Filed
Pursuant to 424(b)(1)
PROSPECTUS
2,491,163
Shares
Socket Communications, Inc.
Common Stock
____________________
This prospectus relates
to 2,491,163 shares of our Common Stock which may be sold from time to time
by certain stockholders set forth in "Selling Stockholders" section
of this prospectus. Of the shares offered by this prospectus, such shares include
707,958 shares of Common Stock issuable upon exercise or conversion of warrants.
The balance of the shares offered pursuant to this prospectus represent the
number of shares of our Common Stock held by the selling stockholders or their
transferees.
The prices at which the
selling stockholders or their transferees may sell the shares will be determined
by the prevailing market prices for the shares or in negotiated transactions.
While we may receive proceeds upon the exercise of the warrants, we will not
receive any proceeds from the sale of the shares offered by this prospectus.
Our Common Stock is quoted
on the Nasdaq National Market under the symbol "SCKT" and is listed
on the Pacific Exchange under the symbol "SOK." On September 23, 2003,
the last reported sale price for our Common Stock on the Nasdaq National Market
was $2.45 per share.
Investment in the securities involves a high degree of risk. See "Risk Factors" beginning on page 3.
____________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________
The date of this prospectus is October 30, 2003.
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TABLE
OF CONTENTS
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Page
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| THE COMPANY |
1
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| RISK FACTORS |
3
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| USE OF PROCEEDS |
12
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| INFORMATION CONTAINED IN THIS PROSPECTUS |
12
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| FORWARD-LOOKING STATEMENTS |
12
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| SELLING STOCKHOLDERS |
13
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| PLAN OF DISTRIBUTION |
16
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| LEGAL MATTERS |
17
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| EXPERTS |
17
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| WHERE YOU CAN FIND MORE INFORMATION |
17
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| INFORMATION INCORPORATED BY REFERENCE |
17
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THE COMPANY
We design, manufacture
and sell products that connect handheld and notebook computers to the Internet,
computer networks, and peripherals through both wireless and cable connections.
Our products are designed for use with a broad range of handheld and notebook
computers, and employ innovative designs that reduce battery power consumption
and make them easy to install and use. Our products have been designed specifically
for handheld computers and other battery-powered devices with standard expansion
slots for plug-in cards. We believe that growth in the mobile workforce, combined
with technical advances and cost reductions in handheld computers and networking
technologies, is driving broader adoption of mobile data communications. Our
products are designed to address the growing need for connectivity by enabling
the use of handheld devices to extend data communications capabilities beyond
location-dependent wired networks or telephone lines, thereby enabling mobile
computer users to enhance their productivity, exploit time sensitive opportunities
and improve customer satisfaction. Our products allow consumers to easily integrate
hardware, software and services into complete mobile connectivity solutions.
Our products can be classified
into four broad product families:
Our network connection
products are connection devices that can be plugged into standard expansion
slots in handheld and notebook computers. These products allow users to connect
their handheld and notebook computers to the Internet or to private networks
via mobile phone services, or to communicate with other electronic devices such
as desktop computers and printers. Our bar code scanning products plug
into handheld or notebook computers and turn those devices into portable bar
code scanners that can be used in various retail and industrial workplaces.
Our serial products add connection ports to a notebook or handheld computer
to enable users to connect these portable computers to standard peripherals
designed for desktop PCs. Our embedded products and services allow manufacturers
of mobile phones, handheld computers and other devices to build wireless connection
functions into their products.
Handheld computers have
evolved over the past several years from simple devices used mainly to hold
personal information into small portable computers with functionality similar
to desktop PCs. Advances in mobile network access and transfer speeds are enabling
handheld computer users to access the Internet, send and receive email, access
corporate data files, and exchange mobile instant messages anywhere and at any
time. Growth in the mobile workforce and increasing reliance on the Internet
and email are increasing the demand for mobile data communications. Advances
in wireless connection technologies, particularly Bluetooth and Wireless LAN
(WiFi), are being commercialized to allow handheld computers to interact wirelessly
with nearby computers and with a wide array of electronic appliances, including
mobile phones, printer, digital cameras, LAN access points, automobile communications
systems, bar code scanners, home entertainment and security systems, public
kiosks, public Internet access locations and vending machines. We believe we
are well positioned to benefit from expected growth in mobile data communications
by maintaining a leadership position in connection solutions for mobile devices.
Our marketing and product development strategy is to capitalize on strategic
partner relationships, offer a comprehensive range of products, build a strong
brand name, diversify our distribution channels and support product developers.
1
We have an experienced
management team and Board of Directors. Many of our senior officers joined us
during the years 1992 through 1994, including Kevin Mills, President and CEO;
co-founder Micheal Gifford, Business Unit Manager of our embedded and industrial
business unit; David Dunlap, Chief Financial Officer; Len Ott, Chief Technical
Officer; and Peter Phillips, Vice President of Marketing. Kevin Mills and Micheal
Gifford serve on our Board of Directors. Our Board of Directors also includes
co-founder Charlie Bass as Chairman, who has served in that capacity since 1992,
along with four other independent directors. Two of our independent directors,
Enzo Torresi and Gianluca Rattazzi, are former chief executive officers of high
technology companies, and our two other independent directors, Leon Malmed and
Peter Sealey, are former senior sales and marketing executives.
We were incorporated in
California in March 1992, and reincorporated in Delaware at the time of our
initial public offering in June 1995. We have approximately 60 full time employees,
and our headquarters are located at 37400 Central Court, Newark, California
94560. Our telephone number is (510) 744-2700. We have established two marketing
and support subsidiaries, Socket Communications, Europe, located in Grenoble,
France, and Socket Communications K.K., located in Tokyo, Japan.
2
RISK
FACTORS
An investment in the
Common Stock offered by this prospectus involves a high degree of risk. You
should carefully consider the risks described below, as well as the risks described
in our annual and quarterly reports filed with the Securities and Exchange Commission,
before deciding to purchase shares of our Common Stock. The risks described
below are not the only ones that we face. Additional risks that generally apply
to publicly traded companies, that are not yet identified or that we currently
think are immaterial, may also adversely affect our company.
If any of the events,
contingencies, circumstances or conditions described in the following risks
actually occur, our business, financial condition or results of operations could
be seriously harmed. The trading price of our Common Stock could, in turn, decline
and you could lose all or part of your investment.
We have a history of
operating losses, we cannot assure you that we will achieve ongoing profitability,
and we have monthly payment obligations.
We have incurred significant
operating losses since our inception. We may continue to incur operating losses
through the third quarter of 2003 and possibly longer. For the fiscal year ended
December 31, 2002 and the first six months of 2003, we incurred net losses of
$2,971,830 and $995,172, respectively. To obtain profitability, we must accomplish
numerous objectives, including the development of successful new products. We
cannot foresee with any certainty whether we will be able to achieve these objectives
in the future. Accordingly, we cannot assure you that we will generate sufficient
net revenue to achieve ongoing profitability.
We also have debt payment
obligations to Nokia Corporation under a Business Transfer Agreement that we
entered into with Nokia in March 2002. These payments are in the amount of approximately
$107,300, plus accrued interest, per month through November 2003, with a final
payment of approximately $437,300 plus accrued interest, due in December 2003.
If we cannot achieve profitability, we will not be able to support our operations
from positive cash flows, and we would use our existing cash to support operating
losses and make debt payments to Nokia. We do not anticipate the need to raise
additional capital through 2004 to fund our operations, but should the need
arise we cannot assure you that additional capital will be available on acceptable
terms, if at all, and any such terms may be dilutive to existing stockholders.
If we are unable to secure the necessary capital, we may need to suspend some
or all of our current operations.
We may require additional
capital in the future, and we cannot assure you that capital will be available
on reasonable terms, if at all, or on terms that would not cause substantial
dilution to your stock holdings.
We have historically needed
to raise capital to fund our operating losses. We may continue to incur operating
losses through the third quarter of 2003 and possibly longer. Our forecasts
are highly dependent on factors beyond our control, including market acceptance
of our products and sales of handheld computers. If capital requirements vary
materially from those currently planned, we may require additional capital sooner
than expected. There can be no assurance that such capital will be available
in sufficient amounts or on terms acceptable to us, if at all. Any sale of a
substantial number of additional shares will cause dilution to our stockholders'
investments and could also cause the market price of our Common Stock to fall.
3
A significant portion
of our revenue currently comes from two distributors, and any decrease in revenue
from these distributors could harm our business.
A significant portion of
our revenue comes from two distributors, Ingram Micro and Tech Data, which together
represented approximately 40 percent of our worldwide revenue in the first six
months of 2003, and 30 percent of our worldwide revenue in fiscal 2002. We expect
that a significant portion of our revenue will continue to depend on sales to
Ingram Micro and Tech Data. We do not have long-term commitments from Ingram
Micro or Tech Data to carry our products, and either could choose to stop selling
some or all of our products at any time. If we lose our relationship with Ingram
Micro or Tech Data, we could experience disruption and delays in marketing our
products.
If the market for handheld
computers fails to grow, we might not achieve our sales projections.
Substantially all of our
products are designed for use with mobile personal computers, including handhelds,
notebook computers and tablets. If the mobile personal computer industry does
not grow or if its growth slows, we might not achieve our sales projections.
Our sales would be hurt
if the new technologies used in our products do not become widely adopted.
Many of our products use
new technologies, such as the Bluetooth wireless standard and 2D bar code scanning,
which are not yet widely adopted in the market. If these technologies fail to
become widespread, our sales will suffer.
If third parties do
not produce and sell innovative products with which our products are compatible,
we may not achieve our sales projections.
Our success is dependent
upon the ability of third parties in the mobile personal computer industry to
complete development of products that include or are compatible with our technology
and to sell those products into the marketplace. Our ability to generate increased
revenue depends significantly on the commercial success of Windows-powered handheld
devices, particularly the Pocket PC, and other devices, such as the new line
of handhelds with expansion options offered by Palm. If manufacturers are unable
to ship new products such as Pocket PC and other Windows-powered devices or
Palm devices on schedule, or if these products fail to achieve or maintain market
acceptance, the number of our potential new customers would be reduced and we
would not be able to meet our sales expectations.
We could face increased
competition in the future, which would adversely affect our financial performance.
The market for handheld
computers in which we operate is very competitive. Our future financial performance
is contingent on a number of unpredictable factors, including that:
4
Increased competition could
result in price reductions, fewer customer orders, reduced margins, and loss
of market share. Our failure to compete successfully against current or future
competitors could harm our business, operating results, or financial condition.
If we fail to develop
and introduce new products rapidly and successfully, we will not be able to
compete effectively, and our ability to generate sufficient revenues will be
negatively affected.
The market for our products
is prone to rapidly changing technology, evolving industry standards and short
product life cycles. If we are unsuccessful at developing and introducing new
products and services on a timely basis that include the latest technologies
conforming with the newest standards and that are appealing to end users, we
will not be able to compete effectively, and our ability to generate significant
revenues will be seriously harmed.
The development of new
products and services can be very difficult and requires high levels of innovation.
The development process is also lengthy and costly. Short product life cycles
expose our products to the risk of obsolescence and require frequent new product
introductions. We will be unable to introduce new products and services into
the market on a timely basis or compete successfully, if we fail to:
We cannot be sure that
we will have sufficient resources to make adequate investments in research and
development or that we will be able to make the technological advances necessary
to be competitive.
If we do not correctly
anticipate demand for our products, our operating results will suffer.
The demand for our products
depends on many factors and will be difficult to forecast. We expect that it
will become more difficult to forecast demand as we introduce and support more
products and as competition in the market for our products intensifies. If demand
increases beyond forecasted levels, we would have to rapidly increase production
at our third-party manufacturers. We depend on suppliers to provide additional
volumes of components, and those suppliers might not be able to increase production
rapidly enough to meet unexpected demand. Even if we were able to procure enough
components, our third-party manufacturers might not be able to produce enough
of our devices to meet our customer demand. In addition, rapid increases in
production levels to meet unanticipated demand could result in higher costs
for manufacturing and supply of components and other expenses. These higher
costs could lower our profit margins. Further, if production is increased rapidly,
manufacturing yields could decline, which may also lower operating results.
If demand is lower than
forecasted levels, we could have excess production resulting in higher inventories
of finished products and components, which could lead to write-downs or write-offs
of some or all of the excess inventories. Lower than forecasted demand could
also result in excess manufacturing capacity at our third-party manufacturers
and in our failure to meet some minimum purchase commitments, each of which
may lower our operating results.
5
We depend on alliances
and other business relationships with a small number of third parties, and a
disruption in any one of these relationships would hinder our ability to develop
and sell our products.
We depend on strategic
alliances and business relationships with leading participants in various segments
of the communications and mobile personal computer markets to help us develop
and market our products. Our strategic partners may revoke their commitment
to our products or services at any time in the future or may develop their own
competitive products or services. Accordingly, our strategic relationships may
not result in sustained business alliances, successful product or service offerings,
or the generation of significant revenues. Failure of one or more of such alliances
could result in delay or termination of product development projects, failure
to win new customers, or loss of confidence by current or potential customers.
We have devoted significant
research and development resources to design activities for Windows-powered
mobile products and, more recently, to design activities for Palm devices. Such
design activities have diverted financial and personnel resources from other
development projects. These design activities are not undertaken pursuant to
any agreement under which Microsoft or Palm is obligated to continue the collaboration
or to support the products produced from the collaboration. Consequently, Microsoft
or Palm may terminate their collaborations with us for a variety of reasons
including our failure to meet agreed-upon standards or for reasons beyond our
control, such as changing market conditions, increased competition, discontinued
product lines, and product obsolescence.
We rely primarily on
distributors, resellers, retailers and original equipment manufacturers to sell
our products, and our sales would suffer if any of these third parties stops
selling our products effectively.
Because we sell our products
primarily through distributors, resellers, retailers and original equipment
manufacturers, we are subject to risks associated with channel distribution,
such as risks related to their inventory levels and support for our products.
Our distribution channels may build up inventories in anticipation of growth
in their sales. If such growth in their sales does not occur as anticipated,
the inventory build up could contribute to higher levels of product returns.
The lack of sales by any one significant participant in our distribution channels
could result in excess inventories and adversely affect our operating results.
Our agreements with distributors,
resellers, retailers and original equipment manufacturers are generally nonexclusive
and may be terminated on short notice by them without cause. Our distributors,
resellers, retailers and original equipment manufacturers are not within our
control, are not obligated to purchase products from us, and may represent competitive
lines of products. Our current sales growth expectations are contingent in part
on our ability to enter into additional distribution relationships and expand
our retail sales channels. We cannot predict whether we will be successful in
establishing new distribution relationships, expanding our retail sales channels
or maintaining our existing relationships. A failure to enter into new distribution
relationships or to expand our retail sales channels could adversely impact
our ability to grow our sales.
We allow our distribution
channels to return a portion of their inventory to us for full credit against
other purchases. We also supply some retailers on a consignment basis, which
means we own the inventory until it is sold by the retailer and the inventory
can be returned to us at any time. In addition, in the event we reduce our prices,
we credit our distributors for the difference between the purchase price of
products remaining in their inventory and our reduced price for such products.
Actual returns and price protection may adversely affect future operating results,
particularly since we seek to continually introduce new and enhanced products
and are likely to face increasing price competition.
6
Our intellectual property
and proprietary rights may be insufficient to protect our competitive position.
Our business depends on
our ability to protect our intellectual property. We rely primarily on patent,
copyright, trademark, trade secret laws, and other restrictions on disclosure
to protect our proprietary technologies. We cannot be sure that these measures
will provide meaningful protection for our proprietary technologies and processes.
We cannot be sure that any patent issued to us will be sufficient to protect
our technology. The failure of any patents to provide protection to our technology
would make it easier for our competitors to offer similar products. In connection
with our participation in the development of various industry standards, we
may be required to license certain of our patents to other parties, including
our competitors, that develop products based upon the adopted standards.
We also generally enter
into confidentiality agreements with our employees, distributors, and strategic
partners, and generally control access to our documentation and other proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use our products, services, or technology without
authorization, develop similar technology independently, or design around our
patents.
Effective copyright, trademark,
and trade secret protection may be unavailable or limited in certain foreign
countries. Furthermore, certain of our customers have entered into agreements
with us which provide that the customers have the right to use our proprietary
technology in the event we default in our contractual obligations, including
product supply obligations, and fail to cure the default within a specified
period of time.
We may become subject
to claims of intellectual property rights infringement, which could result in
substantial liability.
In the course of our business,
we may receive claims of infringement or otherwise become aware of potentially
relevant patents or other intellectual property rights held by other parties.
Many of our competitors have large intellectual property portfolios, including
patents that may cover technologies that are relevant to our business. In addition,
many smaller companies, universities, and individuals have obtained or applied
for patents in areas of technology that may relate to our business. The industry
is moving towards aggressive assertion, licensing, and litigation of patents
and other intellectual property rights.
On June 30, 2003, Khyber
Technologies Corporation filed a complaint against us in the United States District
Court, Northern District of Ohio, alleging that we had infringed a patent held
by Khyber in manufacturing, using and selling our portable bar code scanners.
We are currently in the process of analyzing the merits of the complaint.
If we are unable to obtain
and maintain licenses on favorable terms for intellectual property rights required
for the manufacture, sale, and use of our products, particularly those products
which must comply with industry standard protocols and specifications to be
commercially viable, our results of operations or financial condition could
be adversely impacted.
In addition to disputes
relating to the validity or alleged infringement of other parties' rights, we
may become involved in disputes relating to our assertion of our intellectual
property rights. Whether we are defending the assertion of intellectual property
rights against us or asserting our intellectual property rights against others,
intellectual property litigation can be complex, costly, protracted, and highly
disruptive to business operations by diverting the attention and energies of
management and key technical personnel. Plaintiffs in intellectual property
cases often seek injunctive relief, and the measures of damages in intellectual
property litigation are complex and often subjective or uncertain. Thus, any
adverse determinations in this type of litigation could subject us to significant
liabilities and costs.
7
New industry standards
may require us to redesign our products, which could substantially increase
our operating expenses.
Standards for the form
and functionality of our products are established by standards committees. Separate
committees establish standards, which evolve and change over time, for different
categories of our products. We must continue to identify and ensure compliance
with evolving industry standards so that our products are interoperable and
we remain competitive. Unanticipated changes in industry standards could render
our products incompatible with products developed by major hardware manufacturers
and software developers. Should any unanticipated changes occur, we would be
required to invest significant time and resources to redesign our products to
ensure compliance with relevant standards. If our products are not in compliance
with prevailing industry standards for a significant period of time, we would
miss opportunities to have our products specified as standards for new hardware
components designed by mobile computer manufacturers and original equipment
manufacturers.
Undetected flaws and
defects in our products may disrupt product sales and result in expensive and
time-consuming remedial action.
Our hardware and software
products may contain undetected flaws, which may not be discovered until customers
have used the products. From time to time, we may temporarily suspend or delay
shipments or divert development resources from other projects to correct a particular
product deficiency. Efforts to identify and correct errors and make design changes
may be expensive and time consuming. Failure to discover product deficiencies
in the future could delay product introductions or shipments, require us to
recall previously shipped products to make design modifications, or cause unfavorable
publicity, any of which could adversely affect our business and operating results.
Our quarterly operating
results may fluctuate in future periods, which could cause our stock price to
decline.
We expect to experience
quarterly fluctuations in operating results in the future. We generally ship
orders as received and as a result typically have little or no backlog. Quarterly
revenue and operating results therefore depend on the volume and timing of orders
received during the quarter, which are difficult to forecast. Historically,
we have often recognized a substantial portion of our revenue in the last month
of the quarter. This subjects us to the risk that even modest delays in orders
may adversely affect our quarterly operating results. Our operating results
may also fluctuate due to factors such as:
8
Because we base our staffing
and other operating expenses on anticipated revenue, delays in the receipt of
orders can cause significant variations in operating results from quarter to
quarter. As a result of any of the foregoing factors, our results of operations
in any given quarter may be below the expectations of public market analysts
or investors, in which case the market price of our Common Stock would be adversely
affected.
The loss of one or more
of our senior personnel could harm our existing business.
A number of our officers
and senior managers have been employed for seven to ten years by us, including
our President, Chief Financial Officer, Chief Technical Officer, Vice President
of Marketing, and Senior Vice President for Business Development/General Manager
Embedded and Industrial Systems Unit. Our future success will depend upon the
continued service of key officers and senior managers. Competition for officers
and senior managers is intense and there can be no assurance that we will be
able to retain our existing senior personnel. The loss of key senior personnel
could adversely affect our ability to compete.
If we are unable to
attract and retain highly skilled sales and marketing and product development
personnel, our ability to develop new products and product enhancements will
be adversely affected.
We believe our ability
to achieve increased revenues and to develop successful new products and product
enhancements will depend in part upon our ability to attract and retain highly
skilled sales and marketing and product development personnel. Our products
involve a number of new and evolving technologies, and we frequently need to
apply these technologies to the unique requirements of mobile connection products.
Our personnel must be familiar with both the technologies we support and the
unique requirements of the products to which our products connect. Competition
for such personnel is intense, and we may not be able to attract and retain
such key personnel. In addition, our ability to hire and retain such key personnel
will depend upon our ability to raise capital or achieve increased revenue levels
to fund the costs associated with such key personnel. Failure to attract and
retain such key personnel will adversely affect our ability to develop new products
and product enhancements.
We may not be able to
collect revenues from customers who experience financial difficulties.
Our accounts receivable
are derived primarily from distributors and original equipment manufacturers.
We perform ongoing credit evaluations of our customers' financial conditions
but generally require no collateral. Reserves are maintained for potential credit
losses, and such losses have historically been within such reserves. However,
many of our customers may be thinly capitalized and may be prone to failure
in adverse market conditions. Although our collection history has been good,
from time to time a customer may not pay us because of financial difficulty,
bankruptcy or liquidation.
9
We may be unable to
manufacture our products because we are dependent on a limited number of qualified
suppliers for our components.
Several of our component
parts, including our serial interface chip, our Ethernet chip, and our bar code
scanning modules, are produced by one or a limited number of suppliers. Shortages
could occur in these essential materials due to an interruption of supply or
increased demand in the industry. If we are unable to procure certain component
parts, we could be required to reduce our operations while we seek alternative
sources for these components, which could have a material adverse effect on
our financial results. To the extent that we acquire extra inventory stocks
to protect against possible shortages, we would be exposed to additional risks
associated with holding inventory, such as obsolescence, excess quantities,
or loss.
Our operating results
could be harmed by economic, political, regulatory and other risks associated
with export sales.
Export sales (sales to
customers outside the United States) accounted for approximately 42 percent
of our revenue in 2002 and approximately 40 percent of our revenue in the first
six months of 2003. Accordingly, our operating results are subject to the risks
inherent in export sales, including:
Our export sales are predominately
denominated in United States dollars and in Euros for a portion of our sales
to European distributors. Accordingly, an increase in the value of the United
States dollar relative to foreign currencies could make our products more expensive
and therefore potentially less competitive in foreign markets. Declines in the
value of the Euro relative to the United States dollar may result in foreign
currency losses relating to collection of Euro denominated receivables.
Our operations are vulnerable
to interruption by fire, earthquake, power loss, telecommunications failure,
and other events beyond our control.
Our corporate headquarters
is located near an earthquake fault. The potential impact of a major earthquake
on our facilities, infrastructure, and overall business is unknown. Additionally,
we may experience electrical power blackouts or natural disasters that could
interrupt our business. We do not have a detailed disaster recovery plan. We
do not carry sufficient business interruption insurance to compensate us for
losses that may occur. Any losses or damages incurred by us as a result of these
events could have a material adverse effect on our business.
10
The sale of a substantial
number of shares of Common Stock could cause the market price of our Common
Stock to decline.
Sales of a substantial
number of shares of our Common Stock in the public market could adversely affect
the market price for our Common Stock. The market price of our Common Stock
could also decline if one or more of our significant stockholders decided for
any reason to sell substantial amounts of our Common Stock in the public market.
As of August 5, 2003, we
had 27,812,211 shares of Common Stock outstanding. Substantially all of these
shares are freely tradable in the public market, either without restriction
or subject, in some cases, only to S-3 or S-8/S-3 prospectus delivery requirements
and, in some cases, only to manner of sale, volume, and notice requirements
of Rule 144 under the Securities Act.
As of August 5, 2003, we
had 3,492 shares of Series E redeemable convertible preferred stock outstanding
that are convertible into 40,140 shares of Common Stock at $0.87 per share.
To the extent the market price of our Common Stock exceeds $0.87 per share,
the holder of Series E may decide to convert some or all of the Series E into
Common Stock, and such Common Stock would be freely tradable in the public market
and subject only to S-3 prospectus delivery requirements.
As of August 5, 2003, we
had 199,083 shares of Series F Preferred Stock outstanding that are convertible
into 1,990,830 shares of Common Stock at $0.722 per share.
As of August 5, 2003, we
had 6,071,674 shares subject to outstanding options under our stock option plans,
and 670,088 shares were available for future issuance under the plans. We have
registered the shares of Common Stock subject to outstanding options and reserved
for issuance under our stock option plans. Accordingly, shares underlying vested
options will be eligible for resale in the public market as soon as the options
are exercised.
As of August 5, 2003, we
had warrants outstanding to purchase a total of 2,591,268 shares of our Common
Stock at exercise prices ranging from $0.722 to $2.73. All such warrants may
be exercised at any time, and the shares issuable upon exercise may be resold,
either without restrictions or subject, in some cases, only to S-3 prospectus
delivery requirements, and, in some cases, only to manner of sale, volume, and
notice requirements of Rule 144.
Volatility in the trading
price of our Common Stock could negatively impact the price of our Common Stock.
During the period from
July 1, 2002 through August 5, 2003, our Common Stock price fluctuated between
a high of $3.39 and a low of $0.51. The trading price of our Common Stock could
be subject to wide fluctuations in response to many factors, some of which are
beyond our control, including general economic conditions and the outlook of
securities analysts and investors on our industry. In addition, the stock markets
in general, and the markets for high technology stocks in particular, have experienced
high volatility that has often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
trading price of our Common Stock.
11
USE OF
PROCEEDS
We will not receive any
of the proceeds from the sale of the shares sold under this prospectus, although
we may receive up to approximately $1,932,725 upon full exercise of the warrants.
All proceeds from the sale of the shares will be for the account of the selling
stockholders. See "Selling Stockholders" and "Plan of Distribution."
INFORMATION
CONTAINED IN THIS PROSPECTUS
You should rely only on
the information contained in this prospectus. We have not authorized anyone
to provide you with information different from that contained in this prospectus.
The selling stockholders listed in this prospectus are offering to sell, and
seeking offers to buy, shares of our Common Stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our Common Stock.
FORWARD-LOOKING
STATEMENTS
This prospectus contains
forward looking statements within the meaning of the securities laws. These
forward looking statements are subject to a number of risks and uncertainties,
many of which are beyond our control. All statements other than statements of
historical facts included in this prospectus, including the statements under
"The Company" and elsewhere in this prospectus regarding our strategy,
future operations, financial position, estimated revenues, projected costs,
prospects, plans and objectives of management, are forward looking statements.
When used in this prospectus, the words "will," "believe,"
"anticipate," "intend," "estimate," "expect,"
"project" and similar expressions are intended to identify forward
looking statements, although not all forward looking statements contain such
identifying words. All forward looking statements speak only as of the date
of this prospectus. Neither we nor any of the selling stockholders undertake
any obligation to update or revise publicly any forward looking statements,
whether as a result of new information, future events or otherwise. Although
we believe that our plans, intentions and expectations reflected in or suggested
by the forward looking statements we make in this prospectus are reasonable,
ultimately we may not achieve such plans, intentions or expectations.
We disclose important factors that could cause our actual results to differ materially from our expectations under "Risk Factors" and elsewhere in this prospectus. Such factors include, among others, the following: our ability to raise sufficient capital to fund our operations, our ability to achieve profitability, developments in the market for our products, including the market for mobile computers that use the Windows Pocket PC operating system, and developments in our relationships with our strategic partners. These cautionary statements qualify all forward looking statements attributable to us or persons acting on our behalf.
12
SELLING STOCKHOLDERS
On August 5, 2003 and September
12, 2003, we completed a private placement of shares of our Common Stock and
warrants to purchase Common Stock pursuant to Securities Purchase Agreements.
We issued 1,783,205 shares of Common Stock at $2.37 per share and five-year
warrants to purchase up to an additional 534,962 shares of Common Stock at $2.73
per share. Net proceeds from the private placement after estimated costs and
expenses were approximately $3.7 million. The first closing of the private placement
was managed by Cardinal Securities, LLC. As partial consideration for its services,
Cardinal Securities, LLC received five-year warrants to purchase up to 172,996
shares of Common Stock at $2.73 per share. Cardinal Securities, LLC assigned
its warrants to H. Scott Coherd, Patrick E. Gaynes, Scott F. Koch, Robert L.
Rosenstein, Spencer Trask & Co., Spencer Trask & Company f/b/o the participants
under the Equity Participation Plan and Adam K. Stern.
The shares may be offered by the selling stockholders or by pledgees, donees,
transferees or other successors in interest that receive such shares as a gift
or through a private sale or other transfer. We may amend or supplement this
prospectus from time to time to update the information provided in the table.
|
Certificate Name |
Shares
Beneficially Owned Prior to |
Number of Shares Being Offered |
Shares
Beneficially Owned |
|
|
Number |
Percent(1) |
|||
|
August
5, 2003 Closing
|
|
|
||
|
Capital
Ventures International (2)
|
274,261 | 274,261 |
0 |
* |
|
Cranshire
Capital, L.P. (3)
|
274,261 | 274,261 |
0 |
* |
|
Deephaven
Small Cap Growth Fund, LLC (4)
|
274,261 | 274,261 |
0 |
* |
|
Elliott
Associates, L.P. (5)
|
249,268 | 219,409 |
29,859 |
* |
|
Elliott
International, L.P. (6)
|
349,115 | 329,115 |
20,000 |
* |
|
Gryphon
Master Fund, L.P. (7)
|
274,261 | 274,261 |
0 |
* |
|
Portside
Growth and Opportunity Fund (8)
|
274,261 | 274,261 |
0 |
* |
|
RHP
Master Fund, L.P. (9)
|
54,852 | 54,852 |
0 |
* |
|
Vertical
Ventures, LLC (10)
|
274,261 | 274,261 |
0 |
* |
|
H.
David Coherd (11)
|
27,391 | 27,391 |
0 |
* |
|
Patrick
E. Gaynes (12)
|
4,325 | 4,325 |
0 |
* |
|
Scott
F. Koch (13)
|
27,391 | 27,391 |
0 |
* |
|
Robert
L. Rosenstein (14)
|
27,391 | 27,391 |
0 |
* |
|
Spencer
Trask & Co. (15)
|
240,631 | 22,044 |
240,631 |
* |
|
Spencer
Trask & Co. f/b/o the participants under the
Equity Participation Plan (16) |
240,631 | 44,883 |
240,631 |
* |
|
Adam
K. Stern (17)
|
18,149 | 19,571 |
18,149 |
* |
|
September
12, 2003 Closing
|
|
|
||
|
Joe
N. and Jamie W. Behrendt Revocable Trust 10/30/96 (18)
|
45,019 | 2,986 |
45,019 |
* |
|
Lon
Bell (19)
|
90,038 | 5,972 |
90,038 |
* |
|
William
J. Callahan & Joan M. Callahan JTWROS (20)
|
45,019 | 2,986 |
45,019 |
* |
|
DCG&T
FBO Elizabeth H. Bone SEP IRA (21)
|
16,023 | 1,528 |
16,023 |
* |
|
DCG&T
c/f Robert G. Heidenreich IRA (22)
|
24,028 | 2,291 |
24,028 |
* |
|
Steven
H. Deutsch & Wilma K. Deutsch (23)
|
36,023 | 2,389 |
36,023 |
* |
|
Jacob
M. Engel (24)
|
45,019 | 2,986 |
45,019 |
* |
|
Jonathan
Fleisig (25)
|
180,063 | 11,943 |
180,063 |
* |
|
Maurice
& Stacy Gozlan TIE (26)
|
90,038 | 5,972 |
90,038 |
* |
|
Headwaters
Holdings LLC (27)
|
180,063 | 11,943 |
180,063 |
* |
|
Alec
Jaret (28)
|
18,018 | 1,195 |
18,018 |
* |
|
Thomas
A. Masci, Jr. (29)
|
13,507 | 896 |
13,507 |
* |
|
Kathleen
S. McHugh (30)
|
9,009 | 549 |
9,009 |
* |
|
O.T.
Finance SA (31)
|
37,644 | 2,986 |
37,644 |
* |
|
Elisha
Rothman (32)
|
90,038 | 5,972 |
90,038 |
* |
|
Mark
C. Steadman (33)
|
41,957 | 957 |
41,957 |
* |
|
Adam
K. Stern (34)
|
18,149 | 1,195 |
18,149 |
* |
|
Samuel
V. Vail (35)
|
13,018 | 1,195 |
13,018 |
* |
|
Paul
J. Weir (36)
|
8,507 | 896 |
8,507 |
* |
|
Ralph
C Wintrode Trust DTD May 9, 2001 (37)
|
36,286 | 2,389 |
36,286 |
* |
| ________________ * Less than 1%. (1) Based upon 28,373,643 shares of Common Stock outstanding as of the close of business on September 4, 2003 in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. (2) Includes 63,291 shares of Common Stock subject to a warrant. Heights Capital Management, Inc., as Capital Ventures International's authorized agent, has discretionary authority to vote and dispose of the shares held by Capital Ventures International and may be deemed to be the beneficial owner of those shares. Andrew Frost, in his capacity as President of Heights Capital Management, Inc., may also be deemed to have investment discretion and voting power over the shares held by Capital Ventures International. Mr. Frost disclaims any such beneficial ownership of the shares. (3) Includes 63,291 shares of Common Stock subject to a warrant. Mitchell P. Kopin has voting control in respect of the securities held by Cranshire Capital, L.P. Mr. Kopin is the President of Downsview Capital, Inc., the general partner of Cranshire Capital, L.P. (4) Includes 63,291 shares of Common Stock subject to a warrant. Deephaven Small Cap Growth Fund LLC is a private investment fund that is owned by all of its investors and managed by Deephaven Capital Management LLC. Deephaven Capital Management LLC, of which Mr. Colin Smith is the Chief Executive Officer, has voting and investment control over the shares that are owned by Deephaven Small Cap Growth Fund, LLC. (5) Includes 50,633 shares of Common Stock subject to a warrant. Paul Singer has voting control in respect of the securities held by Elliott Associates, L.P. (6) Includes 75,950 shares of Common Stock subject to a warrant. Paul Singer has voting control in respect of the securities held by Elliott International, L.P. Mr. Singer is the general partner of Elliott International Capital Advisors Inc., the investment manager of Elliott International, L.P. (7) Includes 63,291 shares of Common Stock subject to a warrant. E.B. Lyon, IV has voting control in respect of the securities held by Gryphon Master Fund, L.P. Mr. Lyon is the authorized agent of Gryphon Advisors, LLC, which is the general partner of Gryphon Management Partners, L.P., which is the general partner of Gryphon Partners, L.P., which is the general partner of Gryphon Master Fund, L.P. (8) Includes 63,291 shares of Common Stock subject to a warrant. Peter Cohen, Thomas Strauss and Morgan Stark have voting control in respect of the securities held by Portside Growth and Opportunity Fund. Messrs. Cohen, Strauss and Stark are the managing members of C4S & Co., which is the managing member of Ramius Capital Group, LLC, which is the investment manager of Portside Growth and Opportunity Fund. Messrs. Cohen, Strauss and Stark disclaim beneficial ownership of the securities owned by Portside Growth and Opportunity Fund. (9) Includes 12,658 shares of Common Stock subject to a warrant. RHP Master Fund, Ltd. is a party to an investment management agreement with Rock Hill Investment Management, L.P., a limited partnership of which the general partner is RHP General Partner, LLC. Pursuant to such agreement, Rock Hill Investment Management directs the voting and disposition of the shares owned by RHP Master Fund, L.P. Messrs. Wayne Bloch, Gary Kaminsky and Peter Lockhart own all the interests in RHP General Partner, LLC. The aforementioned entities and individuals disclaim beneficial ownership of the securities owned by RHP Master Fund, L.P. (10) Includes 63,291 shares of Common Stock subject to a warrant. Joshua Silverman has voting control in respect of the securities held by Vertical Ventures, LLC. (11) Includes 27,391 shares of Common Stock subject to a warrant. (12) Includes 4,325 shares of Common Stock subject to a warrant. (13) Includes 27,391 shares of Common Stock subject to a warrant (14) Includes 27,391 shares of Common Stock subject to a warrant. (15) Includes 22,044 shares of Common Stock subject to a warrant. Kevin Kimberlin and William Dioguardi have voting control in respect of these securities held by Spencer Trask & Co. (16) Includes 44,883 shares of Common Stock subject to a warrant. Kevin Kimberlin and William Dioguardi have voting control in respect of these securities held by Spencer Trask & Co. (17) Includes 19,571 shares of Common Stock subject to a warrant. Mr. Stern is also a selling stockholder with respect to his participation in the September 12, 2003 closing (see (34)). (18) Includes 689 shares of Common Stock subject to a warrant. Joe N. Behrendt, as trustee of the Joe N. and Jamie W. Behrendt Revocable Trust 10/30/96, has voting control in respect of the securities held by Joe N. and Jamie W. Behrendt Revocable Trust 10/30/96. (19) Includes 1,378 shares of Common Stock subject to a warrant. (20) Includes 689 shares of Common Stock subject to a warrant. William J. Callahan and Joan M. Callahan have voting control in respect of the securities held by William J. Callahan & Joan M. Callahan JTWROS. (21) Includes 353 shares of Common Stock subject to a warrant. Elizabeth H. Bone has voting control in respect of the securities held by DCG&T FBO Elizabeth H. Bone SEP IRA. (22) Includes 529 shares of Common Stock subject to a warrant. Robert G. Heidenreich has voting control in respect of the securities held by DCG&T c/f Robert G. Heidenreich IRA. (23) Includes 551 shares of Common Stock subject to a warrant. Steven H. Deutsch and Wilma K. Deutsch have voting control in respect of the securities held by Steven H. Deutsch and Wilma K. Deutsch. (24) Includes 689 shares of Common Stock subject to a warrant (25) Includes 2,756 shares of Common Stock subject to a warrant. (26) Includes 1,378 shares of Common Stock subject to a warrant. (27) Includes 2,756 shares of Common Stock subject to a warrant. Jeffrey D. Goshay, Jonathan D. Ungar and Sheldon Kahn have voting control in respect of the securities held by Headwaters Holdings LLC. (28) Includes 276 shares of Common Stock subject to a warrant. (29) Includes 207 shares of Common Stock subject to a warrant. (30) Includes 127 shares of Common Stock subject to a warrant. (31) Includes 689 shares of Common Stock subject to a warrant. Lucien I. Levy has voting control in respect of the securities held by O.T. Finance SA. (32) Includes 1,378 shares of Common Stock subject to a warrant. (33) Includes 221 shares of Common Stock subject to a warrant. (34) Includes 276 shares of Common Stock subject to a warrant. Mr. Stern also is a selling stockholder with respect to Common Stock issuable upon exercise of warrants assigned to him by Cardinal Securities, LLC (see (17)). (35) Includes 276 shares of Common Stock subject to a warrant. (36) Includes 207 shares of Common Stock subject to a warrant. (37) Includes 551 shares of Common Stock subject to a warrant. Ralph C. Wintrode has voting control in respect of the securities held by Ralph C. Wintrode Trust DTD May 9, 2001. |
15
PLAN OF DISTRIBUTION
We are registering the
shares of Common Stock and Common Stock issuable upon exercise or conversion
of warrants on behalf of the selling stockholders. The Common Stock and Common
Stock issuable upon exercise or conversion of warrants may be sold in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market prices, at varying prices determined
at the time of sale, or at negotiated prices. These sales may be effected at
various times in one or more of the following transactions, or in other kinds
of transactions:
The selling stockholders
and their successors, including their transferees, pledgees or donees or their
successors, may sell the Common Stock and Common Stock issuable upon exercise
or conversion of warrants directly to purchasers or through underwriters, broker-dealers
or agents, who may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders or the purchasers. These discounts,
concessions or commissions as to any particular underwriter, broker-dealer or
agent may be in excess of those customary in the types of transactions involved.
In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 of the
Securities Act may be sold under Rule 144 rather than pursuant to this prospectus.
We entered into a registration
rights agreement for the benefit of the selling stockholders to register the
Common Stock and Common Stock issuable upon exercise or conversion of warrants
under applicable federal and state securities laws. The registration rights
agreement provides for cross-indemnification of the selling stockholders and
us and our respective directors, officers and controlling persons against specific
liabilities in connection with the offer and sale of the Common Stock and Common
Stock issuable upon exercise or conversion of warrants, including liabilities
under the Securities Act. We will pay substantially all of the expenses incurred
by the selling stockholders incident to the offering and sale of the Common
Stock and Common Stock issuable upon exercise or conversion of warrants.
16
LEGAL
MATTERS
Wilson Sonsini Goodrich
& Rosati, Professional Corporation, Palo Alto, California will pass upon
certain legal matters relating to the validity of the securities offered for
us hereby.
EXPERTS
Ernst & Young LLP,
independent auditors, have audited our consolidated financial statements included
in our Annual Report on Form 10 K for the year ended December 31, 2002, as set
forth in their report, which is incorporated by reference in this prospectus
and elsewhere in the registration statement. Our financial statements are incorporated
by reference in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We have filed with the
Securities and Exchange Commission a registration statement on Form S 3, of
which this prospectus is a part, under the Securities Act with respect to the
shares of Common Stock offered hereby. This prospectus does not contain all
of the information included in the registration statement. Statements in this
prospectus concerning the provisions of any document are not necessarily complete.
You should refer to the copies of these documents filed as exhibits to the registration
statement or otherwise filed by us with the SEC for a more complete understanding
of the matter involved. Each statement concerning these documents is qualified
in its entirety by such reference.
We are subject to the informational
requirements of the Securities and Exchange Act of 1934 and, accordingly, file
reports, proxy statements and other information with the SEC. The SEC maintains
a web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Copies of our reports, proxy statements and other information
also may be inspected and copied at the public reference facility maintained
by the SEC at the Judiciary Plaza, 450 Fifth Street, N.W., Room 124, Washington,
D.C. 20549. Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1 800 SEC 0330.
INFORMATION
INCORPORATED BY REFERENCE
The SEC allows us to "incorporate
by reference" the information we file with them, which means that we can
disclose important information to you in this document by referring you to other
filings we have made with the SEC. The information incorporated by reference
is considered to be part of this prospectus, and later information filed with
the SEC will update and supersede this information. We incorporate by reference
the documents and information listed below and any future filings made with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange
Act prior to the completion of the offering covered by this prospectus:
17
We will provide to any
person, including any beneficial owner, to whom a prospectus is delivered, a
copy of any of the information which has been incorporated by reference into
this prospectus at no cost upon an oral or written request to:
Socket Communications,
Inc.
37400 Central Court
Newark, CA 94560
Attention: David W. Dunlap
(510) 744 2700
You can also call David W. Dunlap, Chief Financial Officer of Socket Communications, at (510) 744 2700 with any questions about the shares offered under this prospectus.
18
2,491,163
Shares
SOCKET COMMUNICATIONS, INC.
____________________
COMMON
STOCK
____________________
PROSPECTUS
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
October 30, 2003