UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(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
Commission file number 1-13810
SOCKET COMMUNICATIONS, INC.
(Name of small business issuer as specified in its charter)
Delaware 94-3155066
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
37400 Central Court, Newark, CA 94560
(Address of principal executive offices including zip code)
(510) 744-2700
(Registrant's telephone number, including area code)
6500 Kaiser Drive, Fremont, CA 94555
(Former name or former address, if changed since last report.)
Check whether the issuer (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__
Number of shares of Common Stock ($0.001 par value) outstanding as
of October 31, 1996 was 3,023,365 shares.
<PAGE> Page 1
INDEX
PAGE NO.
Part I. Financial information
Condensed Balance Sheets - September 30, 1996 and
December 31, 1995.......................................... 3
Condensed Statements of Operations - Three Months and Nine
Months Ended September 30, 1996 and 1995................... 4
Condensed Statements of Cash Flows - Nine Months Ended
September 30, 1996 and 1995................................ 5
Notes to Condensed Financial Statements...................... 6-8
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 9-12
Part II. Other information
Item 6. Exhibits and Reports on Form 8-K..................... 13
Signatures................................................... 14
<PAGE> Page 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995*
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 382,039 $ 2,406,655
Accounts receivable, net...................... 720,389 900,717
Inventories................................... 721,313 510,331
Prepaid expenses.............................. 48,291 31,880
------------ ------------
Total current assets........................ 1,872,032 3,849,583
Property and equipment:
Machinery and office equipment................ 383,999 340,108
Computer equipment............................ 453,757 345,571
------------ ------------
837,756 685,679
Accumulated depreciation...................... (502,651) (332,300)
------------ ------------
335,105 353,379
Other assets................................... 54,398 72,436
------------ ------------
Total assets................................ $ 2,261,535 $ 4,275,398
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank line of credit.......................... $ 231,004 $ --
Accounts payable and accrued expenses........ 1,408,572 1,129,439
Accrued payroll and related expenses......... 292,204 357,771
Deferred revenue............................. 131,428 112,143
Current portion of capital leases and
equipment financing notes................... 126,913 106,629
------------ ------------
Total current liabilities.................. 2,190,121 1,705,982
Long-term portion of capital leases and
equipment financing notes.................... 117,990 141,121
Stockholders' equity (deficit):
Undesignated preferred stock, $0.001 par value:
Authorized shares - 3,000,000
Issued and outstanding shares - none........ -- --
Common stock, $0.001 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 3,023,365 in
1996, and 2,990,870 in 1995................ 3,023 2,991
Additional paid-in capital................... 11,411,858 11,393,663
Accumulated deficit.......................... (11,461,457) (8,968,359)
------------ ------------
Total stockholders' equity (deficit)....... (46,576) 2,428,295
------------ ------------
Total liabilities and stockholders'
equity (deficit).......................... $ 2,261,535 $ 4,275,398
=========== ============
- -------------
* Derived from audited financial statements.
See accompanying notes.
</TABLE>
<PAGE> Page 3
<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product....................$1,117,218 $ 937,343 $3,242,668 $3,178,650
Royalty and other.......... 35,397 63,406 172,187 164,795
---------- ---------- ----------- -----------
Total revenue............. 1,152,615 1,000,749 3,414,855 3,343,445
Cost of revenue............. 598,805 549,785 1,886,854 2,065,447
---------- ---------- ----------- -----------
Gross profit................ 553,810 450,964 1,528,001 1,277,998
Operating expenses:
Research and development... 259,983 241,802 774,520 768,941
Sales and marketing........ 698,010 609,536 2,026,103 1,611,586
General and administrative. 436,225 362,764 1,211,410 1,114,552
---------- ---------- ----------- -----------
Total operating expenses.. 1,394,218 1,214,102 4,012,033 3,495,079
---------- ---------- ----------- -----------
Operating loss.............. (840,408) (763,138) (2,484,032) (2,217,081)
Interest income and other
(expense), net............. 2,644 47,277 26,776 53,954
Interest expense............ (15,173) (5,369) (35,842) (106,652)
---------- ---------- ----------- -----------
Net loss.................. $(852,937) $ (721,230) $(2,493,098) $(2,269,779)
========== ========== =========== ===========
Net loss per share........ $ (0.28) $ (0.24) $ (0.83) $ (1.32)
========== ========== =========== ===========
Weighted average shares
outstanding.............. 3,021,168 2,972,018 3,008,530 1,719,511
========== ========== =========== ===========
See accompanying notes.
</TABLE>
<PAGE> Page 4
<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Operating activities
Net loss.........................................$(2,493,098) $(2,269,779)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 170,351 195,174
Accrued interest on converted notes............ -- 110,232
Changes in operating assets and liabilities:
Accounts receivable............................ 180,328 259,020
Inventories.................................... (210,982) (307,006)
Prepaid expenses............................... (16,411) 1,871
Other assets................................... 18,038 (20,501)
Accounts payable and accrued expenses.......... 279,133 (240,336)
Accrued payroll and related expenses........... (65,567) 54,119
Deferred revenue............................... 19,285 8,250
----------- -----------
Net cash used in operating activities........ (2,118,923) (2,208,956)
Investing activities
Purchase of equipment............................ (152,077) (88,877)
----------- -----------
Net cash used in investing activities........ (152,077) (88,877)
Financing activities
Payments on capital leases and equipment
financing notes................................. (88,708) (52,488)
Proceeds from equipment financing................ 85,861 --
Proceeds from issuance of convertible notes...... -- 1,469,000
Repayment of convertible notes................... -- (955,000)
Stock options and warrants exercised............. 18,227 5,591
Net proceeds from the sale of common stock....... -- 4,836,772
Proceeds from borrowing under bank line of credit 231,004 --
----------- -----------
Net cash provided by financing activities..... 246,384 5,303,875
----------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... (2,024,616) 3,006,042
Cash and cash equivalents at beginning of period.. 2,406,655 407,602
----------- -----------
Cash and cash equivalents at end of period........$ 382,039 $ 3,413,644
=========== ===========
Supplemental cash flow information
Cash paid for interest..........................$ 35,842 $ 20,816
Notes payable and accrued interest converted
to common stock................................ -- 2,389,232
</TABLE>
See accompanying notes.
<PAGE> Page 5
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation
The accompanying financial statements of Socket Communications, Inc.
(the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB item 310(b). 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 fair presentation have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
The financial statements have been prepared on a going concern
basis. The Report of Independent Auditors on the Company's financial
statements for the year ended December 31, 1995 included in Form
10-KSB contained an explanatory paragraph which indicated substantial
doubt about the Company's ability to continue as a going concern
because of the Company's recurring operating losses and the need for
additional financing. As of September 30, 1996 the Company had a net
working capital deficiency of $318,089, accumulated losses for the nine
months ended September 30, 1996 of $2,493,098, and an accumulated deficit
of $11,461,457. The Company will require additional financing during
1997 and ultimately will need to achieve profitable operations. The
Company believes that sufficient outside financing sources will be
available, however, there can be no assurance that the Company will be
able to obtain such financing on commercially reasonable terms, if at
all, and such terms may be dilutive to existing stockholders. If the
Company is unable to obtain the necessary funds, other more substantial
restructuring options may be necessary which may have adverse effects on
the Company's operations. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of assets and liabilities that may result from the
outcome of this uncertainty.
Operating results for the three months and nine months ended
September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
NOTE 2 - Cash Equivalents
Cash equivalents consist mainly of money market funds which are
highly liquid financial instruments that are readily convertible to
cash. The Company has not incurred losses related to these
instruments. As of September 30, 1996 and December 31, 1995, the
Company had no material investments in debt or equity securities.
<PAGE> Page 6
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - Inventories
Inventories consist principally of raw materials and sub-
assemblies, which are stated at the lower of cost (first-in, first-
out) or market.
September 30, December 31,
1996 1995
------------- ------------
Raw materials and sub-assemblies $ 686,910 $ 481,592
Finished goods 34,403 28,739
------------- ------------
$ 721,313 $ 510,331
============= ============
NOTE 4 - Income Taxes
Due to the Company's loss position, there was no provision for
income taxes for the three months and nine months ended September
30, 1996 and 1995.
NOTE 5 - Net Loss Per Share
Net loss per share is calculated using the weighted average
number of common shares outstanding during the period. Common
equivalent shares are excluded from the calculation as the effect is
antidilutive, however, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, common stock and common
equivalent shares issued by the Company at prices below the initial
public offering price during the twelve-month period prior to the
offering have been included in the calculation as if they were
outstanding for all periods through March 31, 1995 (using the
treasury stock method for warrants and options and the initial
public offering ("IPO") price on an if-converted method). The
Company completed its IPO in June 1995.
NOTE 6 - Bank Financing Arrangements
In June 1996, the Company's credit agreement (the "Agreement")
with a bank was amended to extend the maturity date to June 15,
1997. The Agreement is secured by the Company's current and future
assets. The credit facility under the Agreement allows the Company
to borrow up to $500,000 based on the level of qualified
receivables. An additional $500,000 in credit secures a letter of
credit with a supplier. The Agreement contains covenants that
require the Company to maintain certain financial ratios. The
Company was not in compliance with the covenants at September 30,
1996 and has obtained a temporary waiver. As of September 30, 1996
there were $231,004 outstanding in borrowings under the Agreement.
NOTE 7 - Subsequent Event
On November 1, 1996 (the "Closing"), the Company, sold 15,500
shares of its Series A Convertible Preferred Stock, $0.001 par
value, at $100 per share pursuant to Regulation D of the Securities
Act of 1933, as amended (the "Transaction"). The Transaction was
effected pursuant to a Confidential Private Offering Memorandum
dated as of May 31, 1996, as supplemented on August 22, 1996,
September 10, 1996, October 9, 1996 and October 30, 1996 and
Subscription Agreements effective as of the Closing by and between
the Company and the purchasers. Each share of Series A Convertible
Preferred Stock will be convertible at the option of the holder, in
<PAGE> Page 7
SOCKET COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
whole or in part, at any time on or after the 60th day following the
Closing, into shares of Common Stock of the Registrant equal to $100
divided by the lower of: (i) the closing bid price of the
Registrant's Common Stock, as reported by the Nasdaq SmallCap
Market, on the date of the Closing ; and (ii) 65% of the
average bid price of the Company's Common Stock, as reported by the
Nasdaq SmallCap Market, for the five business days prior to the
business day on which notice of conversion is transmitted by the
holder of such share of Series A Convertible Preferred Stock,
subject to adjustment in certain events. Each share of Series A
Convertible Preferred Stock shall be converted automatically into
shares of Common Stock on the earliest of (i) immediately preceding
a merger or consolidation of the Company if as a result of such
transaction the holders of Common Stock would receive publicly
traded securities with a market value greater than the initial
liquidation preference of the Series A Convertible Preferred Stock
or (ii) the first anniversary of the Closing.
As of September 30, 1996, the Company had a total stockholders'
deficit of $46,576. Estimated net proceeds from the Transaction are
$1,200,000 ($1,550,000 less estimated costs and expenses of
$350,000). The pro forma effect of the Transaction on total
stockholders' equity as of September 30, 1996 is as follows:
<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
PRO FORMA SUMMARY FINANCIAL INFORMATION
(Unaudited)
Actual As of Pro forma
September 30, Pro forma September 30,
Balance Sheet Data: 1996 Adjustments 1996
------------- ------------ -------------
<S> <C> <C> <C>
Cash........................$ 382,039 $1,200,000 * $1,582,039
Other working capital....... (700,128) - (700,128)
------------- ------------ -------------
Total working capital..... (318,089) 1,200,000 881,911
Property and other
non-current assets......... 389,503 - 389,503
------------- ------------ -------------
Long-term portion of
capital leases and
equipment financing notes.. (117,990) - (117,990)
------------- ------------ -------------
Net Assets................ $ (46,576) $1,200,000 $1,153,424
============= ============ =============
Capital stock...............$ 11,414,881 $1,200,000 * $12,614,881
Accumulated deficit......... (11,461,457) - (11,461,457)
------------- ------------ -------------
Total stockholders'
equity (deficit)......... $ (46,576) $1,200,000 $ 1,153,424
============= ============ =============
</TABLE>
_________________
* Estimated net proceeds from private placement offering of
Series A Convertible Preferred Stock ($1,550,000), after deducting
commissions and estimated offering expenses ($350,000).
<PAGE> Page 8
SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations section contains forward-looking statements
(identified with an asterisk "*") that involve risks and uncertainties.
The Company's actual results may differ significantly from the results
discussed in the forward-looking statements. For a more complete
discussion of the factors that might cause such a difference, see
"Business" including "Additional Risk Factors Affecting Future
Performance" in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995 (collectively, the "Form 10-KSB Sections").
Overview
The Company's serial and Ethernet card products for PC Card mobile
computers, introduced in 1993, are its principal sources of revenues.
The Company also sells two wireless products, a PageCard PC Card
wireless messaging system introduced in January 1995 and a GPS card. In
addition, the Company earns sales royalties from sale of certain of the
Company's products by the third party manufacturers of those products.
The Company completed its initial public offering ("IPO") in June
1995, with net proceeds of approximately $4.8 million. Prior to the
IPO, the Company's working capital requirements were met primarily
through the private sale of equity and debt securities. The Company
has sustained significant quarterly operating losses in every fiscal
period since its inception. The Company expects to incur substantial
quarterly operating losses at least through the first half or 1997 and
possibly longer.* Achieving revenue growth from the Company's existing
and future products will be highly dependent upon the market acceptance
of the PageCard receiver, the market acceptance and timely release of
enhanced PageSoft software products, the development of page-enabled
applications by independent software vendors in selected vertical
markets, continued increases in the market acceptance of the Company's
serial and Ethernet cards and the ability of the Company to develop
successful new products for new and existing markets.* There can be no
assurances that any of these events will occur or that the Company's
revenues will grow. The Company's ability to continue its operations is
also dependent upon the availability of additional capital.* In November
1996, the Company sold $1,550,000 of its convertible preferred stock
through a private placement offering. See Note 7 to Notes to Condensed
Financial Statements. See also "Liquidity and Capital Resources."
The Company believes that its operating results will be subject to
substantial quarterly fluctuations due to several factors, some of
which are outside the control of the Company, including fluctuating
market demand for, and declines in the average selling price of, the
Company's products, the timing of significant orders from distributors
and OEM customers, delays in the introduction of enhancements to
existing and new products, market acceptance of existing and new
______________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual
future performance will meet the Company's current expectations due to
factors described in this Management's Discussion and Analysis Of
Financial Condition and Results Of Operations and in the Form 10-KSB
Sections.
<PAGE> Page 9
SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
products, competitive product introductions, the mix of products sold,
changes in the Company's distribution network, changes in customer
product requirements, changes in the regulatory environment, the cost and
availability of components, the level of royalties from and to third
parties and general economic conditions. The Company generally does not
operate with a significant order backlog, and a substantial portion of the
Company's revenue in any quarter is derived from orders booked in that
quarter. Accordingly, the Company's sales expectations are based
almost entirely on its internal estimates of future demand and not on
firm customer orders. The Company is making significant investments in
sales and marketing and in research and development, and if orders and
sales do not meet expectations, the Company's operating results could
be materially adversely affected.
Results of Operations
Revenue
Revenue for the quarter and nine months ended September 30, 1996 of
$1,152,615 and $3,414,855, respectively, increased 15% and 2% versus
the corresponding periods a year ago. The increase for the quarter
ended September 30, 1996 was primarily due to higher volumes of serial
card and Ethernet card shipments, partially offset by unit price
reductions for the Company's Ethernet card. The slight increase for the
nine months ended September 30, 1996 was primarily due to increased
serial card shipments, offset by unit price reductions and lower sales
volumes for the Company's Ethernet card.
Product Gross Profit
The Company's product gross margin (excluding royalties and other
revenue) for the third quarter of 1996 was 46% of product
revenues compared to 41% for the same quarter a year ago. The Company's
product gross margin for the nine month period in 1996 was 42% of
product revenues compared to 35% for the same period a year ago. The
increase resulted primarily from volume price discounts from certain
suppliers and engineered unit cost decreases in certain products,
offset in part by a selling price reduction for Ethernet cards.
Research and Development
Research and development expenses for the quarter and nine months
ended September 30, 1996 were $259,983 and $774,520, respectively, an 8%
and 1% increase versus the corresponding periods a year ago, primarily
reflecting increased staffing and related costs. To date, the Company
has not capitalized any software development costs. The Company expects
its research and development expenses for the fourth quarter of 1996 to be
similar to third quarter expense.*
______________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual
future performance will meet the Company's current expectations due to
factors described in this Management's Discussion and Analysis Of
Financial Condition and Results Of Operations and in the Form 10-KSB
Sections.
<PAGE> Page 10
SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and Marketing
Sales and marketing expenses for the quarter and nine months ended
September 30, 1996 were $698,010 and $2,026,103, respectively, a 15%
and 26% increase over the corresponding periods a year ago. The
increase primarily reflected higher staffing levels, increased
advertising activity and increased levels of travel. The Company expects
its sales and marketing expenses for the fourth quarter of 1996 to be
similar the third quarter expenses.*
General and Administrative
General and administrative expenses for the quarter and nine months
ended September 30, 1996 were $436,225 and $1,211,410, respectively, a
20% and 9% increase over the corresponding periods a year ago. The
increase primarily reflected higher recruiting fees, relocation costs,
and professional fees, partially offset by lower compensation costs in
the first quarter associated with a vacancy in the C.E.O. position,
which was filled March 1, 1996. The Company expects its general and
administrative expenses to decline moderately due to a move in October
1996 into less expensive facilities, offset partially in the fourth
quarter of 1996 by the cost of the move.*
Interest and Other Income / Expense
Interest income primarily reflects interest earned on cash balances
invested in money market funds. Interest expense for the quarter and
nine months ended September 30, 1996 was $15,173 and $35,842,
respectively, and related primarily to equipment lease financing
obligations and bank credit line obligations. Interest expense for the
quarter and nine months ended September 30, 1995 was $5,369 and
$106,652, respectively, and related primarily to interest expense on
convertible notes issued to provide interim bridge financing prior to
the IPO and interest expense related to equipment lease financing
obligations.
Liquidity and Capital Resources
Net cash used for operating activities in the nine months ended
September 30, 1996 was $2,118,923, resulting primarily from the net
loss, an increase in inventories and decreases in accrued payroll and
related expenses, partially offset by increases in accounts payables
and decreases in accounts receivable. Net cash used for operating
activities in the nine months ended September 30, 1995 was $2,208,956,
resulting primarily from the net loss and an increase in inventories
and decrease in accounts payable and accrued expenses, partially offset
by decreases in accounts receivable and an increase in accrued payroll
and related expenses.
_______________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual
future performance will meet the Company's current expectations due to
factors described in this Management's Discussion and Analysis Of
Financial Condition and Results Of Operations and in the Form 10-KSB
Sections.
<PAGE> Page 11
SOCKET COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided by financing activities in the nine months ended
September 30, 1996 primarily reflected borrowings under a revolving
credit line with a bank (see Note 6 of Notes to Condensed Financial
Statements) and equipment financing notes. Cash provided by financing
activities during the nine months ended September 30, 1995 primarily
reflected proceeds from the Company's IPO and convertible notes issued
to provide interim bridge financing prior to the IPO.
As of September 30, 1996, the Company had cash and cash equivalents
of $382,039. Subsequently, on November 1, 1996, the Company completed
the private sale of Series A Convertible Preferred Stock with estimated
net proceeds of $1,200,000 (see Note 7 of Notes to Condensed Financial
Statements). The Company believes its existing capital resources at
September 30, 1996, combined with proceeds from the private sale of
Series A Convertible Preferred Stock and revenue from operations will
be inadequate to satisfy its working capital requirements through the
end of 1997. The Company will need to raise additional capital to fund
operations in 1997, which the Company intends to seek through the
private sale of equity securities.* The Report of Independent
Auditors on the Company's financial statements for the year ended
December 31, 1995 included in Form 10-KSB contains an explanatory
paragraph regarding the Company's need for additional financing and
indicated substantial doubt about the Company's ability to continue as a
going concern absent such financing. There can be no assurances that
such capital will be available on acceptable terms, if at all, and such
terms may be dilutive to existing stockholders. If the necessary
funding is not obtained, there could be a material adverse affect on
the Company's financial condition and results of operations. The Company's
actual working capital needs will depend upon numerous factors, however,
including the extent and timing of acceptance of the Company's products in
the market, the Company's operating results, the progress of the Company's
research and development activities, the cost of increasing the Company's
sales and marketing activities and the status of competitive products, none
of which can be predicted with certainty. The Company must have capital and
surplus of at least $1,000,000 to maintain continued quotation on the
Nasdaq SmallCap Market and Pacific Stock Exchange. Until the closing of the
private placement on November 1, 1996, the Company was temporarily not in
compliance with this requirement (see Note 7 of Notes to Condensed
Financial Statements).
______________
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual
future performance will meet the Company's current expectations due to
factors described in this Management's Discussion and Analysis Of
Financial Condition and Results Of Operations and in the Form 10-KSB
Sections.
<PAGE> Page 12
PART II. OTHER INFORMATION
Items 1-5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibits are filed herewith:
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- ----------------
4.1 Amended Certificate of Designation of Rights
and Preferences of Series A Convertible Preferred Stock.
11.1 Statement regarding computation of per share loss
27.1 Financial data schedule for the period ended
September 30, 1996
b. Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended September 30, 1996.
<PAGE> Page 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SOCKET COMMUNICATIONS, INC.
Registrant
Date: November 11, 1996 /s/ David W. Dunlap
----------------- --------------------------
David W. Dunlap
Vice President of Finance
and Administration and
Chief Financial Officer
<PAGE> Page 14
AMENDED CERTIFICATE OF DESIGNATION
PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK OF
SOCKET COMMUNICATIONS, INC.
Pursuant to Section 151 of the General Corporation Law of the State
of Delaware
Socket Communications, Inc., a Delaware corporation (the "Company"),
certifies that pursuant to authority given by the Company's Certificate of
Incorporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware:
1. No shares of Series A Convertible Preferred Stock have been
issued by the Company.
2. The Board of Directors of the Company has duly adopted the
following recitals and resolutions amending the terms of the Series A
Convertible Preferred Stock of the Company:
WHEREAS, the Certificate of Incorporation of the Company provided for
a class of shares known as Preferred Stock, issuable from time to time
in one or more series; and
WHEREAS, the Board of Directors of the Company is authorized to
determine or alter the rights, preferences, privileges and
restrictions relating to any unissued series of said Preferred Stock
and the number of shares constituting and the designation of said
series; and
WHEREAS, the Board of Directors had previously approved, and had
authorized the appropriate officers of the Company to file with the
Secretary of State of Delaware, a Certificate of Designations,
Preferences and Rights (the "Certificate of Designations") of a new
series of Preferred Stock to be designated "Series A Convertible
Preferred Stock," and the Company filed such Certificate of
Designations with the Secretary of State of Delaware on September 12,
1996; and
WHEREAS, the Board of Directors wishes to amend the terms of the Series
A Preferred Stock as set forth in the Certificate of Designations.
NOW, THEREFORE, BE IT RESOLVED: that the Board of Directors hereby
designates, fixes the number of shares constituting, and determines
the rights, preferences, privileges and restrictions relating to the
Series A Convertible Preferred Stock:
<PAGE>
1. Designation. The new series of Preferred Stock shall be designated
"Series A Convertible Preferred Stock." The number of shares constituting
the Series A Convertible Preferred Stock shall be 1,000,000. The Board of
Directors may at any time amend this Certificate of Designations,
Preferences and Rights to decrease the authorized number of shares of Series
A Convertible Preferred Stock to a number equal to or greater than the number
of shares of Series A Convertible Preferred Stock issued and outstanding at
the time of the amendment. The "Initial Sales Price" of the Series A
Convertible Preferred Stock shall be $100 and the "Original Issue Date" shall
mean the date on which shares of Series A Convertible Preferred Stock are
first sold to investors. The relative rights, preferences, privileges and
restrictions granted to or imposed upon the Series A Convertible Preferred
Stock or the holders thereof are specified below.
2. Dividend Rights of Series A Convertible Preferred Stock. The
holders of the Series A Convertible Preferred Stock shall be entitled to
receive dividends on each share of Series A Convertible Preferred Stock (a)
at an annual rate of 6% on each of the dates (each a "Dividend Payment Date")
six months and twelve months after the Original Issue Date (the "Mandatory
Dividends") and (b) otherwise when, as and if declared by the Board of
Directors, out of any funds legally available therefor, at the same rate as
is declared and paid on shares of Common Stock. No dividend may be paid on
or declared or set apart for the Common Stock in any one fiscal year unless
an equal or greater dividend is paid on, or declared and set apart for, each
share of Series A Convertible Preferred Stock. If a holder of Series A
Convertible Preferred Stock converts shares of Series A Convertible Preferred
Stock into Common Stock prior to a Dividend Payment Date, then the amount of
dividends paid on such converted shares shall be (a) prorated for the amount
of time such Series A Convertible Preferred Stock was issued and outstanding
and (b) paid on the next Dividend Payment Date. Dividends (other than the
Mandatory Dividends) on the Series A Convertible Preferred Stock shall not be
cumulative and no rights shall accrue to the holders of the Series A
Convertible Preferred Stock in the event the Company shall fail to declare or
pay dividends (other than the Mandatory Dividends) on the Series A Convertible
Preferred Stock, whether or not the earnings of the Company in that previous
fiscal year were sufficient to pay such dividends in whole or in part.
3. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Company, no distribution shall
be made on the shares of Common Stock without first making a distribution to
the holders of Series A Convertible Preferred Stock in an amount equal to the
number of shares of Series A Convertible Preferred Stock multiplied by the
Initial Sales Price, plus all declared but unpaid dividends (if any) thereon
(the "Stated Value"). If upon occurrence of such event, the assets and
property thus distributed among the holders of the Series A Convertible
Preferred Stock shall be insufficient to permit the payment to such holders
Page 2
<PAGE>
of their full respective preferential amounts, then the entire assets and
property of the Company legally available for distribution shall be distributed
ratably among the holders of the Series A Convertible Preferred Stock such that
the same percentage of the preferential amount to which each series of Series
A Convertible Preferred Stock is entitled is paid on each share of Series A
Convertible Preferred Stock. If upon occurrence of such event, the assets
and property thus distributed among the holders of the Series A Convertible
Preferred Stock are sufficient to permit the payment to such holders of their
full respective preferential amounts, then the Company shall make a
distribution out of the remaining assets and property of the Company legally
available for distribution to the holders of Common Stock in an amount equal
to the Stated Value. In the event that both the holders of the Series A
Convertible Preferred Stock and the holders of Common Stock are paid their
respective preferential amounts, thereafter the holders of the Common Stock
and the holders of the Series A Convertible Preferred Stock are entitled to
share pro rata in all remaining assets of the Company available for
distribution, with the number of shares held by each holder of Series A
Convertible Preferred Stock deemed to be the number of shares of Common Stock
into which the Series A Convertible Preferred Stock are then convertible. A
consolidation or merger of the Company with or into any other corporation or
corporations, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%)
of the total voting power represented by the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation, or a sale of all or substantially all of the assets of the
Company, shall be deemed to be a liquidation, dissolution, or winding up of
the Company.
4. Conversion. The holders of the Series A Convertible Preferred Stock
shall have conversion rights as follows:
(a) Right to Convert. Each share of Series A Convertible Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
on or after the 60th day after the Original Issue Date at the office of the
Company or any transfer agent for the Series A Convertible Preferred Stock.
Each share of Series A Convertible Preferred Stock shall be converted into that
number of fully-paid and nonassessable shares of Common Stock that is equal to
the Initial Sales Price divided by the appropriate Conversion Price (as
hereinafter defined). The initial Conversion Price per share of Series A
Convertible Preferred Stock shall be the lower of: (i) the closing bid price
of the Company's Common Stock, as reported by the Nasdaq SmallCap Market, on
the date of the first issuance of Series A Convertible Preferred Stock by the
Company; and (ii) 65% of the average bid price of the Company's Common Stock,
as reported by the Nasdaq SmallCap Market, for the five business days prior to
the business day on which notice of conversion is transmitted by the holder of
such Share and shall be subject to adjustment as provided herein. (The number
of shares of Common Stock into which each share of Series A Convertible
Preferred Stock may be converted is hereinafter referred to as the "Conversion
Rate".) Upon any decrease or increase in the Conversion Price or the
Conversion Rate, as described in this Section 4, the Conversion Rate or
Conversion Price, as the case may be, shall be appropriately increased or
decreased.
(b) Automatic Conversion. All shares of Series A Convertible
Page 3
<PAGE>
Preferred Stock outstanding shall automatically convert into shares of Common
Stock upon the earliest of (i) immediately preceding a merger or consolidation
of the Company if as a result of such transaction the holders of Common Stock
would receive publicly traded securities with a market value greater than the
Stated Value of the Series A Convertible Preferred Stock, or (ii) the first
anniversary of the Original Issue Date.
(c) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of Series A Convertible Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Company shall pay cash equal to such fraction multiplied by the then fair
market value of such fractional shares as determined by the Board of Directors
of the Company. Before any holder of Series A Convertible Preferred Stock
shall be entitled to convert the same into full shares of Common Stock, and
to receive certificates there for, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or of any
transfer agent for the Series A Convertible Preferred Stock, and shall give
written notice to the Company at such office that he elects to convert the
same; provided, however, that in the event of an automatic conversion pursuant
to paragraph 4(b) above, the out standing shares of Series A Convertible
Preferred Stock shall be converted automatically without any further action
by the holders of such shares and whether or not the certificates representing
such shares are surrendered to the Company or its transfer agent; provided
further, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless either the certificates evidencing such shares of Series A Convertible
Preferred Stock are delivered to the Company or its transfer agent as provided
above, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by it in connection with such certificates.
The Company shall, as soon as practicable after such delivery, or
after such agreement and indemnification, issue and deliver at such office to
such holder of Series A Convertible Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock, plus any declared and unpaid dividends on the converted Series A
Convertible Preferred Stock. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
the shares of Series A Convertible Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(d) Reversion of Series A Convertible Preferred Stock into
Undesignated Preferred Stock. Upon the conversion of any shares of Series A
Convertible Preferred Stock into Common Stock, the shares so converted shall
revert to the status of authorized but undesignated Preferred Stock.
(e) Adjustments to Conversion Price for Diluting Issues.
i. Special Definition. For purposes of this paragraph 4(e),
"Additional Shares of Common" shall mean all shares of Common Stock issued
Page 4
<PAGE>
(or, pursuant to paragraph 4(e)(iii), deemed to be issued) by the Company
after the Original Issue Date, other than shares of Common Stock issued or
issuable:
(1) upon conversion of shares of Preferred Stock;
(2) to the Corporation's employees, officers, directors
and consultants as may be determined by the
Corporation's Board of Directors from time to time;
(3) as a dividend or distribution on Preferred Stock or
pursuant to any event for which adjustment is made
pursuant to paragraph 4(e)(vi)(1) or (2) hereof; or
(4) upon exercise of any options or warrants to purchase
the Company's Common Stock or Preferred Stock
outstanding as of the Original Issue Date or granted
subsequent to the Original Issue Date pursuant to any
stock plan approved by the Company's Board of
Directors.
ii. No Adjustment of Conversion Price. No adjustment in the
Conversion Price of a particular share of Series A Convertible Preferred Stock
shall be made in respect of the issuance of Additional Shares of Common unless
the consideration per share for an Additional Share of Common issued or deemed
to be issued by the Company is less than the Conversion Price in effect on the
date of, and immediately prior to such issue, for such share of Series A
Convertible Preferred Stock.
iii. Deemed Issue of Additional Shares of Common. In the event
the Company at any time or from time to time after the Original Issue Date
shall issue any options, warrants or convertible securities or shall fix a
record date for the determination of holders of any class of securities
entitled to receive any such options, warrants or convertible securities, then
the maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such options or
warrants or, in the case of convertible securities and options or warrants
therefor, the conversion or exchange of such convertible securities or
exercise of such options or warrants, shall be deemed to be Additional Shares
of Common issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common shall not be deemed to have been
issued unless the consideration per share (determined pursuant to paragraph
4(e)(v) hereof) of such Additional Shares of Common would be less than the
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common are deemed to be issued:
(1) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of convertible
securities or shares of Common Stock upon the exercise
of such options or warrants or conversion or exchange
of such convertible securities;
(2) if such options, warrants or convertible securities
Page 5
<PAGE>
by their terms provide, with the passage of time or
otherwise, for any increase or decrease in the
consideration payable to the Company, or increase or
decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed
to reflect such increase or decrease insofar as it
affects such options or warrants or the rights of
conversion or exchange under such convertible
securities;
(3) no readjustment pursuant to clause (2) above shall
have the effect of increasing the Conversion Price to
an amount which exceeds the lower of (i) the
Conversion Price on the original adjustment date, or
(ii) the Conversion Price that would have resulted
from any issuance of Additional Shares of Common
between the original adjustment date and such
readjustment date;
(4) upon the expiration of any such options or warrants
or any rights of conversion or exchange under such
convertible securities which shall not have been
exercised, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto) and any subsequent
adjustments based thereon shall, upon such expiration,
be recomputed as if:
(a) in the case of convertible securities or options
or warrants for Common Stock, the only Additional
Shares of Common issued were the shares of
Common Stock, if any, actually issued upon the
exercise of such options or warrants or the
conversion or exchange of such convertible
securities and the consideration received
therefor was the consideration actually received
by the Company for the issue of such exercised
options or warrants plus the consideration
actually received by the Company upon such
exercise or for the issue of all such convertible
securities which were actually converted or
exchanged, plus the additional consideration, if
any, actually received by the Company upon such
conversion or exchange, and
(b) in the case of options or warrants for
convertible securities, only the convertible
Page 6
<PAGE>
securities, if any, actually issued upon the
exercise thereof were issued at the time of
issue of such options or warrants, and the
consideration received by the Company for the
Additional Shares of Common deemed to have been
then issued was the consideration actually
received by the Company for the issue of such
exercised options or warrants, plus the
consideration deemed to have been received by the
Company (determined pursuant to paragraph
4(e)(v)) upon the issue of the convertible
securities with respect to which such options or
warrants were actually exercised; and
(5) if such record date shall have been fixed and such
options, warrants or convertible securities are not
issued on the date fixed therefor, the adjustment
previously made in the Conversion Price which became
effective on such record date shall be canceled as
of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted
pursuant to this paragraph 4(e)(iii) as of the actual
date of their issuance.
iv. Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common. In the event the Company issues Additional Shares of Common
(including Additional Shares of Common deemed to be issued pursuant to
paragraph 4(e)(iii)) without consideration or for a consideration per share
less than the Conversion Price for the Series A Convertible Preferred Stock
in effect on the date of and immediately prior to such issue, then and in such
event such Conversion Price shall be reduced, concurrently with such issue, to
a price (calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received
by the Company for the total number of Additional Shares of Common so issued
would purchase at such Conversion Price; and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common so issued; and
provided further that, for the purposes of this paragraph 4(e)(iv), all shares
of Common Stock issuable upon exercise, conversion or exchange of outstanding
options, warrants, Preferred Stock and convertible securities, as the case may
be, shall be deemed to be outstanding, and immediately after any Additional
Shares of Common are deemed issued pursuant to paragraph 4(e)(iii), such
Additional Shares of Common shall be deemed to be outstanding.
v. Determination of Consideration. For purposes of this
subsection 4(e), the consideration received by the Company for the issue of
any Additional Shares of Common shall be computed as follows:
(1) Cash and Property. Such consideration shall:
Page 7
<PAGE>
(a) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the
Company excluding amounts paid or payable for
accrued interest or accrued dividends;
(b) insofar as it consists of property other than
cash, be computed at the fair value thereof at
the time of such issue, as determined in good
faith by the Board of Directors; and
(c) in the event Additional Shares of Common are
issued together with other shares or securities
or other assets of the Company for consideration
which covers both, be the proportion of such
consideration so received, computed as provided
in clauses (a) and (b) above, as determined in
good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
per share received by the Company for Additional
Shares of Common deemed to have been issued pursuant
to paragraph 4(e)(iii), relating to options, warrants
and convertible securities, shall be determined by
dividing
(a) the total amount, if any, received or receivable
by the Company as consideration for the issue of
such options, warrants or convertible securities,
plus the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any provision
contained therein for a subsequent adjustment of
such consideration) payable to the Company upon
the exercise of such options or warrants or the
conversion or exchange of such convertible
securities, or in the case of options or warrants
for convertible securities, the exercise of such
options for convertible securities and the
conversion or exchange of such convertible
securities by
(b) the maximum number of shares of Common Stock
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent adjustment
of such number) issuable upon the exercise of
such options or warrants or the conversion or
exchange of such convertible securities.
Page 8
<PAGE>
vi. Adjustments to Conversion Rate.
(1) Adjustments for Subdivisions, Splits, Combinations,
Consolidations, Reorganizations or Reclassifications of Common Stock. In the
event that after the date of the first issuance of the Series A Convertible
Preferred Stock the outstanding shares of Common Stock shall be (a) subdivided
or split into a greater number of shares of Common Stock; (b) combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock; or (c) changed into a different number of shares of any other
class or classes of stock, whether by capital reorganization, reclassification
or otherwise, the holders of the shares of Series A Convertible Preferred
Stock shall receive upon conversion, the stock and/or securities to which the
holder would have been entitled had the holder held, at the time of said split,
subdivision, combination, consolidation, reorganization or reclassification,
the same number of shares of Common Stock as the number of Series A Convertible
Preferred Stock converted.
(2) Adjustments for Other Dividends and Distributions.
In the event the Company at any time after the date of the first issuance of
the Series A Convertible Preferred Stock makes, or fixes a record date for,
the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in the securities of the Company, then the
holders of the shares of Series A Convertible Preferred Stock shall receive
upon conversion, in addition to the number of shares of Common Stock receivable
thereupon, the stock or securities to which the holder would have been entitled
had the holder held, at the time of said dividend or other distribution, the
same number of shares of Common Stock as the number of Series A Convertible
Preferred Stock converted, and had they thereafter during the period from the
date of such event to and including the date of conversion, retained such stock
or securities receivable by them as aforesaid during such period, subject to
all other adjustments called for during such period under this Section 4 with
respect to the rights of the holders of the Series A Convertible Preferred
Stock.
vii. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price or Conversion Rate of the
Series A Convertible Preferred Stock pursuant to this Section 4, the Company,
at its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series A Convertible Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any holder of Series A Convertible Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting
forth (1) such adjustment and readjustment, (2) the Conversion Price or
Conversion Rate at the time in effect, and (3) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A Convertible Preferred Stock.
viii. Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Convertible Preferred Stock such
number of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series A Convertible
Page 9
<PAGE>
Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
outstanding shares of the Series A Convertible Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Series A
Convertible Preferred Stock, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
5. Notice of Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of its
Common Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a dividend payable solely in cash
or shares of Common Stock) or other distribution, or any right or warrant to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right;
(b) any capital reorganization, reclassification or recapitalization
of the Company (other than a subdivision or combination of the outstanding
shares of its Common Stock), any consolidation or merger involving the Company
and any other person (other than a consolidation or merger with a wholly-owned
subsidiary of the Company, provided that the Company is the surviving or the
continuing corporation and no change occurs in the Common Stock), or any
transfer of all or substantially all the assets of the Company to any other
person; or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company;
then, and in each such case, the Company shall cause to be mailed to the
holders of record of the outstanding shares of the Series A Convertible
Preferred Stock, at the address shown on the stock transfer books of the
Company, at least 20 days (or 10 days in case of any event specified in clause
(A) above) prior to the applicable record or effective date hereinafter
specified, a notice stating (i) the date or expected date on which any such
record is to be taken for the purpose of such dividend, distribution or right
and the amount and character of such dividend, distribution or right or (ii)
the date or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding up is to take place and the time, if any such time is to be fixed, as
of which the holders of record of Common Stock shall be entitled to exchange
their shares of Common Stock for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding up. The failure to give
any notice required by this Section 8, or any defect therein, shall not affect
the legality or validity of any such action requiring such notice.
6. Covenants. In addition to any other rights provided by law, the
Company shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares
of the Series A Convertible Preferred Stock:
Page 10
<PAGE>
(a) amend or repeal any provision of, or add any provision to, the
Company's Certificate of Incorporation if such action would materially and
adversely alter or change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of, the Series A Convertible
Preferred Stock authorized hereby;
(b) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to any such
preference or priority of the Series A Convertible Preferred Stock;
(c) reclassify any shares of Common Stock into shares having any
preference or priority as to dividends or assets superior to any such
preference or priority of the Series A Convertible Preferred Stock; or
(d) increase the number of authorized shares of Series A
Convertible Preferred Stock, or
(e) reissue any shares acquired by the Company.
Page 11
<PAGE>
IN WITNESS WHEREOF, said Socket Communications, Inc. has caused this
Amended Certificate of Designation of Preferences and Rights of the Series A
Convertible Preferred Stock to be duly executed by its President and Chief
Executive Officer and attested to by its Secretary this 2nd day of
October, 1996.
/s/ Martin W. Levetin
------------------------
Martin W. Levetin
Chief Executive Officer
ATTEST:
/s/ David W. Dunlap
- ----------------------
David W. Dunlap
Secretary
Exhibit 11.1
<TABLE>
<CAPTION>
SOCKET COMMUNICATIONS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss................... $ (852,937) $ (721,230) $(2,493,098) $(2,269,779)
Computations of weighted average common and common equivalent shares
outstanding:
Weighted average common
shares outstanding........ 3,021,168 2,972,018 3,008,530 1,349,340
Common equivalent shares
from stock options,
convertible preferred
stock, and convertible
notes granted or issued
during the twelve-month
period prior to the
Company's initial public
offering.................. 0 0 0 370,171
---------- ---------- ----------- -----------
Shares used in computing
net loss per share........ 3,021,168 2,972,018 3,008,530 1,719,511
========== ========== =========== ===========
Net loss per share $ (0.28) $ (0.24) $ (0.83) $ (1.32)
========== ========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SOCKET COMMUNICATIONS, INC. CONDENSED FINANCIAL STATEMENTS FOR THE INTERIM
PERIOD ENDED SEPTEMBER 30, 1996 INCLUDED IN FORM 10-QSB AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 382,039
<SECURITIES> 0
<RECEIVABLES> 720,389
<ALLOWANCES> 0
<INVENTORY> 721,313
<CURRENT-ASSETS> 1,872,032
<PP&E> 837,756
<DEPRECIATION> 502,651
<TOTAL-ASSETS> 2,261,535
<CURRENT-LIABILITIES> 2,190,121
<BONDS> 0
0
0
<COMMON> 3,023
<OTHER-SE> (49,599)
<TOTAL-LIABILITY-AND-EQUITY> 2,261,535
<SALES> 3,242,668
<TOTAL-REVENUES> 3,414,855
<CGS> 1,886,854
<TOTAL-COSTS> 1,886,854
<OTHER-EXPENSES> 4,012,033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,842
<INCOME-PRETAX> (2,493,098)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,493,098)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,493,098)
<EPS-PRIMARY> (0.83)
<EPS-DILUTED> (0.83)
</TABLE>
