<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-49001
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
SOCKET COMMUNICATIONS, INC.
(Exact name of Registrant as specified in charter)
----------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 94-3155066
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) Number)
</TABLE>
37400 Central Court
Newark, CA 94560
(510) 744-2700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------------------------
DAVID W. DUNLAP
Chief Financial Officer
SOCKET COMMUNICATIONS, INC.
37400 Central Court
Newark, CA 94560
(510) 744-2700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------------
COPIES TO:
BARRY E. TAYLOR, ESQ.
ROBERT G. O'CONNOR, ESQ.
STEVEN LIU, ESQ.
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please the check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value per share... 4,096,579 shares $0.75 $3,072,434 $907
</TABLE>
(1) Excludes 3,757,475 shares of Common Stock, $0.001 par value per share,
previously registered and for which a registration fee of $1,178 was
previously paid.
(2) Estimated solely for the purposes of calculation of the registration fee
pursuant to Rule 457(c) based on the average of the high and low prices of
the Registrant's Common Stock on the OTC Bulletin Board on June 3, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE>
7,554,054 SHARES
SOCKET COMMUNICATIONS, INC.
COMMON STOCK, $0.001 PAR VALUE
------------------
This Prospectus covers 7,554,054 shares of Common Stock, par value $0.001
per share (the "Common Stock"), of Socket Communications, Inc., a Delaware
corporation (the "Company"), which may be offered from time to time by one or
all of the selling stockholders named herein (the "Selling Stockholders").
Of the Common Stock offered hereby, 3,757,475 shares are to be issued by the
Company to certain Selling Stockholders upon: (i) the conversion of shares of
Series B, Series B-1 and Series B-2 Convertible Preferred Stock (collectively,
the "Series B Preferred Stock"), issued by the Company in private transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act") (the "Series B Transactions"), (ii) the exercise
of Common Stock purchase warrants issued by the Company as part of the Series B
Transactions (the "Warrants") and (iii) the payment of dividends on the Series B
Preferred Stock by the Company in the form of Common Stock. Each share of Series
B Preferred Stock may be converted into 100 shares of Common Stock (the
"Conversion Rate"): (i) at the option of the Holder at any time on or after the
60th day following the date of issuance of the Series B Preferred Stock (the
"Date of Issuance") or (ii) automatically upon certain events, and in no event
later than two years from the Date of Issuance. The Warrants may be exercised
immediately at prices that range from $0.40 per share to $0.57375 per share by
the holder to purchase up to 450,975 shares of Common Stock (the "Warrant
Shares"). The conversion rate with respect to the Series B Preferred Stock and
the Warrant Shares are both subject to adjustment upon certain events. The
holders of the Series B Preferred Stock are also entitled to receive dividends
for two years at an annual rate of 8% of the initial sales prices, which are
payable quarterly in either cash or in the form of the Company's Common Stock at
the election of the Company's Board of Directors. If such dividends are paid in
the form of Common Stock, the value of the Common Stock shall be measured by
using the average of the high and low sales prices of the Common Stock over the
ten trading days prior to the applicable quarter end (the "Quarterly Dividend
Price"). For purposes of this Registration Statement, the Company has assumed a
constant Quarterly Dividend Price of $0.80 and has further assumed that the
Company's Board of Directors will elect to pay all dividends on the Series B
Preferred Stock in the form of Common Stock. As of June 9, 1998, the Common
Stock issuable upon exercise of the Series B Preferred Stock and the Warrants
eligible for sale hereunder represents approximately 29.5% of the Company's
total outstanding voting power. See "Selling Stockholders" and "Plan of
Distribution."
Of the Common Stock offered hereby, 3,340,241 shares are to be issued by the
Company to certain Selling Stockholders upon: conversion of shares of Series C,
Series C-1 and Series C-2 Convertible Preferred Stock (collectively, the "Series
C Preferred Stock"), issued by the Company in private transactions exempt from
the registration requirements of the Securities Act, and (ii) the payment of
dividends on the Series C Preferred Stock by the Company in the form of Common
Stock, if any. Dividends on the Series C Preferred Stock accrue at an annual
rate of 8%, payable at the time the Series C, Series C-1 and Series C-2
Preferred Stock are converted.
As of March 31, 1998, the Company had a net capital deficiency of $(303,629)
and a working capital deficit of $(622,315). As a result, the Company will
require significant funding in 1998 to meet its working capital needs as well as
to meet the minimum capital requirements to retain its listing on the Pacific
Exchange. The inability of the Company to obtain such funding could require the
Company to significantly reduce or suspend operations, sell additional
securities on terms that are highly dilutive to Investors, cause the Company to
become delisted from the Pacific Exchange or otherwise have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Risk Factors--Future Capital Needs; Independent Auditors' Report Contained
Explanatory Paragraph Regarding Going Concern."
The Company will receive no part of the proceeds from the sale of the Common
Stock by the Selling Stockholders. See "Selling Stockholders" and "Use of
Proceeds." All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the Selling Stockholders will be borne by such Selling Stockholders.
The Company and the Selling Stockholders have each agreed to indemnify each
other against certain liabilities, including certain liabilities under the
Securities Act.
The Company's Common Stock is currently quoted on the OTC Bulletin Board and
is listed on the Pacific Exchange under the symbol SCKT. The continued listing
criteria of the Pacific Exchange requires the Company to have, among other
things, total net tangible assets of at least $500,000 or net worth of at least
$2,000,000. The Company has not been in compliance with the net tangible asset
or net worth requirements of the Pacific Exchange since December 31, 1996 and
has, therefore, been subject to possible delisting procedures since that time.
In June 1998, the Pacific Exchange granted the Company an extension to bring
itself into compliance with the exchange's continued listing criteria and
advised the Company that it would next review its continued qualifications in
August 1998. There can be no assurance that the Company will attain compliance
with the Pacific Exchange listing criteria by August 1998; accordingly, there
can be no assurance that the Pacific Exchange will not decide to initiate
delisting procedures against the Company at that time. See "Risk
Factors--Iliquidity of Trading Market; Possible Delisting of Securities from the
Pacific Exchange; Risk of Penny Stock Status." On June 3, 1998, the last sale
price of the Company's Common Stock as reported on the OTC Bulletin Board was
$0.75 per share.
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
Each Selling Stockholder and any broker executing selling orders on behalf
of the Selling Stockholders may be deemed to be an underwriter within the
meaning of the Securities Act. Commissions received by any such broker may be
deemed to be underwriting commissions under the Securities Act.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS JUNE 9, 1998
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois, 60611. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Company's Common Stock is quoted on the
Pacific Exchange, and such reports, proxy statements and other information can
also be inspected at the offices of the Pacific Exchange located at: 301 Pine
Street, San Francisco, California 94104. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits and schedules thereto) on Form S-3
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are hereby incorporated by reference in this Prospectus the following
documents and information heretofore filed with the Commission:
(1) the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997 (the "Form 10-KSB");
(2) the Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 1998; and
(3) the description of the Company's Common Stock offered hereby contained in
the Company's Registration Statement on Form 8-A filed by the Company with
the Commission on April 11, 1995 and the Company's Registration Statement on
Form 8-A/A filed by the Company with the Commission on June 15, 1995.
2
<PAGE>
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement incorporated herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request of any
such person, a copy of any and all of the information that has been or may be
incorporated by reference in this Prospectus, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such document. Requests for such copies should be directed to the Company at
Socket Communications, Inc., 37400 Central Court, Newark, California 94560,
Attention: Chief Financial Officer. The Company's telephone number at that
location is (510) 744-2700.
THE COMPANY
Socket Communications, Inc. ("Socket or the "Company") develops and sells
connection solutions for handheld computers that use the Windows CE operating
system from Microsoft Corporation ("Microsoft") and other mobile computers,
including a family of low power PC Card adapters for serial communications,
Ethernet connectivity, mobile data collection, and wireless messaging. Socket is
also developing its family of serial, Ethernet and mobile data collection PC
cards in a CompactFlashTM format for use with smaller handheld computers such as
the Windows CE Palm-size PC, which began shipping in May 1998, and other
devices.
The Company's family of serial PC card products and Ethernet card products
for PC card mobile computers are its principal sources of revenues, with a focus
that began in 1997 on connection products for devices using the Windows CE
operating system from Microsoft, including handheld computers (H/PCs and
Palm-size PCs) and embedded devices. In December 1996, the Company expanded its
serial and Ethernet card lines into a family of PC card products, including a
ruggedized serial card, a dual serial card and an Ethernet/serial multifunction
card, and in October 1997, the Company introduced a bar code scanner PC card and
a low power Ethernet card for Windows CE handheld computers. The Company's low
power Ethernet PC card is recognized by Version 2.0 of the Windows CE operating
system, which began shipping in December 1997. The Ethernet card is used for
higher speed desktop synchronization, large file transfers, network connections
to the Internet and E-mail. Socket also produced the first multifunction PC card
for Windows CE in its Ethernet/Serial combination card.
The Company has also developed wireless messaging products including a
PageCard PC Card wireless messaging system introduced in January 1995 that used
the POCSAG paging protocols, and developed its PageSoft messaging software,
introduced in 1996, that sends messages and files over the paging networks for
downloading into a mobile computer. During 1997, the Company and Cetronic AB, a
Swedish company that develops and markets systems for wireless communications,
alarm and control markets, have been jointly developing wireless receivers in
both PC card and CompactFlash formats that use the higher speed FLEX and ERMES
networked protocols, and a Mobile Information Server to facilitate group
broadcasting of Internet and intranet information to mobile devices. In January
1998, Microsoft introduced the Palm-size PC, a Window CE handheld computer, and
announced its manufacture by several computer manufacturers, with shipments
beginning in the second quarter of 1998. Microsoft also announced that it would
be supporting the development of wireless group broadcasting services, including
wireless updating of web pages, on the Palm-size PC. The Company expects to
further develop its Mobile Information Server technology to align with group
broadcasting standards and software modules being developed by Microsoft to
facilitate the wireless updating of web pages and other information on Windows
CE mobile computers
3
<PAGE>
and other Windows CE devices. In March 1998, the Company announced a Memorandum
of Understanding with Motorola Corporation ("Motorola") to adapt the Company's
FLEX messaging software, under development during 1997 to work as a software
driver with Motorola's Windows CE 2.0 CompactFlash wireless receiver for use
with Palm-size PCs and embedded module products under development by Motorola.
The Memorandum of Understanding contemplates that the Company will earn
development revenues from this contract beginning in the second quarter of 1998,
a royalty on receivers sold (with sales expected to commence in the fourth
quarter of 1998) and revenues from expected distribution and sale of the
receiver by the Company. The Company also earns royalties on wireless messaging
services provided by third party carriers and other revenues from development
work performed for others. See "Risk Factors-- Dependence on Market for Mobile
Computers; Dependence on Market Success of Windows CE."
In addition to the relationship with Motorola and with Cetronic, the Company
has developed a number of other strategic relationships that are important to
its product development and marketing programs. The Company has developed with
the National Dispatch Center ("NDC") the Socket Wireless Messaging Services
("SWiMS"), which provides paging, operator message dispatch and personal service
features such as call connect, fax and call notification, and Internet gateways,
and the Company shares the profits from this service with NDC. The Company
believes that it has developed a strong working relationship with Microsoft and
with Windows CE handheld computer manufacturers for integrating connection
solutions into Windows CE devices, with data collection companies such as Welch
Allyn which manufactures the bar code scanning wand used with the Company's data
collection PC card for Windows CE, and with software application developers in
providing technical assistance in the porting of their applications to the
Windows CE operating system. See "Risk Factors--Dependence on Strategic
Alliances and Business Relationships."
Although the Company believes that its focus on the Windows CE operating
system for handheld computers and its strategic relationship with Motorola and
other strategic partners position the Company for revenue growth beginning in
1998, the Company has incurred significant quarterly and annual operating losses
in every fiscal period since its inception, and the Company expects to incur
quarterly operating losses at least through the first half of 1998 and possibly
longer. The Company's ability to achieve profitability will be highly dependent
upon: increased market acceptance of the Company's serial, Ethernet, data
collection cards and wireless messaging products including recently introduced
products; growth and acceptance of handheld computers and devices using the
Windows CE operating system; the ability to raise capital to fund the Company's
product development and sales and marketing efforts; the development of new
products for new and existing markets; the improvement of gross margins through
maintaining of sales prices, higher sales volumes and contract manufacturing
efficiencies; expanding its operating expenses. There can be no assurances that
the Company will meet any of these objectives or ever achieve profitability.
In addition, as of March 31, 1998, the Company had a net capital deficiency
of $(303,629) and a working capital deficit of $(622,315). The Company will
require additional funding in 1998 to meet its working capital needs as well as
to meet the minimum capital requirements to retain its listing on the Pacific
Exchange. The inability to obtain such funding could require the Company to
significantly reduce or suspend operations, sell additional securities on terms
that are highly dilutive to investors, cause the Company to be delisted from the
Pacific Exchange, or otherwise have a material adverse effect on its financial
condition or operating results. See "Risk Factors" for a discussion of the
Company's need for additional capital, the uncertainty regarding the Company's
continued listing on the Pacific Exchange and other risks that may affect the
Company's ability to attain profitability.
The Company was incorporated in California in March 1992 and reincorporated
in Delaware in June 1995. Its headquarters are located at 37400 Central Court,
Newark, California 94560 and its telephone number is (510) 744-2700.
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING THE SECURITIES OFFERED HEREBY. THIS PROSPECTUS CONTAINS OR
INCORPORATES BY REFERENCE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE
FOUND IN THE MATERIAL UNDER "COMPANY" AS WELL AS IN THIS PROSPECTUS GENERALLY,
INCLUDING DOCUMENTS INCORPORATED BY REFERENCE HEREIN. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS. THE FORWARD-LOOKING STATEMENTS CONTAINED OR
INCORPORATED BY REFERENCE HEREIN ARE MADE AS OF THE DATE OF THIS PROSPECTUS AND
THE COMPANY ASSUMES NO OBLIGATION TO UPDATE SUCH FORWARD-LOOKING STATEMENTS OR
TO UPDATE THE REASONS WHY ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS.
FUTURE CAPITAL NEEDS; INDEPENDENT AUDITORS' REPORT CONTAINED EXPLANATORY
PARAGRAPH REGARDING GOING CONCERN.
As of March 31, 1998, the Company had cash and cash equivalents of $842,580,
and a working capital deficit of $(622,315). The Company believes its existing
capital resources will be insufficient to satisfy its working capital
requirements through the end of 1998. The Company will need to raise additional
capital to fund operations during 1998 and beyond, including planned increases
in its sales and marketing and research and development efforts, which the
Company intends to accomplish through the issuance of additional equity
securities, through increased borrowings on the Company's bank line as the
levels of receivables permit, and through development funding from development
partners. The Report of Independent Auditors on the Company's financial
statements for the year ended December 31, 1997 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. 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. The Company's inability to secure the necessary funding would
significantly impair the ability of the Company to carry out its strategy of
increasing its sales and marketing and research and development efforts and
otherwise would have a material adverse effect on the Company's financial
condition and results of operations.
ILLIQUIDITY OF TRADING MARKET; POSSIBLE DELISTING OF SECURITIES FROM THE PACIFIC
EXCHANGE; RISK OF PENNY STOCK STATUS.
From the effective date of Socket's initial public offering (June 6, 1995)
through November 26, 1996, Socket's Common Stock was listed on the Nasdaq
SmallCap Market. However, the Common Stock was de-listed from such market
effective November 27, 1996 and since then has traded on the OTC Bulletin Board.
The Nasdaq SmallCap Market has recently adopted new, more stringent listing
criteria. In order for the Company to become listed in the Nasdaq SmallCap
Market under the new listing criteria, it must (i) either have net tangible
assets of $4 million, a market capitalization of $50 million or net income in
two of the past three years of $750,000; (ii) 1 million shares of public float;
(iii) a market capitalization of public float of $5 million; (iv) a bid price of
$4.00 per share; (v) three market makers; and (vi) 300 stockholders. The Company
currently does not meet these requirements, and there can be no assurance that
the Company will meet these requirements in any future period. Socket's Common
Stock is also quoted on the Pacific Exchange. The continued listing criteria of
the Pacific Exchange requires the Company to have (i) at least 300,000 publicly
held shares of Common Stock with a market value of at least $500,000, (ii) at
least 250 public beneficial holders of its Common Stock, (iii) total net
tangible assets of at
5
<PAGE>
least $500,000 or net worth of at least $2,000,000, and (iv) a share bid price
of at least $1 per share of Common Stock. The Company has not been in compliance
with the net tangible asset or net worth requirements of the Pacific Exchange
since December 31, 1996 and has, therefore, been subject to possible delisting
procedures since that time. In June 1998, the Pacific Exchange granted the
Company an extension to bring itself into compliance with the continued listing
criteria and advised Socket that it would next review Socket's continued
qualification for listing in August 1998. As of March 31, 1998, the Company had
a net tangible asset deficit of $(303,629), which was reduced by the conversion
of convertible promissory notes in an aggregate principal amount of $200,000
into shares of Series C Convertible Preferred Stock and Common Stock during the
second quarter of 1998. Accordingly, the Company will need to raise additional
equity capital in order to comply with the Pacific Exchange listing criteria,
and there can be no assurance that the Company will be successful in doing so.
In that case, there can be no assurance that the Pacific Exchange will not
decide to initiate delisting proceedings against Socket. If Socket's Common
Stock remains delisted from the Nasdaq SmallCap Market and becomes delisted from
the Pacific Exchange, the Company will become subject to the Commission's "penny
stock" rules and therefore an investor will find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, Socket's securities.
In the event that the Company's Common Stock is delisted from the Pacific
Exchange, its Common Stock will be subject to the so-called "penny stock" rules
under the Securities Exchange Act of 1934, as amended, which impose additional
sales practice and market making requirements on broker-dealers who sell and/or
make a market in such securities. For transactions covered by the penny stock
rules, a broker-dealer must make special suitability determinations for
purchasers and must have received the purchasers' written consent to the
transactions prior to sale. In addition, for any transaction involving a penny
stock, unless exempt, the rules require delivery prior to any transaction in a
penny stock of a disclosure schedule prepared by the Commission relating to the
penny stock market. Disclosure is also required to be made about commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. Consequently, Socket's
delisting from the Pacific Exchange and its becoming subject to the rules on
penny stocks would affect the ability or willingness of broker-dealers to sell
and/or make a market in Socket's securities and therefore would severely
adversely affect the market liquidity for the Company's securities.
SIGNIFICANT DILUTIVE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE
OF THE COMMON STOCK
As of March 31, 1998, there were 918,508 shares of Common Stock issuable
upon the exercise of options under Socket's 1995 and 1993 Stock Plans, as
amended, and 3,079,169 shares of Socket Common Stock issuable upon exercise of
warrants, including certain dilution adjustments resulting from the subsequent
issuance of common stock or securities converting into common stock at prices
below the initial public offering price for the Company's common stock. In
addition, 84,535 shares of Common Stock were issued pursuant to a conversion on
May 15, 1998 of convertible subordinated notes and 2,879,518 shares of Common
Stock are issuable upon conversion of Series C Convertible Preferred Stock. In
addition, the Company issued 30,065 shares of Series B Preferred Stock in the
first quarter of 1998, which shares are convertible into an aggregate of
3,006,500 shares of Common Stock at the option of the holder at any time, will
be automatically converted into Common Stock within two years and which earn an
8% dividend payable in shares of Common Stock on a quarterly basis. All of the
common shares, to the extent that they are eligible or appear to be eligible for
sale in the public market, could have a materially adverse effect on the market
price of the Socket Common Stock and therefore make it more difficult for Socket
to sell equity securities or equity-related securities in the future at a time
and price that Socket deems appropriate.
The Company intends to issue additional equity securities in 1998 in order
to fund working capital requirements and to achieve compliance with the net
tangible asset requirements of the Pacific Exchange. To the extent the Company
does so, existing stockholders of the Company will experience substantial
6
<PAGE>
dilution, particularly if the terms of such issuance include discounts to market
prices or the issuance of warrants, as the Company did in the first quarter of
1998 with the issuance of $1,500,000 worth of Series B Convertible Preferred
Stock and related warrants. In addition, to the extent the Company issues common
or preferred equity at a discount to the then current market price, the Company
will be required to record accretion of such stock in its financial statements,
which will adversely affect the Company's operating results for the period in
which such stock is issued. For example, in the first quarter of 1998 the
Company recorded accretion of Preferred Stock as a result of the discount on
conversion to Common Stock related to the issuance of the Series B Convertible
Preferred Stock. In addition, the holders of the Series B Convertible Preferred
Stock and related warrants and the holders of the outstanding convertible
promissory notes are entitled to registration rights with respect to the shares
of Common Stock underlying their respective securities. To the extent that such
holders convert their existing securities into Common Stock, following the
effective date of the Registration Statement related thereto, such shares will
be immediately eligible to be sold in the public market without restriction
under Rule 144 under the Securities Act of 1933, which, given the relatively low
trading volumes for the Company's Common Stock, would likely have a significant
depressant effect of the per share market price of the Company's Common Stock.
HISTORY OF OPERATING LOSSES; NO ASSURANCE OF PROFITABILITY
Socket was incorporated in March 1992 and has incurred significant operating
losses in every fiscal period since inception. Socket expects to incur quarterly
operating losses at least through the first half of 1998 and possibly longer.
Profitability, if any, will depend upon increased market acceptance of Socket's
serial and Ethernet cards, Socket's ability to obtain additional capital to fund
its working capital requirements, market acceptance of mobile computers that use
Microsoft's Windows CE operating system, the completion of Socket's development
contract with Motorola and the ability of Motorola and the Company to sell
FLEX-based data paging receivers in a CompactFlash format for use with
Microsoft's Palm-size PC beginning in the second half of 1998, the development
of successful new products for new and existing markets, Socket's ability to
increase gross margins through higher sales volumes and contract manufacturing
efficiencies, expand its distribution capability, perform on development
contracts, and manage its operating expenses. There can be no assurance that
Socket will meet any of these objectives or ever achieve profitability.
SLOWLY EMERGING MARKET FOR WIRELESS DATA COMMUNICATION PRODUCTS
The market for wireless data communications products has been slow to
emerge, and there can be no assurance that it will develop sufficiently to
enable the Company to achieve broad commercial acceptance of its products.
Because this market is relatively new and has developed slowly, and because
current and future competitors are likely to introduce a variety of competing
wireless data communications solutions, it is difficult to predict the rate at
which this market will grow, if at all. If the wireless data communications
market fails to grow, or continues to grow more slowly than anticipated, the
Company's business, operating results and financial condition will be materially
adversely affected. Although the Company intends to conform its products to meet
emerging standards in the wireless data communications market, there can be no
assurance that industry standards will emerge or, if they become established,
that the Company will be able to conform to these new standards in a timely
fashion. Even if the market for wireless data communications products does
develop, there can be no assurance that the Company's products will achieve
commercial success within such market. Furthermore, the Company believes that
its products enable third parties to develop and deliver wireless data solutions
for the specific needs of business in a number of vertical market segments such
as field sales, field service, finance, real estate, health care, and
transportation on either a point to point or a group broadcasting basis. The
Company's software developers kit enables third parties to address such needs by
page-enabling existing applications to allow the transfer of data from an
application through the paging network to the PageCard receiver where it can be
downloaded into a mobile computer. The Company's software developer's kit is
designed to provide program interfaces for software developers to page-enable
their applications and to work with major
7
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Microsoft operating systems including Windows 95 and Windows CE. Although a
limited number of page-enabled applications are now available, there can be no
assurance that any additional such applications will become available. Further,
there can be no assurance that such page-enabled applications will be developed,
or if developed, gain widespread commercial acceptance or that adoption of such
applications will drive increased purchases of PageCard receivers. Finally, due
to the unique nature of the PageCard receiver and PageCard WMS, which combine
certain technologies and features of paging and mobile computing, the Company
believes it will be required to incur significant expenses for sales and
marketing, including advertising, to educate potential customers. Broad
commercialization of the Company's products will require the Company to overcome
significant technological and market development hurdles, many of which may not
be currently foreseen.
DEPENDENCE ON THE MARKET FOR MOBILE COMPUTERS; DEPENDENCE ON MARKET SUCCESS OF
WINDOWS CE
Substantially all of the Company's products are designed for use in mobile
computers, including handheld PCs and, beginning in May 1998, Palm-size PCs. The
Company expects to continue to derive a significant portion of revenues from the
sale of its products for use in mobile computers, particularly those that use
the Windows CE operating system. The market for mobile computers is
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and significant price competition, resulting
in short product life cycles and regular reductions of average selling prices
over the life of a specific product. Although the market for mobile computers
has grown substantially in recent years, there can be no assurance that such
growth will continue. A reduction in sales of the market for mobile computers or
a reduction in the growth rate of such sales, would likely reduce demand for the
Company's products. Any reduction in the demand for mobile computers would have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company's ability to compete
successfully will depend on its ability to identify and ensure compliance with
evolving industry standards. Unanticipated changes in industry standards could
render the Company's products incompatible with products developed by major
hardware manufacturers and software developers, including Microsoft and
Motorola. The Company could be required, as a result, to invest significant time
and resources to redesign the company's products to ensure compliance with
relevant standards. If the Company's products are not in compliance with
prevailing industry standards for a significant period of time, the Company
would miss opportunities to have its products specified as standards for new
hardware components designed by mobile computer manufacturers and OEMs. The
failure to achieve any such design win would result in the loss of any potential
sales volume that could be generated by such newly designed hardware component
which could have a material adverse effect on the company's business, financial
condition and results of operations.
Beginning in 1997, the Company implemented a strategy of focusing its
product development efforts on mobile computers and other devices that use the
Windows CE operating system of Microsoft. As a result, the Company's success is
substantially dependent on the commercial success of handheld PCs, Palm-size PCs
and other devices that operate on the Windows CE operating system for which the
Company's current products and products under development are designed.
Therefore, the Company's future success depends on factors outside of its
control, including market acceptance of Windows CE generally and other factors
affecting the commercial success of Windows CE computers and devices, including
changes in industry standards or the introduction of new or competing
technologies. Accordingly, there can be no assurance that Windows CE will
achieve the market acceptance anticipated by the Company. Any delays in or
failure of Windows CE to achieve such market acceptance would reduce the number
of potential customers of the Company's products, which could result in a
material adverse effect on the Company's business, operating results or
financial condition.
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<PAGE>
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON PRODUCT DEVELOPMENT; PRODUCT DEFECTS
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and short product life cycles.
Accordingly, the Company's success will be substantially dependent on a number
of factors, including its ability to identify emerging standards in the wireless
data communications field, enhance its products by adding additional features to
provide a more complete solution and differentiate its products from those of
its competitors, maintain superior or competitive performance in its products
and bring products to market quickly. Given the emerging nature of the wireless
data communications market, there can be no assurance that the Company's
products or technology will not be rendered obsolete by alternative
technologies. Further, short product life cycles expose the Company's products
to the risk of obsolescence and require frequent new product introductions. If
the Company is unable to develop or obtain access to advanced one-way and
emerging two-way wireless data communications technologies as they become
available, or is unable to design, develop, contract for the manufacturing of
and introduce competitive new products on a timely basis, its future operating
results will be materially adversely affected. Any significant delays in the
design, development, manufacture or shipment of new or enhanced products would
also materially adversely affect the Company's results of operations.
The markets for mobile computers and their peripherals and for wireless data
communications are extremely competitive and characterized by rapidly advancing
technology, frequent changes in user preferences and frequent product
introductions. The future success of the Company will depend in large part on
its ability, and that of its strategic partners, to keep pace with advances in
software and hardware technologies for mobile computing and wireless data
communications. There can be no assurance that the Company will be able to
respond effectively to these technological changes or to new product
introductions by others.
Although the Company performs testing prior to new product introductions,
the Company's hardware and software products may contain undetected flaws, which
may not be discovered until the products have been used by customers. From time
to time, the Company may temporarily suspend or delay shipments or divert
development resources from other projects to correct a particular product
deficiency. Such 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 the Company
to recall previously shipped products to make design modifications or cause
unfavorable publicity, any of which could have a material adverse effect on the
Company's operating results.
POTENTIAL QUARTERLY FLUCTUATIONS; ABSENCE OF SIGNIFICANT ORDER BACKLOG
The Company has experienced significant quarterly fluctuations in operating
results and anticipates such fluctuations in the future. The Company generally
ships orders as received and as a result typically has little or no backlog.
Quarterly revenues and operating results therefore depend on the volume and
timing of orders received during the quarter, which are difficult to forecast.
Historically, the Company has often recognized a substantial portion of its
revenues in the last month of the quarter, typically in the last week. Operating
results may continue to fluctuate in the future due to factors such as the
demand for the Company's products, the size and timing of customer orders,
unanticipated delays or problems in the introduction of new products and product
enhancements by the Company or the introduction of new products and product
enhancements by its competitors, changes in the proportion of revenues
attributable to royalties and service, product mix, timing of software
enhancements, changes in the level of operating expenses, and competitive
conditions in the industry including competitive pressures resulting in lower
average selling prices. Because the Company's staffing and other operating
expenses are based on anticipated revenue, a substantial portion of which is not
typically generated until the end of each quarter, 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, the Company's results of
operations in any given quarter may be
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<PAGE>
below the expectations of public market analysts or investors, in which case the
market price of the Company's Common Stock would be materially and adversely
affected.
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 and they cannot be predicted with any degree of certainty. The
Company makes significant investments in sales and marketing and in research and
development based on such internal estimates, and if orders and sales do not
meet expectations, the adverse effect may be magnified by the Company's
inability to adjust spending in a timely manner to compensate for revenue
shortfall.
DEPENDENCE ON STRATEGIC ALLIANCES AND BUSINESS RELATIONSHIPS
The Company's strategy is to establish strategic alliances and business
relationships with leading participants in various segments of the
communications and mobile computer markets. In accordance with this strategy,
the Company has entered into alliances or relationships with Cetronic AB, Compaq
Computer Corporation, Lucent Technologies, Microsoft, Mitsubishi Corporation,
Motorola, the National Dispatch Center, PageNet and Welch Allyn. The Company's
success will depend not only on the Company's continued relationships with these
parties, but also on its ability to enter into additional strategic arrangements
with new partners on commercially reasonable terms. The Company believes that,
in particular, relationships with application software developers are extremely
important in creating commercial uses for the Company's products necessary to
achieve growth. Any future relationships may require the Company to share
control over its development, manufacturing and marketing programs or to
relinquish rights to certain versions of its technology. There can be no
assurance that the Company's strategic partners will not revoke their commitment
to the Company's products or services at any time in the future, that they will
not develop their own competitive products or services, or that the hardware or
software of such companies that is integrated into the company's products will
not contain defects or errors. Accordingly, there can be no assurance that the
Company's existing or future strategic relationships will result in sustained
business alliances, successful product or service offerings or the generation of
significant revenues for the Company. Failure of one or more of such alliances
could result in delay or termination of product development projects, reduction
in market penetration, decreased ability to win new customers or loss of
confidence by current or potential customers, any of which could have a material
adverse effect on the Company's business, results of operations or financial
condition.
As part of its strategy, the Company has developed a close working
relationship with Microsoft to design products for use with the handheld PCs and
Palm-size PCs that use Microsoft's Windows CE operating system. Beginning in
1997, the Company has increasingly devoted significant research and development
resources to such design activities for Microsoft's standards, diverting
financial and personnel resources from other development projects. The Company's
design activities are not undertaken pursuant to any agreement under which
Microsoft is obligated to continue the collaborative design projects or to sell
the resulting products. Consequently, Microsoft may terminate its collaborations
with the Company for a variety of reasons including the Company's failure to
meet agreed-upon standards or for reasons beyond the Company's control,
including changing market conditions, increased competition, discontinued
product lines and product obsolescence. Although the Company believes that its
recent Memorandum of Understanding with Motorola will enhance its collaboration
with Microsoft with respect to the design of products for Microsoft's Windows CE
operating system, there can be no assurance that Microsoft will not in the
future discontinue collaborating with the Company on the design of the Company's
current and future products, which would result in the Company having expended
significant research and development resources without benefit and having lost
potential revenues from the development and sale of alternative products. In
such event, the Company's business, operating results and financial condition
would be materially adversely affected.
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<PAGE>
DEPENDENCE ON KEY EMPLOYEES, NEED TO HIRE ADDITIONAL SALES AND MARKETING AND
PRODUCT DEVELOPMENT PERSONNEL
The Company's future success will depend in significant part upon the
continued service of certain key technical and senior management personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its existing key managerial, technical or sales and
marketing personnel. The loss of key personnel in the future could have a
material adverse effect upon the Company's results of operations.
The Company believes its ability to achieve increased revenues and to
develop successful new products and product enhancements will depend in part
upon its ability to attract and retain highly skilled sales and marketing and
product development personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be able to retain its key
employees or that it will be successful in attracting and retaining such
personnel in the future. In addition, the Company's ability to hire and retain
such personnel will depend upon the Company's ability to raise capital or
achieve increased revenue levels to fund the costs associated with such
personnel. Failure to attract and retain key personnel will have a material
adverse effect on the Company's business, operating results and financial
condition.
DISTRIBUTION RISKS, PRODUCT RETURNS AND WARRANTIES
The Company sells its products primarily through distributors, resellers and
OEMs. To date the
Company has not achieved significant OEM sales and there can be no assurance
that the Company will achieve significant sales through this channel. The
Company's largest distributors, Ingram Micro and Tech Data in the U.S. and PPCP
in the U.K., accounted for approximately 21%, 15%, and 21% respectively, of the
Company's revenue in 1997. The Company's agreements with OEMs, distributors and
resellers, in large part, are nonexclusive and may be terminated on short notice
by either party without cause. The Company's OEMs, distributors and resellers
are not within the control of the Company, are not obligated to purchase
products from the Company and may represent other lines of products. A reduction
in sales effort or discontinuance of sales of the Company's products by its
OEMs, distributors and resellers could lead to reduced sales and could
materially adversely affect the Company's operating results. Use of distributors
also entails the risk that distributors will build up inventories in
anticipation of a growth in sales. If such growth does not occur as anticipated,
these distributors may substantially decrease the amount of product ordered in
subsequent quarters. Such fluctuations could contribute to significant
variations in the Company's future operating results. The distribution industry
has been characterized by rapid change, including consolidations and financial
difficulties of distributors and the emergence of alternative distribution
channels. In addition, there are an increasing number of companies competing for
access to these channels. The loss or ineffectiveness of any of the Company's
major distributors could have a material adverse effect on the Company's
operating results.
The Company allows its distributors to return a portion of their inventory
to the Company for full credit against other purchases. In addition, in the
event the Company reduces its prices, the Company credits its distributors for
the difference between the purchase price of products remaining in their
inventory and the Company's reduced price for such products. There can be no
assurance that actual returns and price protection will not have a material
adverse effect on future operating results, particularly since the Company seeks
to continually introduce new and enhanced products and is likely to face
increasing price competition. In addition, the Company's comprehensive two year
warranty for its wired products and one year warranty for its wireless products
permit customers to return any product if the product does not perform as
warranted. To date, the Company has not experienced any warranty claims,
returns, stock rotation exchanges or price protection adjustments materially
above those anticipated. However, future warranty claims, returns, stock
rotation exchanges, or price protection adjustments could be materially higher
than anticipated. The Company intends to continue to introduce new and enhanced
products, which could result in higher warranty or return claims due to the
risks inherent in the
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<PAGE>
introduction of such products. There can be no assurance that warranty claims or
returns will not have a material adverse effect on future operating results.
RISKS ASSOCIATED WITH EXPORT SALES
Export sales (sales to customers outside the United States) accounted for
approximately 49% of the Company's revenue in 1997 and export sales continue to
account in 1998 for a significant portion of revenue. Accordingly, the Company's
operating results are subject to the risks inherent in export sales, including
longer payment cycles, unexpected changes in regulatory requirements, import and
export restrictions and tariffs, difficulties in managing foreign operations,
the burdens of complying with a variety of foreign laws, greater difficulty or
delay in accounts receivable collection, potentially adverse tax consequences
and political and economic instability. In addition, the Company's export sales
are currently denominated predominately in United States dollars, and
accordingly, an increase in the value of the United States dollar relative to
foreign currencies could make the Company's products more expensive and
therefore potentially less competitive in foreign markets.
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<PAGE>
USE OF PROCEEDS
All 7,554,054 shares of Common Stock covered by this Prospectus may be
offered from time to time by one or all of the Selling Stockholders. The Company
will receive no part of the proceeds from such sales.
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders and the
number of shares of Common Stock being offered by each of them hereby. Upon
completion of the offering, assuming all shares of Common Stock being offered
are sold, none of the Selling Stockholders will own any shares of Common Stock.
Because the Selling Stockholders may sell all or some portion of the shares
covered by this Prospectus, no estimate can be given as to the number of shares
and the percentage of outstanding Common Stock that will be held by any of them
after any particular sale. In addition, the following table does not reflect up
to an aggregate of 460,723 shares issuable as dividends upon the conversion of
the Series C Preferred Stock. The shares of Common Stock are being registered to
permit secondary trading of the shares of Common Stock, and the Selling
Stockholders may offer shares of Common Stock for resale from time to time. See
"Plan of Distribution."
The following table and accompanying footnotes identify each Selling
Stockholder and based upon information provided to the Company, set forth
information as of June 1, 1998 with respect to the shares held by or acquirable
by, as the case may be, each Selling Stockholder. Except as otherwise noted, to
the Company's knowledge the named beneficial owner has sole voting and
investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY NUMBER OF BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
SELLING STOCKHOLDER OFFERING OFFERED OFFERING
- ------------------------------------------------------------- ----------------- ------------ -----------------
<S> <C> <C> <C>
Explorer Partners, L.L.C..................................... 3,457,475(1) 3,457,475 0
Explorer Partners II, L.L.C.................................. 3,457,475(2) 3,457,475 0
Explorer Fund Management, L.L.C.............................. 3,457,475(3) 3,457,475 0
Cetronic Aktiebolag [Publ]................................... 1,816,224(4) 1,816,224 0
Telenor Venture AS........................................... 671,803 671,803 0
ForetagsByggarna BV.......................................... 729,869(5) 459,869 270,000
Bass Trust................................................... 692,079(6) 318,056 374,023
Mats Nilsson................................................. 103,138(7) 103,138 0
Jack Carsten................................................. 161,864(8) 63,402 98,462
Goran Garberg................................................ 47,127(7) 47,127 0
Fredrik Grunewald............................................ 43,587(7) 43,587 0
Martin Gemvik................................................ 25,418(7) 25,418 0
El Dorado Ventures and affiliated entities................... 382,938(9) 21,133 361,805
Peter Lonnqvist.............................................. 4,346(7) 4,346 0
Jelka Forvaltning Aktiebolag................................. 17,426(7) 17,426 0
Bona Utilia Aktiebolag....................................... 16,832(7) 16,832 0
Cambista Aktiebolag.......................................... 6,529(7) 6,529 0
Sture Lunden................................................. 20,966(7) 20,966 0
</TABLE>
- ------------------------
(1) Includes 1,250,000 shares of Common Stock issuable upon conversion of the
Series B Convertible Preferred Stock and 885,000 shares of Common Stock
issuable upon conversion of the Series B-1 Convertible Preferred Stock held
by Explorer Partners, L.L.C. ("Explorer Partners"); also includes 871,500
shares of Common Stock issuable upon conversion of the Series B-2
Convertible Preferred Stock, held by an affiliated entity Explorer Partners
II, L.L.C. ("Explorer II"); and 450,975 shares of Common Stock issuable upon
exercise of the Warrants, held by an affiliated entity Explorer Fund
Management, L.L.C. ("Explorer Fund Management"). Explorer Fund Management,
as investment advisor to Explorer Partners, has shared voting and investment
power of the shares directly owned by Explorer Partners with Timothy
Keating, the Managing Director of Explorer Partners. Robert Holz, as
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<PAGE>
Managing Director, and Timothy Keating, as a member, of Explorer Fund
Management, exercise shared voting and investment power of the shares held
by Explorer Fund Management. Messrs. Holz and Keating disclaim beneficial
ownership of the shares held by the limited liability companies except to
the extent of their respective membership interests therein. Each of
Explorer Partners, Explorer II and Explorer Fund Management may be deemed an
"affiliate" of the Company due to the significant beneficial ownership of
the Company's Common Stock ascribed to each such Selling Stockholder.
(2) Includes 871,500 shares of Common Stock issuable upon conversion of the
Series B-2 Convertible Preferred Stock held by Explorer II; also includes
2,135,000 shares of Common Stock issuable upon exercise of Series B and
Series B-1 Convertible Preferred Stock held by Explorer Partners, and
450,975 shares of Common Stock issuable upon exercise of the Warrants held
by Explorer Fund Management. Explorer Fund Management, as investment advisor
to Explorer II, shares voting and investment power of the shares directly
owned by Explorer II with Tom Papoutsis, the Managing Director of Explorer
II. Robert Holz, as Managing Director, and Timothy Keating, as a member, of
Explorer Fund Management, exercise shared voting and investment power of the
shares held by Explorer Fund Management. Messrs. Holz, Keating and Papoutsis
disclaim beneficial ownership of the shares held by the limited liability
companies except to the extent of their respective membership interests
therein.
(3) Includes 187,500, 132,750 and 130,725 shares of Common Stock issuable upon
exercise of the Warrants; also includes 2,135,000 shares of Common Stock
issuable upon conversion of the Series B and B-1 Convertible Preferred
Stock, held by affiliated entity Explorer Partners; and 871,500 shares of
Common Stock issuable upon conversion of Series B-2 Convertible Preferred
Stock, held by an affiliated entity Explorer II. Robert Holz, as Managing
Director, and Timothy Keating, as a member, of Explorer Fund Management,
exercise shared voting and investment power of the shares held by Explorer
Fund Management. In addition, Messrs. Holz and Keating, in their respective
roles with Explorer Fund Management, exercise shared voting and investment
power with respect to the shares held by Explorer Partners and Explorer II.
Messrs. Holz and Keating disclaim beneficial ownership of the shares held by
the limited liability companies except to the extent of their respective
membership interests therein.
(4) Represents 1,269,540 and 546,684 shares of Common Stock issuable upon
conversion of shares of Series C and Series C-1 Convertible Preferred Stock,
respectively, held by Cetronic Aktiebolag [Publ].
(5) Includes 459,869 shares of Common Stock issuable upon conversion of shares
of Series C Convertible Preferred Stock.
(6) Includes 318,056 shares of Common Stock issuable upon conversion of shares
of C-2 Convertible Preferred Stock and 41,610 shares of Common Stock
beneficially owned by Charlie Bass that are issuable upon exercise of
options that are exercisable within 60 days of June 1, 1998. Charlie Bass,
the Company's Chief Executive Officer and Chairman of the Board of
Directors, is the trustee of the Bass Trust exercising voting and investment
power of the shares held therein. Mr. Bass disclaims beneficial ownership of
the shares held by the Bass Trust except to the extent of his pecuniary
interest therein.
(7) Represents shares of Common Stock issuable upon conversion of shares of
Series C Convertible Preferred Stock.
(8) Includes 22,017 shares of Common Stock issuable upon exercise of options
held by Mr. Carsten that are exercisable within 60 days of June 1, 1998. Mr.
Carsten has been a director of the Company since May 1993.
(9) Includes 337,799, 10,504 and 6,254 shares of Common Stock and 9,616, 206 and
178 shares of Common Stock issuable upon of warrants held by El Dorado
Ventures III, El Dorado Technology IV and El Dorado C&L Fund (collectively,
the "El Dorado Entities"), respectively. Also includes 18,381 shares of
Common Stock issuable upon exercise of options held by Mr. Kalbach that are
exercisable within 60 days of June 1, 1998. Gary W. Kalbach, a director of
the Company from December 1993 to June 1998, is a general partner of each of
the El Dorado Entities, exercising voting and investment power of the shares
held by the El Dorado Entities. Mr. Kalbach disclaims beneficial ownership
except to the extent of his pecuniary interest.
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<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders will act independently of the Company in making
decisions with respect to the timing, manner and size of each sale of the Common
Stock covered hereby. The Selling Stockholders may sell the 7,554,054 shares
being offered hereby: (i) on the Pacific Exchange, through the OTC Bulletin
Board or otherwise at prices and at terms then prevailing or at prices related
to the then current market price; or (ii) in private sales at negotiated prices
directly or through a broker or brokers, who may act as agent or as principal or
by a combination of such methods of sale. The Selling Stockholders and any
underwriter, dealer or agent who participate in the distribution of such shares
may be deemed to be "underwriters" under the Securities Act, and any discount,
commission or concession received by such persons might be deemed to be an
underwriting discount or commission under the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholders (and, if acting as agent for the
purchaser of such shares, from such purchaser). Usual and customary brokerage
fees will be paid by the Selling Stockholders. Broker-dealers may agree with the
Selling Stockholders to sell a specified number of shares at a stipulated price
per share, and, to the extent such a broker-dealer is unable to do so acting as
agent for the Selling Stockholders, to purchase as principal any unsold shares
at the price required to fulfill the broker-dealer commitment to the Selling
Stockholders. Broker-dealers who acquire shares as principal may thereafter
resell such shares from time to time in transactions (which may involve crosses
and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, in negotiated transactions or by a combination of such
methods of sale or otherwise at market prices prevailing at the time of sale or
at negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such shares commissions computed as described above.
The Company has advised the Selling Stockholders that the anti-manipulation
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the Selling Stockholders and their affiliates.
In addition, the Company will make copies of this Prospectus available to the
Selling Stockholders and has informed them of the need for delivery of copies of
this Prospectus to purchasers on or prior to sales of the shares offered hereby.
The Selling Stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any such broker-dealers, and any profits
received on the resale of such shares, may be deemed to be underwriting
discounts and commissions under the Securities Act if any such broker-dealers
purchase shares as principal.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
Common Stock may not be sold unless such shares have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
Any securities covered by this Prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this Prospectus.
There can be no assurance that the Selling Stockholders will sell all or any
of the shares of Common Stock offered hereunder.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
15
<PAGE>
EXPERTS
The financial statements of Socket Communications, Inc. appearing in Socket
Communications, Inc.'s Annual Report (Form 10-KSB) for the year ended December
31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon (which contains an explanatory paragraph
describing conditions that raise substantial doubt about the Company's ability
to continue as a going concern as described in Note 1 to the financial
statements) included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII of the Company's Certificate of
Incorporation and Article VI of the Company's Bylaws provide for indemnification
of the Company's directors, officers, employees and other agents to the maximum
extent permitted by Delaware Law. In addition, the Company has entered into
Indemnification Agreements with its officers and directors and certain
stockholders.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions referenced above or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer, or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, the Company will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company will bear no expenses in connection with any sale or other
distribution by the Selling Stockholders of the shares being registered other
than the expenses of preparation and distribution of this Registration Statement
and the Prospectus included in this Registration Statement. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the Securities and Exchange Commission ("SEC") registration fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC registration fee.................................................................................. $ 2,085
Pacific Exchange listing fee.......................................................................... 7,500
Legal fees and expenses............................................................................... 15,000
Accounting fees and expenses.......................................................................... 5,000
Printing fees and expenses............................................................................ 12,000
Miscellaneous......................................................................................... 3,415
-----------
Total............................................................................................. $ 45,000
-----------
-----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII of the Registrant's Certificate
of Incorporation and Article VI of the Registrant's Bylaws provide for
indemnification of the Registrant's directors, officers, employees and other
agents to the maximum extent permitted by Delaware Law. In addition, the
Registrant has entered into Indemnification Agreements with its officers and
directors and certain stockholders.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S>
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
23.1 Consent of Ernst & Young LLP, independent auditors (see page II-4).
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C.(included in Exhibit 5.1).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if
II-1
<PAGE>
the total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) (Section 230.424(b) of this chapter)
if, in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that subparagraphs (i) and (ii) shall not apply if
the information required to be included in a post-effective amendment by
those subparagraphs is contained in periodic reports filed with or furnished
to the Securities and Exchange Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 15 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Newark, State of California, on the 5th day of June,
1998.
<TABLE>
<S> <C> <C>
SOCKET COMMUNICATIONS, INC.
By: /s/ DAVID DUNLAP
-----------------------------------------
David Dunlap
CHIEF FINANCIAL OFFICER AND VICE PRESIDENT
OF FINANCE AND ADMINISTRATION
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the 5th day of June, 1998 by the
following persons in the capacities indicated.
NAME TITLE
- ------------------------------ --------------------------
Chief Executive Officer
* and Chairman of the
- ------------------------------ Board of Directors
Charlie Bass (Principal Executive
Officer)
Chief Financial Officer
and Vice President of
/s/ DAVID DUNLAP Finance and
- ------------------------------ Administration
David Dunlap (Principal Financial and
Accounting Officer)
*
- ------------------------------ Executive Vice President
Micheal Gifford and Director
*
- ------------------------------ Director
Jack Carsten
*
- ------------------------------ Director
Gary Kalbach
*By: /s/ DAVID DUNLAP
-------------------------
ATTORNEY-IN-FACT
II-3
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to Registration Statement (Form S-3) and related Prospectus of
Socket Communications, Inc. for the registration of 7,554,054 shares of its
common stock and to the incorporation by reference therein of our report dated
February 17, 1998 (except for Note 17 for which the date is March 25, 1998),
with respect to the financial statements and schedule of Socket Communications,
Inc. included in its Annual Report (Form 10-KSB) for the year ended December 31,
1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Jose, California
June 9, 1998
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
23.1 Consent of Ernst & Young LLP, independent auditors (see page II-4).
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C.(included in Exhibit 5.1).
</TABLE>
<PAGE>
EXHIBIT 5.1
OPINION OF WILSON SONSINI GOODRICH & ROSATI, P.C.
June 9, 1998
Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have examined the Amendment No. 1 to Registration Statement on Form S-3
to be filed by you with the Securities and Exchange Commission on or about June
9, 1998 (the "Registration Statement") in connection with the registration under
the Securities Act of 1933, as amended, of a total of 7,554,054 shares of your
Common Stock (the "Shares"), to be offered for sale by the Selling Stockholders
named therein. We understand that the shares are to be sold by the Selling
Stockholders to the public as described in the Registration Statement. As legal
counsel for Socket Communications, Inc., we have examined the proceedings taken,
and are familiar with the proceedings proposed to be taken, by you in connection
with the sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, the Shares, when sold in the manner described in the Registration
Statement and in accordance with the resolutions adopted by the Board of
Directors of the Company, will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, including the prospectus constituting a part thereof, and further
consent to the use of our name wherever it appears in the Registration Statement
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
