to depend on sales to Ingram Micro and Tech Data. We do not have long-term commitments from Ingram Micro or Tech Data to carry our products, and either could choose to stop selling some or all of our products at any time. If we lose our relationship with Ingram Micro or Tech Data, we could experience disruption and delays in marketing our products.
If the market for handheld computers fails to grow, we might not achieve our sales projections.
Substantially all of our products are designed for use with mobile personal computers, including handhelds, notebook computers and tablets. If the mobile personal computer industry does not grow or if its growth slows, we might not achieve our sales projections.
Our sales would be hurt if the new technologies used in our products do not become widely adopted.
Many of our products use new technologies, such as the Bluetooth wireless standard and 2D bar code scanning, which are not yet widely adopted in the market. If these technologies fail to become widespread, our sales will suffer.
If third parties do not produce and sell innovative products with which our products are compatible, we may not achieve our sales projections.
Our success is dependent upon the ability of third parties in the mobile personal computer industry to complete development of products that include or are compatible with our technology and to sell their products into the marketplace. Our ability to generate increased revenue depends significantly on the commercial success of Windows-powered handheld devices, particularly the Pocket PC, and other devices, such as the new line of handhelds with expansion options offered by Palm. If manufacturers are unable to ship new products such as Pocket PC and other Windows-powered devices or Palm devices on schedule, or if these products fail to achieve or maintain market acceptance, the number of our potential new customers would be reduced and we would not be able to meet our sales expectations.
We could face increased
competition in the future, which would adversely affect our financial performance.
The market for handheld computers in which we operate is very competitive. Our
future financial performance is contingent on a number of unpredictable factors,
including that:
Increased competition could result in price reductions, fewer customer orders, reduced margins, and loss of market share. Our failure to compete successfully against current or future competitors could harm our business, operating results, or financial condition.
If we fail to develop and introduce new products rapidly and successfully, we will not be able to compete effectively, and our ability to generate sufficient revenues will be negatively affected.
The market for our products is prone to rapidly changing technology, evolving industry standards and short product life cycles. If we are unsuccessful at developing and introducing new products and services on a timely basis that include the latest technologies conforming with the newest standards and that are appealing to end users, we will not be able to compete effectively, and our ability to generate significant revenues will be seriously harmed.
The development of new products and services can be very difficult and requires high levels of innovation. The development process is also lengthy and costly. Short product life cycles expose our products to the risk of obsolescence and require frequent new product introductions. We will be unable to introduce new products and services into the market on a timely basis or compete successfully, if we fail to:
We cannot be sure that we will have sufficient resources to make adequate investments in research and development or that we will be able to make the technological advances necessary to be competitive.
If we do not correctly anticipate demand for our products, our operating results will suffer.
The demand for our products depends on many factors and will be difficult to forecast. We expect that it will become more difficult to forecast demand as we introduce and support more products and as competition in the market for our products intensifies. If demand increases beyond forecasted levels, we would have to rapidly increase production at our third-party manufacturers. We depend on suppliers to provide additional volumes of components and those suppliers might not be able to increase production rapidly enough to meet unexpected demand. Even if we were able to procure enough components, our third-party manufacturers might not be able to produce enough of our devices to meet our customer demand. In addition, rapid increases in production levels to meet unanticipated demand could result in higher costs for manufacturing and supply of components and other expenses. These higher costs could lower our profit margins. Further, if production is increased rapidly, manufacturing yields could decline, which may also lower operating results.
If demand is lower than forecasted levels, we could have excess production resulting in higher inventories of finished products and components, which could lead to write-downs or write-offs of some or all of the excess inventories. Lower than forecasted demand could also result in excess manufacturing capacity at our third-party manufacturers and in our failure to meet some minimum purchase commitments, each of which may lower our operating results
We depend on alliances and other business relationships with a small number of third parties, and a disruption in any one of these relationships would hinder our ability to develop and sell our products.
We depend on strategic alliances and business relationships with leading participants in various segments of the communications and mobile personal computer markets to help us develop and market our products. Our strategic partners may revoke their commitment to our products or services at any time in the future or may develop their own competitive products or services. Accordingly, our strategic relationships may not result in sustained business alliances, successful product or service offerings, or the generation of significant revenues. Failure of one or more of such alliances could result in delay or termination of product development projects, failure to win new customers, or loss of confidence by current or potential customers.
We have devoted significant research and development resources to design activities for Windows-powered mobile products and, more recently, to design activities for Palm devices. Such design activities have diverted financial and personnel resources from other development projects. These design activities are not undertaken pursuant to any agreement under which Microsoft or Palm is obligated to continue the collaboration or to support the products produced from the collaboration. Consequently, Microsoft or Palm may terminate their collaborations with us for a variety of reasons including our failure to meet agreed-upon standards or for reasons beyond our control, such as changing market conditions, increased competition, discontinued product lines, and product obsolescence.
We rely primarily on distributors, resellers, retailers and original equipment manufacturers to sell our products, and our sales would suffer if any of these third parties stops selling our products effectively.
Because we sell our products primarily through distributors, resellers, retailers and original equipment manufacturers, we are subject to risks associated with channel distribution, such as risks related to their inventory levels and support for our products. Our distribution channels may build up inventories in anticipation of growth in their sales. If such growth in their sales does not occur as anticipated, the inventory build up could contribute to higher levels of product returns. The lack of sales by any one significant participant in our distribution channels could result in excess inventories and adversely affect our operating results.
Our agreements with distributors, resellers, retailers and original equipment manufacturers are generally nonexclusive and may be terminated on short notice by them without cause. Our distributors, resellers, retailers and original equipment manufacturers are not within our control, are not obligated to purchase products from us, and may represent competitive lines of products. Our current sales growth expectations are contingent in part on our ability to enter into additional distribution relationships and expand our retail sales channels. We cannot predict whether we will be successful in establishing new distribution relationships, expanding our retail sales channels or maintaining our existing relationships. A failure to enter into new distribution relationships or to expand our retail sales channels could adversely impact our ability to grow our sales.
We allow our distribution channels to return a portion of their inventory to us for full credit against other purchases. We also supply some retailers on a consignment basis, which means we own the inventory until it is sold by the retailer and the inventory can be returned to us at any time. In addition, in the event we reduce our prices, we credit our distributors for the difference between the purchase price of products remaining in their inventory and our reduced price for such products. Actual returns and price protection may adversely affect future operating results, particularly since we seek to continually introduce new and enhanced products and are likely to face increasing price competition.
Our intellectual property and proprietary rights may be insufficient to protect our competitive position.
Our business depends on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark, trade secret laws, and other restrictions on disclosure to protect our proprietary technologies. We cannot be sure that these measures will provide meaningful protection for our proprietary technologies and processes. We cannot be sure that any patent issued to us will be sufficient to protect our technology. The failure of any patents to provide protection to our technology would make it easier for our competitors to offer similar products. In connection with our participation in the development of various industry standards, we may be required to license certain of our patents to other parties, including our competitors, that develop products based upon the adopted standards.
We also generally enter into confidentiality agreements with our employees, distributors, and strategic partners, and generally control access to our documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our products, services, or technology without authorization, develop similar technology independently, or design around our patents.
Effective copyright, trademark, and trade secret protection may be unavailable or limited in certain foreign countries. Furthermore, certain of our customers have entered into agreements with us which provide that the customers have the right to use our proprietary technology in the event we default in our contractual obligations, including product supply obligations, and fail to cure the default within a specified period of time.
We may become subject to claims of intellectual property rights infringement, which could result in substantial liability.
In the course of our business, we may receive claims of infringement or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties. Many of our competitors have large intellectual property portfolios, including patents that may cover technologies that are relevant to our business. In addition, many smaller companies, universities, and individuals have obtained or applied for patents in areas of technology that may relate to our business. The industry is moving towards aggressive assertion, licensing, and litigation of patents and other intellectual property rights.
On June 30, 2003, Khyber Technologies Corporation filed a complaint against us in the United States District Court, Northern District of Ohio, alleging that we had infringed a patent held by Khyber in manufacturing, using and selling our portable bar code scanners. We are currently in the process of analyzing the merits of the complaint.
If we are unable to obtain and maintain licenses on favorable terms for intellectual property rights required for the manufacture, sale, and use of our products, particularly those products which must comply with industry standard protocols and specifications to be commercially viable, our results of operations or financial condition could be adversely impacted.
In addition to disputes relating to the validity or alleged infringement of other parties' rights, we may become involved in disputes relating to our assertion of our intellectual property rights. Whether we are defending the assertion of intellectual property rights against us or asserting our intellectual property rights against others, intellectual property litigation can be complex, costly, protracted, and highly disruptive to business operations by diverting the attention and energies of management and key technical personnel. Plaintiffs in intellectual property cases often seek injunctive relief, and the measures of damages in intellectual property litigation are complex and often subjective or uncertain. Thus, any adverse determinations in this type of litigation could subject us to significant liabilities and costs.
New industry standards may require us to redesign our products, which could substantially increase our operating expenses.
Standards for the form and functionality of our products are established by standards committees. Separate committees establish standards, which evolve and change over time, for different categories of our products. We must continue to identify and ensure compliance with evolving industry standards so that our products are interoperable and we remain competitive. Unanticipated changes in industry standards could render our products incompatible with products developed by major hardware manufacturers and software developers. Should any unanticipated changes occur, we would be required to invest significant time and resources to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, we would miss opportunities to have our products specified as standards for new hardware components designed by mobile computer manufacturers and original equipment manufacturers.
Undetected flaws and defects in our products may disrupt product sales and result in expensive and time-consuming remedial action.
Our hardware and software products may contain undetected flaws, which may not be discovered until customers have used the products. From time to time, we may temporarily suspend or delay shipments or divert development resources from other projects to correct a particular product deficiency. Efforts to identify and correct errors and make design changes may be expensive and time consuming. Failure to discover product deficiencies in the future could delay product introductions or shipments, require us to recall previously shipped products to make design modifications, or cause unfavorable publicity, any of which could adversely affect our business and operating results.
Our quarterly operating results may fluctuate in future periods, which could cause our stock price to decline.
We expect to experience quarterly fluctuations in operating results in the future. We generally ship orders as received and as a result typically have little or no backlog. Quarterly revenue and operating results therefore depend on the volume and timing of orders received during the quarter, which are difficult to forecast. Historically, we have often recognized a substantial portion of our revenue in the last month of the quarter. This subjects us to the risk that even modest delays in orders may adversely affect our quarterly operating results. Our operating results may also fluctuate due to factors such as:
Because we base our staffing and other operating expenses on anticipated revenue, delays in the receipt of orders can cause significant variations in operating results from quarter to quarter. As a result of any of the foregoing factors, our results of operations in any given quarter may be below the expectations of public market analysts or investors, in which case the market price of our Common Stock would be adversely affected.
The loss of one or more of our senior personnel could harm our existing business.
A number of our officers and senior managers have been employed for seven to ten years by us, including our President, Chief Financial Officer, Chief Technical Officer, Vice President of Marketing, and Senior Vice President for Business Development/General Manager Embedded and Industrial Systems Unit. Our future success will depend upon the continued service of key officers and senior managers. Competition for officers and senior managers is intense and there can be no assurance that we will be able to retain our existing senior personnel. The loss of key senior personnel could adversely affect our ability to compete.
If we are unable to attract and retain highly skilled sales and marketing and product development personnel, our ability to develop new products and product enhancements will be adversely affected.
We believe our ability to achieve increased revenues and to develop successful new products and product enhancements will depend in part upon our ability to attract and retain highly skilled sales and marketing and product development personnel. Our products involve a number of new and evolving technologies, and we frequently need to apply these technologies to the unique requirements of mobile connection products. Our personnel must be familiar with both the technologies we support and the unique requirements of the products to which our products connect. Competition for such personnel is intense, and we may not be able to attract and retain such key personnel. In addition, our ability to hire and retain such key personnel will depend upon our ability to raise capital or achieve increased revenue levels to fund the costs associated with such key personnel. Failure to attract and retain such key personnel will adversely affect our ability to develop new products and product enhancements.
We may not be able to collect revenues from customers who experience financial difficulties.
Our accounts receivable are derived primarily from distributors and original equipment manufacturers. We perform ongoing credit evaluations of our customers' financial conditions but generally require no collateral. Reserves are maintained for potential credit losses, and such losses have historically been within such reserves. However, many of our customers may be thinly capitalized and may be prone to failure in adverse market conditions. Although our collection history has been good, from time to time a customer may not pay us because of financial difficulty, bankruptcy or liquidation.
We may be unable to manufacture our products because we are dependent on a limited number of qualified suppliers for our components.
Several of our component parts, including our serial interface chip, our Ethernet chip, and our bar code scanning modules, are produced by one or a limited number of suppliers. Shortages could occur in these essential materials due to an interruption of supply or increased demand in the industry. If we are unable to procure certain component parts, we could be required to reduce our operations while we seek alternative sources for these components, which could have a material adverse effect on our financial results. To the extent that we acquire extra inventory stocks to protect against possible shortages, we would be exposed to additional risks associated with holding inventory, such as obsolescence, excess quantities, or loss.
Our operating results could be harmed by economic, political, regulatory and other risks associated with export sales.
Export sales (sales to
customers outside the United States) accounted for approximately 42 percent
of our revenue in 2002 and approximately 39 percent of our revenue in the first
quarter of 2003. Accordingly, our operating results are subject to the risks
inherent in export sales, including:
Our export sales are predominately denominated in United States dollars and in Euros for a portion of our sales to European distributors. Accordingly, an increase in the value of the United States dollar relative to foreign currencies could make our products more expensive and therefore potentially less competitive in foreign markets. Declines in the value of the Euro relative to the United States dollar may result in foreign currency losses relating to collection of Euro denominated receivables.
Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure, and other events beyond our control.
Our corporate headquarters is located near an earthquake fault. The potential impact of a major earthquake on our facilities, infrastructure, and overall business is unknown. Additionally, we may experience electrical power blackouts or natural disasters that could interrupt our business. We do not have a detailed disaster recovery plan. We do not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages incurred by us as a result of these events could have a material adverse effect on our business.
The sale of a substantial number of shares of Common Stock could cause the market price of our Common Stock to decline.
Sales of a substantial number of shares of our Common Stock in the public market could adversely affect the market price for our Common Stock. The market price of our Common Stock could also decline if one or more of our significant stockholders decided for any reason to sell substantial amounts of our Common Stock in the public market.
As of May 31, 2003, we had 24,626,984 shares of Common Stock outstanding. Substantially all of these shares are freely tradable in the public market, either without restriction or subject, in some cases, only to S-3 or S-8/S-3 prospectus delivery requirements, and, in some cases, only to manner of sale, volume, and notice requirements of Rule 144 under the Securities Act.
As of May 31, 2003, we had 64,954 shares of Series E redeemable convertible preferred stock outstanding that are convertible into 649,540 shares of Common Stock at $0.87 per share. To the extent the market price of our Common Stock exceeds $0.87 per share, the holder of Series E may decide to convert some or all of the Series E into Common Stock, and such Common Stock would be freely tradable in the public market and subject only to S-3 prospectus delivery requirements.
As of May 31, 2003, we had 276,269 shares of Series F Preferred Stock outstanding that are convertible into 2,762,690 shares of Common Stock at $0.722 per share.
As of May 31, 2003, we had 6,074,253 shares subject to outstanding options under our stock option plans, and 684,088 shares were available for future issuance under the plans. We have registered the shares of Common Stock subject to outstanding options and reserved for issuance under our stock option plans. Accordingly, shares underlying vested options will be eligible for resale in the public market as soon as the options are exercised.
As of May 31, 2003, we had warrants outstanding to purchase a total of 1,930,451 shares of our Common Stock at exercise prices ranging from $0.722 to $1.59. All such warrants may be exercised at any time and the shares issuable upon exercise may be resold, either without restrictions or subject, in some cases, only to S-3 prospectus delivery requirements, and, in some cases, only to manner of sale, volume, and notice requirements of Rule 144.
Volatility in the trading price of our Common Stock could negatively impact the price of our Common Stock.
During the period from June 1, 2002 through May 31, 2003, our Common Stock price fluctuated between a high of $1.52 and a low of $0.51. The trading price of our Common Stock could be subject to wide fluctuations in response to many factors, some of which are beyond our control, including general economic conditions and the outlook of securities analysts and investors on our industry. In addition, the stock markets in general, and the markets for high technology stocks in particular, have experienced high volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Common Stock.
USE OF PROCEEDS
We will not receive
any of the proceeds from the sale of the shares sold under this prospectus,
although we may receive up to approximately $1,117,011 upon exercise of the
warrants. All proceeds from the sale of the shares will be for the account of
the selling stockholders. See "Selling Stockholders" and "Plan
of Distribution."
INFORMATION CONTAINED
IN THIS PROSPECTUS
You should rely only
on the information contained in this prospectus. We have not authorized anyone
to provide you with information different from that contained in this prospectus.
The selling stockholders listed in this prospectus are offering to sell, and
seeking offers to buy, shares of our common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock.
FORWARD-LOOKING
STATEMENTS
This prospectus contains
forward looking statements within the meaning of the securities laws. These
forward looking statements are subject to a number of risks and uncertainties,
many of which are beyond our control. All statements other than statements of
historical facts included in this prospectus, including the statements under
"The Company" and elsewhere in this prospectus regarding our strategy,
future operations, financial position, estimated revenues, projected costs,
prospects, plans and objectives of management, are forward looking statements.
When used in this prospectus, the words "will," "believe,"
"anticipate," "intend," "estimate," "expect,"
"project" and similar expressions are intended to identify forward
looking statements, although not all forward looking statements contain such
identifying words. All forward looking statements speak only as of the date
of this prospectus. Neither we nor any of the selling stockholders undertake
any obligation to update or revise publicly any forward looking statements,
whether as a result of new information, future events or otherwise. Although
we believe that our plans, intentions and expectations reflected in or suggested
by the forward looking statements we make in this prospectus are reasonable,
ultimately we may not achieve such plans, intentions or expectations.
We disclose important
factors that could cause our actual results to differ materially from our expectations
under "Risk Factors" and elsewhere in this prospectus. Such factors
include, among others, the following: our ability to raise sufficient capital
to fund our operations, our ability to achieve profitability, developments in
the market for our products, including the market for mobile computers that
use the Windows Pocket PC operating system, and developments in our relationships
with our strategic partners. These cautionary statements qualify all forward
looking statements attributable to us or persons acting on our behalf.
DESCRIPTION OF
SERIES F CONVERTIBLE PREFERRED STOCK
On March 21, 2003 we
completed a private placement of Series F Convertible Preferred Stock and Common
Stock Purchase Warrants pursuant to Subscription Agreements by and among certain
of the selling stockholders and us. The private placement was managed by Spencer
Trask Ventures, Inc.
Sale of Series F Convertible Preferred Stock and Warrants. Pursuant to the Subscription Agreements, we sold to certain of the selling stockholders a total of 276,269 units at a price of $7.22 per unit (the "Purchase Price") for aggregate proceeds of $2,000,000 in cash. Each unit consisted of (i) one share of our Series F Convertible Preferred Stock, convertible into 10 shares of our Common Stock (resulting in an implied conversion price of $0.722 per share) subject to certain adjustments as set forth in the Certificate of Designation of the Series F Preferred Stock; and (ii) one warrant to purchase three shares of our Common Stock at a price of $0.722 per share (the "Warrant Exercise Price"). We paid an aggregate of $260,000 in fees and expenses to Spencer Trask and incurred $189,000 in legal and other expenses in connection with the sale of these securities, and also issued to Spencer Trask a warrant to purchase 718,300 shares of our Common Stock at a price of $0.722 per share. Two directors of ours, Charlie Bass and Enzo Torresi, participated in the private placement in the amounts of $100,000 and $15,000, respectively, at a price of $7.595 per unit, in compliance with the rules of the NASDAQ stock market for insider participation.
Optional Conversion.
Holders of Series F Preferred Stock are entitled to convert all or an portion
of their Series F Preferred Stock into Common Stock on a one-for-ten basis (subject
to adjustment) at any time prior to the third anniversary of the closing date
of the private placement.
Automatic Conversion.
All shares of Series F Preferred Stock, if not converted sooner by the holder,
will convert automatically into Common Stock on a one-for-ten basis (subject
to adjustment) upon the earliest of (i) March 21, 2006 (the "Mandatory
Conversion Date"); (ii) immediately preceding a sale of all or substantially
all of our assets or a merger or consolidation of another entity with us, subject
to certain conditions; or (iii) if, after March 21, 2005 (or, if additional
units are sold, two years from the date of the final sale), the Common Stock
has a closing sale price of $5.00 or more for twenty consecutive trading days.
Dividend Rights.
Holders of Series F Preferred Stock are entitled to a cumulative dividend of
8 percent of the Purchase Price per year, payable in cash or, in our discretion,
in registered shares of Common Stock, at the end of each calendar quarter and
on the Mandatory Conversion Date. Holders of Series F Preferred are also entitled
to an additional dividend at the same rate as any dividend declared and paid
on our Common Stock. No dividends may be declared or paid on any shares of Common
Stock unless an equal or greater dividend is paid on the Series F Preferred
Stock in the same year and unless all prior accrued but unpaid dividends on
the Series F Preferred Stock have been paid.
Liquidation Preference.
In the event we liquidate, dissolve or wind up, the holders of Series F Preferred
Stock are entitled to receive, in preference to our Series E Preferred Stock
and our Common Stock, an amount equal to the Purchase Price plus any accrued
but unpaid dividends. After payment of the respective liquidation preferences
of all shares of Preferred Stock, the remaining assets will be distributed ratably
amount all holders of Series F Preferred Stock and Common Stock on an as-converted
basis.
Voting. Except
as required by law, the holders of the Series F Preferred Stock are entitled
to vote with the holders of the Common Stock as a single class on all matters
presented to the stockholders, provided that the holders of Series F Preferred
Stock are entitled to vote separately on any alternations of the rights or change
in the authorized number of shares of Series F Preferred Stock, the redemption
or repurchase of the Series F Preferred Stock, or any matters required by law
to be submitted to a separate class or series vote. Each share of Series F Preferred
Stock has the number of votes equal to the number of shares of Common Stock
into which such share is convertible.
Pre-emptive Rights.
The holders of the Series F Preferred Stock also have the right to purchase
all or part of such holders' pro rata share of our issuances of new securities,
subject to certain exceptions.
SELLING STOCKHOLDERS
The shares may be offered by the selling stockholders or by pledgees, donees, transferees or other successors in interest that receive such shares as a gift or through a private sale or other transfer. We may amend or supplement this prospectus from time to time to update the information provided in the table. The shares being offered by the selling stockholders may be increased by up to 535,000 shares if we elect to pay dividends on the Series F Preferred Stock with shares of Common Stock.
|
Certificate Name |
Shares
Beneficially Owned |
Number of Shares Being Offered |
Shares
Beneficially Owned |
|
|
|
|
Number |
Percent(1) |
|
|
Jan Arnett, M.D. (2) |
22,516 |
22,516 |
* |
* |
|
David T. Barry (3) |
13,507 |
13,507 |
* |
* |
|
James K. Baskin (4) |
13,507 |
13,507 |
* |
* |
|
The Bass Trust (5) |
1,664,901 |
171,171 |
1,493,730 |
6.1% |
|
Joe N. & Jamie Behrendt Revocable Trust 10/20/96 (6) |
45,019 |
45,019 |
* |
* |
|
Lon Bell (7) |
90,038 |
90,038 |
* |
* |
|
Mark
Boyce (8)
|
90,038 | 90,038 |
* |
* |
|
William
J. Callahan & Joan M. Callahan JTWROS (9)
|
45,019 | 45,019 |
* |
* |
|
Clariden
Bank (10)
|
180,063 | 180,063 |
* |
* |
|
Dr.
Malcolm R. Currie (11)
|
18,018 | 18,018 |
* |
* |
|
DCG&T
c/f Eric Rubenstein IRA (12)
|
9,009 | 9,009 |
* |
* |
|
DCG&T
c/f Robert G. Heidenreich IRA (13)
|
54,028 | 54,028 |
* |
* |
|
DCG&T
c/f Scott Leishman IRA Rollover (14)
|
13,507 | 13,507 |
* |
* |
|
DCG&T
Co. FBO Warren Kramer IRA (15)
|
22,516 | 22,516 |
* |
* |
|
Stephen
A. de Kanter (16)
|
45,019 | 45,019 |
* |
* |
|
Delaware
Charter G&T C/F Elizabeth A. Eller IRA (17)
|
36,023 | 36,023 |
* |
* |
|
Delaware
Charter G&T Co FBO Elizabeth H. Bone SEP IRA (18)
|
36,023 | 36,023 |
* |
* |
|
Steven
H. Deutsch & Wilma K. Deutsch JTWROS (19)
|
36,023 | 36,023 |
* |
* |
|
Cindy
Dolgin (20)
|
45,019 | 45,019 |
* |
* |
|
Jacob
M. Engel (21)
|
45,019 | 45,019 |
* |
* |
|
Joseph
A. Fabiani (22)
|
18,018 | 18,018 |
* |
* |
|
Harold
L. Finelt (23)
|
45,019 | 45,019 |
* |
* |
|
George
Fink (24)
|
18,018 | 18,018 |
* |
* |
|
Gary
Fischoff (25)
|
45,019 | 45,019 |
* |
* |
|
Jonathan
Fleisig (26)
|
180,063 | 180,063 |
* |
* |
|
Maurice
& Stacy Gozlan TIE (27)
|
90,038 | 90,038 |
* |
* |
|
Hanam
Capital Corporation (28)
|
45,019 | 45,019 |
* |
* |
|
Headwaters
Holdings LLC (29)
|
180,063 | 180,063 |
* |
* |
|
Byron
Hughey & Julie Hughey Ten by Entirety with Common Law Ros Expressly
Contained (30)
|
27,014 | 27,014 |
* |
* |
|
Hypo
Alpe-Adria-Bank (Liechtenstein) AG (31)
|
90,038 | 90,038 |
* |
* |
|
Alec
Jaret (32)
|
18,018 | 18,018 |
* |
* |
|
Jericho
Investments (33)
|
90,038 | 90,038 |
* |
* |
|
David
V. Kahn (34)
|
18,018 | 18,018 |
* |
* |
|
Jonathan
E. Kahn (35)
|
45,019 | 45,019 |
* |
* |
|
John
J. Kealy Revocable Trust dtd 8/15/96 John J. Kealy TTEE (36)
|
12,610 | 12,610 |
* |
* |
|
James
Kendall (37)
|
90,038 | 90,038 |
* |
* |
|
Christian
Kolster (38)
|
72,033 | 72,033 |
* |
* |
|
Kenneth
J. Kostal (39)
|
22,516 | 22,516 |
* |
* |
|
Thaddeus
B. Kubis & Maria G. Kubis JTWROS (40)
|
18,018 | 18,018 |
* |
* |
|
Ronald
Lachman (41)
|
180,063 | 180,063 |
* |
* |
|
Ezra
P. Mager (42)
|
90,038 | 90,038 |
* |
* |
|
Thomas
A. Masci, Jr. (43)
|
13,507 | 13,507 |
* |
* |
|
Kathleen
S. McHugh (44)
|
9,009 | 9,009 |
* |
* |
|
Richard
J. Mish (45)
|
22,516 | 22,516 |
* |
* |
|
Mouton
Family Living Trust (46)
|
22,516 | 22,516 |
* |
* |
|
Brian
Neville (47)
|
15,007 | 13,507 |
* |
* |
|
Gus
& Karen Nicolopoulos (48)
|
18,018 | 18,018 |
* |
* |
|
Edward
J. O'Connell (49)
|
45,019 | 45,019 |
* |
* |
|
O.T.
Finance, SA (50)
|
45,019 | 45,019 |
* |
* |
|
Performance
Capital Group, LLC (51)
|
45,019 | 45,019 |
* |
* |
|
Kenneth
J. Peterson (52)
|
90,038 | 90,038 |
* |
* |
|
Lisa
Peterson & Mark Smith JTWROS (53)
|
18,018 | 18,018 |
* |
* |
|
K.V.
Rajagopalan (54)
|
18,018 | 18,018 |
* |
* |
|
Elisha
Rothman (55)
|
90,038 | 90,038 |
* |
* |
|
Alan
Rubin (56)
|
90,038 | 90,038 |
* |
* |
|
Richard
Russey (57)
|
13,507 | 13,507 |
* |
* |
|
Richard
Sakakeeny (58)
|
18,018 | 18,018 |
* |
* |
|
Larry
Schwartz (59)
|
9,009 | 9,009 |
* |
* |
|
Elliot
Sokolow (60)
|
45,019 | 45,019 |
* |
* |
|
Mark
C. Steadman (61)
|
14,417 | 14,417 |
* |
* |
|
Adam
K. Stern (62)
|
19,018 | 18,018 |
* |
* |
|
David
& Ida Stollwerk (63)
|
18,018 | 18,018 |
* |
* |
|
Enzo
Torresi (64)
|
115,716 | 25,675 |
* |
* |
|
Samuel
Victor Vail (65)
|
18,018 | 18,018 |
* |
* |
|
Vitel
Ventures, Inc. (66)
|
45,019 | 45,019 |
* |
* |
|
Jerold
Weinger & Lilli Weinger JTWROS (67)
|
45,019 | 45,019 |
* |
* |
|
Paul
J. Weir (68)
|
13,507 | 13,507 |
* |
* |
|
Ralph
C. Wintrode Trust dtd May 9, 2001 (69)
|
36,023 | 36,023 |
* |
* |
|
Henry
Yordan (70)
|
18,018 | 18,018 |
* |
* |
|
Michael
Zimmerman (71)
|
18,018 | 18,018 |
* |
* |
|
Spencer
Trask Private Equity Fund I, L.P. (72)
|
90,038 | 90,038 |
* |
* |
|
Spencer
Trask Private Equity Fund II, LP (73)
|
90,038 | 90,038 |
* |
* |
|
Spencer
Trask Private Equity Fund III, LLC (74)
|
90,038 | 90,038 |
* |
* |
|
Spencer
Trask Ventures, Inc. (75)
|
718,300 | 718,300 |
* |
* |
|
________________________ |
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:
The selling stockholders
may also sell shares under Rule 144 under the Securities Act, if available,
rather than under this prospectus. Broker-dealers engaged by the selling stockholders
may arrange for other brokers-dealers to participate in sales. Broker-dealers
may receive commissions or discounts from the selling stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser)
in amounts to be negotiated. The selling stockholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions involved.
The selling stockholders
may from time to time pledge or grant a security interest in some or all of
the preferred stock, common stock or warrants owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act amending the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.
The selling stockholders
also may transfer the shares of common stock in other circumstances, in which
case the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
The selling stockholders
and any broker-dealers or agents that are involved in selling the shares may
be deemed to be "underwriters" within the meaning of the Securities
Act in connection with such sales. In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act. The selling stockholders have informed us that none of them
have any agreement or understanding, directly or indirectly, with any person
to distribute the common stock.
Some of the selling stockholders are affiliates of registered broker-dealers, and Performance Capital Group, LLC and Jericho Investments are registered broker-dealers and are "underwriters" within the meaning of the Securities Act. Each of these selling stockholders has informed us that they have acquired the shares of common stock for investment in the ordinary course of business. In addition, each of these selling stockholders has informed us that they did not have any agreement, plans or understanding, directly or indirectly, with any person to distribute the shares of common stock.
We are required to pay all fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California will pass upon certain legal
matters relating to the validity of the securities offered for us hereby.
EXPERTS
Ernst & Young LLP, independent
auditors, have audited our consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2002, as set forth
in their report, which is incorporated by reference in this prospectus and elsewhere
in the registration statement. Our financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the Securities
and Exchange Commission a registration statement on Form S-3, of which this
prospectus is a part, under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all of the information
included in the registration statement. Statements in this prospectus concerning
the provisions of any document are not necessarily complete. You should refer
to the copies of these documents filed as exhibits to the registration statement
or otherwise filed by us with the SEC for a more complete understanding of the
matter involved. Each statement concerning these documents is qualified in its
entirety by such reference.
We are subject to the informational
requirements of the Securities and Exchange Act of 1934 and, accordingly, file
reports, proxy statements and other information with the SEC. The SEC maintains
a web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Copies of our reports, proxy statements and other information
also may be inspected and copied at the public reference facility maintained
by the SEC at the Judiciary Plaza, 450 Fifth Street, N.W., Room 124, Washington,
D.C. 20549. Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, NW, Washington,
DC 20549 or by calling the SEC at 1-800-SEC-0330.
INFORMATION INCORPORATED
BY REFERENCE
The SEC allows us to "incorporate
by reference" the information we file with them, which means that we can
disclose important information to you in this document by referring you to other
filings we have made with the SEC. The information incorporated by reference
is considered to be part of this prospectus, and later information filed with
the SEC will update and supersede this information. We incorporate by reference
the documents and information listed below and any future filings made with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange
Act prior to the completion of the offering covered by this prospectus:
(1) Our Annual Report on Form 10-K for the year ended December 31, 2002.
(2) Our Annual Report on Form 11-K for the year ended December 31, 2002.
(3) Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
(4) Our Current Reports on Form 8-K filed with the SEC on March 25, 2003, April 23, 2003, and June 10, 2003.
(5) The description of our common stock contained in our Registration Statement on Form 8-A filed with the SEC on April 11, 1995 and our Registration Statement on Form 8-A/A filed with the SEC on June 15, 1995.
We will provide to any person, including
any beneficial owner, to whom a prospectus is delivered, a copy of any of the
information which has been incorporated by reference into this prospectus at
no cost upon an oral or written request to:
Socket Communications,
Inc.
37400 Central Court
Newark, CA 94560
Attention: David W. Dunlap
(510) 744 2700
You can also call David W. Dunlap, Chief Financial Officer of Socket Communications, at (510) 744-2700 with any questions about the shares offered under this prospectus.
4,844,797
Shares
SOCKET COMMUNICATIONS, INC.
COMMON STOCK
PROSPECTUS
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
July 17, 2003