As Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-107137
PROSPECTUS
NEXMED, INC.
4,405,752 Shares
Common Stock
This prospectus relates to the resale, from time to time, of up to
4,405,752 shares of Common Stock of NexMed, Inc., a Nevada corporation, all of
which are being offered by the selling shareholders named in this prospectus.
2,916,668 shares consist of shares of Common Stock issued pursuant to a
Common Stock and Warrant Purchase Agreement dated as of July 2, 2003. 1,327,084
shares consist of 130% of the number of shares of Common Stock issuable upon
exercise of warrants (issued pursuant to such Agreement) with an exercise price
of $5.04 per share. The warrants were issued to the purchasers of the Common
Stock. 162,000 Shares consist of additional shares which may be issuable upon
conversion, or payment of accreted amounts under, our 5% Convertible Notes due
November 30, 2005 as a result of the downward adjustment of the conversion price
of such Convertible Notes. See "Selling Shareholders" at page 14.
Although we will receive the exercise price of any warrants exercised
by the selling shareholders for cash, all net proceeds from the sale of the
shares of Common Stock offered by this prospectus will go to the selling
shareholders; we will not receive any proceeds from such sales. Assuming all of
the warrants are exercised for cash, we would receive gross proceeds of
approximately $5,145,000.
Our Common Stock is listed on the Nasdaq Stock Market under the ticker
symbol "NEXM". On July 15, 2003, the last reported sale price of our Common
Stock was $4.33 per share.
---------------------
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 6, IN
DETERMINING WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
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WHERE YOU CAN FIND MORE INFORMATION .................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................ 3
INFORMATION ABOUT US ................................................... 4
RISK FACTORS ........................................................... 6
USE OF PROCEEDS ........................................................ 14
SELLING SHAREHOLDERS ................................................... 14
PLAN OF DISTRIBUTION ................................................... 18
LEGAL MATTERS .......................................................... 20
EXPERTS ................................................................ 20
The date of this prospectus is July 28, 2003
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by NexMed,
Inc., any selling shareholder or by any other person. Neither the delivery of
this prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.
2
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, and we have an internet
website address at http:/www.nexmed.com. You may read and copy any document we
file at the Securities and Exchange Commission's public reference room located
at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities
and Exchange Commission at 1-800-732-0330 for further information on the
operation of such public reference room. You also can request copies of such
documents, upon payment of a duplicating fee, by writing to the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain
copies of such documents from the Securities and Exchange Commission's web site
at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information we incorporate by reference is considered to be part of this
prospectus and information that we file later with the Securities and Exchange
Commission automatically will update and supersede such information. We
incorporate by reference the documents listed below and any future filings we
make with the Securities and Exchange Commission under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, prior to the termination of the
offering of the securities covered by this prospectus, as amended:
(1) Our Annual Report on Form 10-K for the fiscal year ended
December 31, 2002;
(2) Our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2003;
(3) Our Current Reports on Form 8-K dated February 6, 2003, June
2, 2003 and June 12, 2003;
(4) Our definitive proxy statement on Schedule 14A filed with the
Securities and Exchange Commission on April 30, 2003;
(5) The description of our articles of incorporation and bylaws,
both contained in our Registration Statement on Form 10-SB
(File No. 0-22245), dated March 14, 1997, including any
amendment or report filed for the purpose of updating such
information; and
(6) The description of our securities contained in our
Registration Statement on Form S-3 (File No. 333-46976), dated
September 29, 2000, including any amendment or report filed
for the purpose of updating such information.
You may request a copy of these filings (including exhibits to such
filings that we have specifically incorporated by reference in such filings), at
no cost, by writing or telephoning our executive offices at the following
address:
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NexMed, Inc.
350 Corporate Boulevard
Robbinsville, New Jersey 08691
Attention: Ms. Vivian H. Liu
(609) 208-9688
You should rely only on the information provided or incorporated by
reference in this prospectus or any related supplement. We have not authorized
anyone else to provide you with different information. The selling shareholders
will not make an offer of these shares in any state that prohibits such an
offer. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the cover page of
such documents.
All references in this prospectus to "NexMed," the "Company," "us,"
"our," "registrant," or "we" include NexMed, Inc., a Nevada corporation, and any
subsidiaries or other entities that we own or control. All references in this
prospectus to "Common Stock" refer to our Common Stock, par value $.001 per
share. All references in this prospectus to "warrants," refer to the warrants to
purchase shares of our Common Stock held by the selling shareholders.
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this prospectus or
incorporated by reference in this prospectus.
INFORMATION ABOUT US
We have been in existence since 1987. Since 1994, we have positioned
ourselves as a pharmaceutical and medical technology company with a focus on
developing and commercializing therapeutic products based on proprietary
delivery systems.
We are currently focusing our efforts on new and patented topical
pharmaceutical products based on a penetration enhancement drug delivery
technology known as NexACT(R), which may enable an active drug to be better
absorbed through the skin. The NexACT(R) transdermal drug delivery technology is
designed to enhance the absorption of an active drug through the skin,
overcoming the skin's natural barrier properties and enabling high
concentrations of the active drug to rapidly penetrate the desired site of the
skin or extremity. Successful application of the NexACT(R) technology would
improve therapeutic outcomes and reduce gastrointestinal or other systemic side
effects that often accompany oral medications.
We intend to continue our efforts developing topical treatments
including cream, gel, patch and tape, based on the application of NexACT(R)
technology to drugs: (1) previously approved by the FDA, (2) with proven
efficacy and safety profiles, (3) with patents expiring or expired and (4) with
proven market track records and potential.
We are focusing our application of the NexACT(R) technology to
Alprox-TD(R) cream for the treatment of male erectile dysfunction. We are also
developing Femprox(R) cream for female sexual arousal disorder. We have explored
the application of the NexACT(R) technology to other drug compounds and delivery
systems, and are in the early stages of developing new topical
4
treatments for nail fungus, premature ejaculation, urinary incontinence, wound
healing, and the prevention of nausea and vomiting associated with
post-operative surgical procedures and cancer chemotherapy.
Alprox-TD(R) is an alprostadil-based cream treatment intended for
patients with mild, moderate or severe erectile dysfunction. Our clinical
studies have demonstrated that NexACT(R) enhancers promote the rapid absorption
of alprostadil and improve clinical responses. In December 2002, we completed
our two pivotal Phase 3 studies for Alprox-TD(R), which tested over 1,300
patients at 82 sites throughout the U.S. The two pivotal studies were
randomized, double-blind, placebo-controlled, and designed to confirm the
efficacy and safety of Alprox-TD(R) in patients with various degrees of erectile
dysfunction. On June 12, 2003 we announced positive top-line results from our
two pivotal Phase 3 studies, with data indicating that the three dose levels of
Alprox-TD(R) tested were effective over placebo in each study and in the
combined analysis of the two studies. The side effects reported were mostly mild
to moderate, localized and transient.
In March 2002, we initiated a Phase 3 open-label study for
Alprox-TD(R). The purpose of the new study was to confirm the safety of
Alprox-TD(R) on a longer term basis and included new patients as well as those
who completed testing in one of the two pivotal Phase 3 studies and elected to
continue using Alprox-TD(R) for an additional period. In November 2002, we
halted the open-label study of Alprox-TD(R) due to FDA concerns about results of
our 26-week transgenic mice study. In January 2003, we met with the FDA and
successfully addressed their issues regarding the results of the transgenic mice
study and in February 2003, we were cleared by the FDA to continue with the
open-label study of Alprox-TD(R). However, it remains to be determined by the
FDA if any data from the halted study can be used for our filing of the New Drug
Application ("NDA") for Alprox-TD(R). Assuming that we do not include the data
from the halted study, we anticipate that we will file the NDA during the first
half of 2004. Completion of the open-label study is not a prerequisite for our
NDA submission; however, it is possible that we may not have successful clinical
results or receive FDA approval on a timely basis, if at all.
In April 2002, Alprox-TD(R) was launched in Hong Kong under the
Befar(R) trademark. The product, which has been selling in China since October
2001, is manufactured and marketed by a local affiliate of Vergemont
International Limited, our Asian licensee. We receive from our Asian licensee
royalty payments and payments for manufacturing supplies in connection with the
distribution of Befar(R) in China and will receive such payments in other Asian
markets once Befar(R) is approved for marketing in such other markets. Befar(R),
along with the currently approved oral erectile dysfunction product, are
currently classified in China as controlled substances, and their distribution
is limited to prescription by certain urologists and dispensing through
hospitals. In addition, China has a limited number of patients who can afford
erectile dysfunction treatments. In December 2002, our Asian licensee entered
into a licensing agreement with CJ Corporation, one of the five largest
pharmaceutical companies in South Korea. Pursuant to the terms of the agreement,
CJ Corporation will develop, file for regulatory approval, market and distribute
Befar(R) in South Korea. Our Asian licensee also has an NDA pending with the
Health Science Authority for approval to market the product in Singapore.
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Femprox(R) is an alprostadil-based cream product intended for the
treatment of female sexual arousal disorder. We have completed the testing of 98
patients for a Phase 2 clinical study with Femprox(R). This multi-center at home
use study is randomized, double-blind, placebo-controlled, and designed to
investigate the efficacy and safety of the Femprox(R) cream in pre-menopausal
women diagnosed with female sexual arousal disorder. We intend to continue with
the clinical development of Femprox(R) pending the availability of a partnering
agreement.
We are working with various pharmaceutical companies in order to
explore the introduction of NexACT(R) into their existing drugs as a means of
developing new patient-friendly topical products and extending patent lifespans.
In August 2002, we entered into a research and development agreement with a
major Japanese pharmaceutical company. Pursuant to the terms of this agreement,
we will develop a new tape/patch treatment for urinary dysfunction which
incorporates the Japanese partner's proprietary drug compound with the NexACT(R)
technology. We received an upfront payment of 10 million Japanese Yen
(approximately $90,000) with future periodic payments of up to 40 million
Japanese Yen (approximately $360,000) to be made based on the achievement of
certain development milestones. We will also retain the right to manufacture and
commercialize the new product worldwide except in Japan. We anticipate that we
will enter into additional R&D agreements during 2003 but we cannot assure you
that we will be able to conclude any arrangement on a timely basis, if at all,
or on terms acceptable to us.
RISK FACTORS
RISKS RELATED TO THE COMPANY
WE HAVE A NEED FOR ADDITIONAL FINANCING.
We are currently continuing with the development of Alprox-TD(R), but
have put on hold the development of Femprox(R) and other pipeline products,
pending the availability of additional financing. Our cash position as of July
15, 2003 is approximately $12.5 million, following successful completion of a
private placement of Preferred Stock, yielding net proceeds to us of
approximately $7,350,000, and of the Common Stock, yielding net proceeds to us
of approximately $9,910,000. These placements have enabled us to resume research
and development of Alprox-TD(R) at a consistent level. We have been actively
seeking financing from the sale of equity or issuance of debt from private and
public sources as well as from collaborative licensing and/or marketing
arrangements with third parties, and since December 31, 2002, we have raised
approximately $20 million net through the sale of the Preferred Stock, the
exercise of warrants to purchase shares of our common stock and the issuance by
the Company of notes, Common Stock and warrants to purchase shares of Common
Stock. Our anticipated cash requirements for Alprox-TD(R) through the NDA filing
in the first half of 2004, including completion of an open-label study, will be
approximately $15 million. However, completion of the open-label study is not a
prerequisite for our NDA submission. There is no assurance that the Company will
be successful in obtaining financing on terms acceptable to it, if at all. If
additional financing cannot be obtained on reasonable terms, future operations
may need to be scaled back or discontinued.
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WE CONTINUE TO INCUR OPERATING LOSSES.
Our current business operations began in 1994 and we have a limited
operating history. We may encounter delays, uncertainties and complications
typically encountered by development stage businesses. We have generated minimal
revenues from the limited sales of Befar(R) in Asia and our existing research
and development agreement with our Japanese partner, and have not marketed or
generated revenues in the U.S. from our products under development. We are not
profitable and have incurred an accumulated deficit of $71,439,296 since our
inception and through March 31, 2003. Our ability to generate revenues and to
achieve profitability and positive cash flow will depend on the successful
commercialization of our products currently under development. However, even if
we eventually generate revenues from sales of our products currently under
development, we expect to incur significant operating losses over the next
several years.
OUR INDEPENDENT ACCOUNTANTS HAVE DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING
CONCERN FOR A REASONABLE PERIOD OF TIME.
As a result of our losses to date, working capital deficiency and
accumulated deficit, there is substantial doubt as to our ability to continue as
a going concern for a reasonable period of time, and accordingly, our
independent accountants have modified their report on our December 31, 2002
consolidated financial statements included in our annual report on Form 10-K in
the form of an explanatory paragraph describing the events that have given rise
to this uncertainty. Our continuation is based on our ability to generate or
obtain sufficient cash to meet our obligations on a timely basis and ultimately
to attain profitable operations. Our independent auditors' going concern
qualification may make it more difficult for us to obtain additional funding to
meet our objectives. We anticipate that we will continue to incur significant
losses until successful commercialization of one or more of our products, and we
may never operate profitably in the future.
WE WILL NEED SIGNIFICANT FUNDING TO COMPLETE OUR RESEARCH AND DEVELOPMENT
EFFORTS.
Our research and development expenses for the years ended December 31,
2002, 2001, and 2000 were $21,615,787, $12,456,384, and $6,892,283,
respectively and $1,855,334 for the three months ended March 31, 2003. Since
January 1, 1994, when we repositioned ourselves as a medical and pharmaceutical
technology company, and through March 31, 2003 we have spent $52,550,682 on
research and development. We anticipate that our expenses for research and
development will be significantly lower in 2003 than in 2002. Given our current
level of cash reserves and low rate of revenue generation, we will not be able
to fully advance the development of our products unless we raise additional cash
through financing from the sale of our securities and/or through partnering
agreements. If we are successful in entering partnering agreements for our
products under development, we will receive milestone payments, which will
offset some of our research and development expenses.
As indicated above, our anticipated cash requirements for Alprox-TD(R)
through the NDA filing in the first half of 2004, including completion of an
open-label study, will be approximately $15 million. However, completion of the
open-label study is not a prerequisite for our NDA filing.
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We will also need significant funding to pursue our overall product
development plans. In general, our products under development will require
significant time-consuming and costly research and development, clinical
testing, regulatory approval and significant additional investment prior to
their commercialization. The research and development activities we conduct may
not be successful; our products under development may not prove to be safe and
effective; our clinical development work may not be completed; and the
anticipated products may not be commercially viable or successfully marketed.
Commercial sales of our products cannot begin until we receive final FDA
approval. The earliest time for such final approval of the first product which
may be approved, Alprox-TD(R), is sometime in early 2005. We intend to focus our
current development efforts on the Alprox-TD(R) cream treatment, which is in the
late clinical development stage.
WE WILL NEED TO PARTNER TO OBTAIN EFFECTIVE SALES, MARKETING AND DISTRIBUTION.
We currently have no sales force or marketing organization and will
need, but may be unable, to attract or afford qualified or experienced marketing
and sales personnel. In addition, we will need to secure a marketing partner who
is able to devote substantial marketing efforts to achieve market acceptance for
our proprietary products under development. The marketing partner will need to
spend significant funds to inform potential customers, including third-party
distributors, of the distinctive characteristics and benefits of our products.
Our operating results and long term success will depend, among other things, on
our ability to establish (1) successful arrangements with domestic and
international distributors and marketing partners and (2) an effective internal
marketing organization. We are currently engaged in late stage discussions with
several pharmaceutical companies regarding a strategic marketing partnership for
the Alprox-TD cream. We have received a binding term sheet offer from one of the
potential partners and anticipate that we will receive additional offers in the
near future. At that time, we intend to make the final selection for partnering
arrangements in the U.S. and/or Europe. However, all such offers are subject to
the negotiation of complex contractual relationships, and we may not be able to
negotiate such agreements on a timely basis, if at all, or on terms acceptable
to us.
In Asia, our subsidiary, NexMed International Limited, and our Asian
licensee, Vergemont International Limited, entered into a license agreement in
1999 pursuant to which (1) Vergemont International Limited has an exclusive
right to manufacture and to market in Asian Pacific countries, our Alprox-TD(R),
Femprox(R) and three other of our proprietary products under development, and
(2) we receive a royalty on sales and supply, on a cost plus basis, the
NexACT(R) enhancers that are essential in the formulation and production of our
proprietary topical products. In 2002 and in the first quarter of 2003, we
recorded only modest payments from our Asian licensee for royalties on sales of
Befar(R) in China and Hong Kong and for manufacturing supplies purchased from
us.
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PRE-CLINICAL AND CLINICAL TRIALS ARE INHERENTLY UNPREDICTABLE. IF WE DO NOT
SUCCESSFULLY CONDUCT THESE TRIALS, WE MAY BE UNABLE TO MARKET OUR PRODUCTS.
Through pre-clinical studies and clinical trials, we must demonstrate
that our products are safe and effective for their indicated uses. Results from
pre-clinical studies and early clinical trials may not allow us to predict
results in later-stage testing. Our future clinical trials may not demonstrate
the safety and effectiveness of our products or may not result in regulatory
approval to market our products. The failure of the FDA to approve our products
for commercial sales will have a material adverse effect on our prospects.
PATENTS AND INTELLECTUAL PROPERTY RIGHTS ARE IMPORTANT TO US BUT COULD BE
CHALLENGED.
Proprietary protection for our pharmaceutical products is of material
importance to our business in the U.S. and most other countries. We have and
will continue to seek proprietary protection for our products to attempt to
prevent others from commercializing equivalent products in substantially less
time and at substantially lower expense. Our success may depend on our ability
to (1) obtain effective patent protection within the U.S. and internationally
for our proprietary technologies and products, (2) defend patents we own, (3)
preserve our trade secrets, and (4) operate without infringing upon the
proprietary rights of others.
We have nine U.S. patents either acquired or received out of a series
of patent applications that we have filed in connection with our NexACT(R)
technology and our NexACT-based products under development, such as
Alprox-TD(R), Femprox(R), and our non-steroidal anti-inflammatory cream. We have
three U.S. patents issued on the Viratrol(R) device and one patent application
pending with respect to the technology, inventions and improvements that are
significant to the Viratrol(R) device. To further strengthen our global patent
position on our proprietary products under development, and to expand the patent
protection to other markets, we have filed under the Patent Cooperation Treaty,
corresponding international applications for our issued U.S. patents and pending
U.S. patent applications.
The following table identifies our nine U.S. patents issued for
NexACT(R) technology and/or our NexACT-based products under development, and the
year of expiration for each patent:
Patent Name Expiration Date
- ----------- ---------------
Topical Compositions Containing Prostaglandin E1 2019
Prostaglandin Composition and Methods of Treatment of Male Erectile Dysfunction 2020
Compositions and Methods for Amelioration of Human Female Sexual Dysfunction 2017
Topical Compositions for PGE1 Delivery 2017
Topical Compositions for Non-Steroidal Anti-Inflammatory Drug Delivery 2017
Biodegradable Absorption Enhancers 2009
Biodegradable Absorption Enhancers 2008
Medicament Dispenser 2019
Crystalline Salts of dodecyl 2-(N, N-Dimethylamino) 2019
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While we have obtained patents and have several patent applications
pending, the extent of effective patent protection in the U.S. and other
countries is highly uncertain and involves complex legal and factual questions.
No consistent policy addresses the breadth of claims allowed in or the degree of
protection afforded under patents of medical and pharmaceutical companies.
Patents we currently own or may obtain might not be sufficiently broad to
protect us against competitors with similar technology. Any of our patents could
be invalidated or circumvented.
There have been patents issued to others such as Vivus, Inc. and
MacroChem Corporation on the use of alprostadil for the treatment of male or
female sexual dysfunction. While we believe that our patents will prevail in any
potential litigation, the holders of these competing patents could determine to
commence a lawsuit against us and even prevail in any such lawsuit. Litigation
could result in substantial cost to and diversion of effort by us, which may
harm our business. In addition, our efforts to protect or defend our proprietary
rights may not be successful or, even if successful, may result in substantial
cost to us.
WE DEPEND UPON THIRD PARTY MANUFACTURERS FOR OUR CHEMICAL MANUFACTURING
SUPPLIES.
In 2002, we completed the construction of a 31,500 square foot
industrial facility, located in East Windsor, New Jersey, which we are in the
process of developing and validating as a manufacturing facility designed to
meet the Good Manufacturing Practice (GMP) standards required by the FDA. We
anticipate that our manufacturing facility will have the capacity to meet our
anticipated needs for full-scale commercial production. Initially, we are
utilizing the facility to manufacture Alprox-TD(R) and other NexACT(R)-based
products under development for continuing clinical testing purposes. We are also
validating the facility for GMP compliance, which is a requirement for our NDA
filing with the FDA. If we do not successfully pass the Pre-Approved Inspection
conducted by the FDA, our NDA filing will be delayed.
In this regard, we depend on third party chemical manufacturers for
alprostadil, the active drugs in Alprox-TD(R) and in other NexACT-based products
under development, and for the supply of our NexACT(R) enhancers that are
essential in the formulation and production of our topical products on a timely
basis and at satisfactory quality levels. If our validated third party chemical
manufacturers fail to produce quality products on time and in sufficient
quantities, our results would suffer, as we would encounter costs and delays in
revalidating new third party suppliers.
WE FACE SEVERE COMPETITION.
We are engaged in a highly competitive industry. We expect competition
from numerous existing companies, including large international enterprises, and
others entering the industry. Most of these companies have greater research and
development, manufacturing, marketing, financial, technological, personnel and
managerial resources. Acquisitions of competing companies by large
pharmaceutical or healthcare companies could further enhance such competitors'
financial, marketing and other resources. Competitors may complete clinical
trials, obtain regulatory approvals and commence commercial sales of their
products before we could enjoy a significant competitive
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advantage. Products developed by our competitors may be more effective than our
products.
Certain treatments for erectile dysfunction, such as needle injection
therapy, vacuum constriction devices, penile implants, transurethral absorption
and oral medications, currently exist, have been approved for sale in certain
markets and are being improved. Currently known products for the treatment of
erectile dysfunction developed or under development by our competitors include
the following: (1) Caverject(R), Pharmacia & Upjohn Company's needle injection
therapy; (2) Viagra(R), Pfizer, Inc.'s oral product to treat erectile
dysfunction; and (3) Muse(R), Vivus, Inc.'s device for intra-urethral delivery
of a suppository containing alprostadil. In addition, the following products are
currently under development: (1) Cialis(R), an oral formulation to be marketed
in the U.S. through a joint venture between ICOS and Eli Lilly & Co; (2)
Uprima(R), an oral medication to be marketed in the U.S. by TAP Pharmaceuticals,
a joint venture between Takeda Pharmaceuticals Japan and Abbott Laboratories;
and (3) Levitra(R), an oral medication to be marketed through a collaborative
effort of Bayer AG and GlaxoSmithKline, Inc.
WE MAY BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS, CREATING RISK AND
EXPENSE.
We are exposed to potential product liability risks inherent in the
development, testing, manufacturing, marketing and sale of human therapeutic
products. Product liability insurance for the pharmaceutical industry is
extremely expensive, difficult to obtain and may not be available on acceptable
terms, if at all. We currently have liability insurance to cover claims related
to our products that may arise from clinical trials, with coverage of $1 million
for any one claim and coverage of $3 million in total, but we do not maintain
product liability insurance and we may need to acquire such insurance coverage
prior to the commercial introduction of our products. If we obtain such
coverage, we have no guarantee that the coverage limits of such insurance
policies will be adequate. A successful claim against us if we are uninsured, or
which is in excess of our insurance coverage, if any, could have a material
adverse effect upon us and on our financial condition.
INDUSTRY RISKS
WE ARE VULNERABLE TO VOLATILE MARKET CONDITIONS.
The market prices for securities of biopharmaceutical and biotechnology
companies, including ours, have been highly volatile. The market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. In addition, future
announcements, such as the results of testing and clinical trials, the status of
our relationships with third-party collaborators, technological innovations or
new therapeutic products, governmental regulation, developments in patent or
other proprietary rights, litigation or public concern as to the safety of
products developed by us or others and general market conditions, concerning us,
our competitors or other biopharmaceutical companies, may have a significant
effect on the market price of our common stock.
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The following table sets forth the range of high and low bid prices of
our Common Stock for the calendar quarters indicated. The quotes listed below
reflect inter-dealer prices or transactions solely between market-makers,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
High Bid Price Low Bid Price
-------------- -------------
2000
- ----
First Quarter $22.250 $3.563
Second Quarter $14.875 $6.375
Third Quarter $19.437 $9.062
Fourth Quarter $19.625 $4.875
2001
- ----
First Quarter $10.250 $3.812
Second Quarter $6.140 $3.800
Third Quarter $5.360 $2.220
Fourth Quarter $3.520 $2.250
2002
- ----
First Quarter $4.860 $2.360
Second Quarter $5.000 $2.400
Third Quarter $2.550 $1.670
Fourth Quarter $1.820 $0.400
2003
- ----
First Quarter $1.990 $0.800
Second Quarter $4.950 $1.120
Third Quarter (to July 11) $4.400 $3.950
--
WE ARE SUBJECT TO NUMEROUS AND COMPLEX GOVERNMENT REGULATIONS.
Governmental authorities in the U.S. and other countries heavily
regulate the testing, manufacture, labeling, distribution, advertising and
marketing of our proposed products. None of our proprietary products under
development has been approved for marketing in the U.S. Before we market any
products we develop, we must obtain FDA and comparable foreign agency approval
through an extensive clinical study and approval process.
The studies involved in the approval process are conducted in three
phases. In Phase 1 studies, researchers assess safety or the most common acute
adverse effects of a drug and examine the size of doses that patients can take
safely without a high incidence of side effects. Generally, 20 to 100 healthy
volunteers or patients are studied in the Phase 1 study for a period of several
months. In Phase 2 studies, researchers determine the drug's efficacy with
short-term safety by administering the drug to subjects who have the condition
the drug is intended to treat, assess whether the drug favorably affects the
condition, and begin to identify the correct dosage level. Up to several hundred
subjects may be studied in the Phase 2 study for approximately 6 to 12 months,
depending on the type of product tested. In Phase 3 studies, researchers further
assess efficacy and safety of the drug. Several hundred to thousands of patients
may be studied during the Phase 3
12
studies for a period of from 12 months to several years. Upon completion of
Phase 3 studies, a NDA is submitted to the FDA or foreign governmental
regulatory authority for review and approval.
Because we intend to sell and market our products outside the U.S., we
will be subject to foreign regulatory requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursements. These
requirements vary widely from country to country. Our failure to meet each
foreign country's requirements could delay the introduction of our proposed
products in the respective foreign country and limit our revenues from sales of
our proposed products in foreign markets.
Successful commercialization of our products may depend on the
availability of reimbursement to the consumer from third-party healthcare
payers, such as government and private insurance plans. Even if we succeed in
bringing one or more products to market, reimbursement to consumers may not be
available or sufficient to allow us to realize an appropriate return on our
investment in product development or to sell our products on a competitive
basis. In addition, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to governmental controls. In the U.S.,
federal and state agencies have proposed similar governmental control and the
U.S. Congress has recently considered legislative and regulatory reforms that
may affect companies engaged in the healthcare industry. Pricing constraints on
our products in foreign markets and possibly in the U.S. could adversely affect
our business and limit our revenues.
WE ARE SUBJECT TO ENVIRONMENTAL LAW COMPLIANCE.
Most of our manufacturing and certain research operations are or will
be affected by federal, state and local environmental laws. We have made, and
intend to continue to make, necessary expenditures for compliance with
applicable laws. While we cannot predict with certainty the future operating
costs for environmental compliance, we do not believe they will have a material
effect on our capital expenditures, earnings or competitive position.
RISKS RELATED TO THE OFFERING
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE.
Although our shareholders may receive dividends if, as and when
declared by our board of directors, we do not intend to pay dividends on our
Common Stock in the foreseeable future. Full cumulative dividends on our
Preferred Stock must be paid before any dividends are permitted to be paid on
Common Stock. Therefore, you should not purchase our Common Stock if you need
immediate or future income by way of dividends from your investment.
WE MAY ISSUE ADDITIONAL SHARES OF OUR CAPITAL STOCK THAT COULD DILUTE THE VALUE
OF YOUR SHARES OF COMMON STOCK.
We are authorized to issue 90,000,000 shares of our capital stock,
consisting of 80,000,000 shares of our Common Stock and 10,000,000 shares of our
preferred stock of which 1,000,000 is designated as Series A Junior
13
Participating Preferred Stock. As of July 15, 2003, 33,448,633 shares of our
Common Stock and 765 shares of Preferred Stock were issued and outstanding, and
19,422,271 shares of our Common Stock were issuable upon the exercise of
options, warrants, or other convertible securities (including the Preferred
Stock and warrants and Convertible Notes held by the selling shareholders).
In light of our need for additional financing, we may issue authorized
and unissued shares of Common Stock at below current market prices or additional
preferred stock that could dilute the earnings per share and book value of your
shares of our Common Stock.
THE PROVISIONS OF NOTES AND WARRANTS PREVIOUSLY ISSUED WOULD SUBJECT OUR
SHAREHOLDERS TO FURTHER DILUTION IF WE WERE TO ISSUE COMMON STOCK AT PRICES
BELOW MARKET OR BELOW THE CONVERSION PRICE IN SUCH NOTES OR PREPAY ACCRUED
AMOUNTS OR PRINCIPAL THROUGH REQUIRED CONVERSIONS.
In addition to provisions providing for proportionate adjustments in
the event of stock splits, stock dividends, reverse stock splits and similar
events, our convertible notes and certain warrants provide (with certain
exceptions) for an adjustment of the conversion price or exercise price if we
issue shares of common stock at prices lower than the conversion price or
exercise price or the then prevailing market price. This means that if we need
to raise equity financing at a time when the market price for our common stock
is lower than the conversion price, or exercise price, or if we need to provide
a new equity investor with a discount from the then prevailing market price,
then the conversion price or exercise price will be reduced and the dilution to
shareholders increased. In addition, we are permitted (with certain exceptions)
to require conversion of up to $250,000 principal amount of such notes every
month. If we do so, the notes would convert valuing our common stock at a price
equal to 90% of then average market value, which would result in additional
dilution. The same formula (with the same dilutive result) applies if accreted
amounts due on the notes are "paid" in our common stock rather than in cash, at
our election.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
Common Stock offered by this prospectus. All proceeds from the sale of the
shares covered by this prospectus will be for the account of the selling
shareholders named herein. See "Selling Shareholders" and "Plan of
Distribution." However, assuming all of the warrants are exercised by the
selling shareholders, and that "cashless exercise" provisions of the warrants
are not utilized, we would receive approximately $5,145,000 in gross proceeds
from those exercises. Any such proceeds will be used for working capital
purposes.
SELLING SHAREHOLDERS
This prospectus covers only the resale of shares of our Common Stock by
selling shareholders. The number of shares of Common Stock that may be actually
sold by the selling shareholders will be determined by such selling
shareholders.
14
The selling shareholders are the persons and/or entities listed in the
table below who own Common Stock, Preferred Stock, Convertible Notes or warrants
to purchase shares of our Common Stock. We are registering for resale by the 12
selling shareholders named herein, an aggregate of 4,405,752 shares of Common
Stock.
Pursuant to a Common Stock and Warrant Purchase Agreement dated as of
July 2, 2003 among us, Royal Bank of Canada and the other parties named therein,
we issued and sold to such selling shareholders on that date, for an aggregate
purchase price of $10,500,000, 2,916,668 shares of Common Stock and warrants to
purchase an aggregate of 1,020,832 shares of our Common Stock at an initial
exercise price of $5.04 per share, subject to adjustment.
The warrants provide for proportionate adjustments in the event of
stock splits, stock dividends and reverse stock splits, as well as weighted
average price anti-dilution protection.
Pursuant to the terms of an Investor Rights Agreement dated as of July
2, 2003 between the Company and the holders of the Common Stock and warrants, we
agreed to register for resale the shares of Common Stock purchased pursuant to
the Common Stock and Warrant Purchase Agreement and 130% of the number of shares
issuable on exercise of the warrants.
Pursuant to the terms of a registration rights agreement dated June 11,
2002, we agreed to register for resale shares that the two holders of our
Convertible Notes would receive on conversion of the Convertible Notes. Resale
of such shares has been registered on a registration statement filed with, and
declared effective by, the Securities and Exchange Commission. Pursuant to the
anti-dilutive provisions of the Convertible Notes, we have been required to
adjust downward the conversion rate of the Notes to $1.96, resulting in a
greater number of shares of Common Stock becoming issuable on conversion. We are
registering an additional 162,000 shares of our Common Stock in order to remain
in compliance with the terms of such registration rights agreement, and these
additional shares are covered by the Registration Statement of which this
prospectus forms a part.
In connection with the sale of the Common Stock and warrants we paid a
finder's fee to Tail Wind Advisory and Management Ltd. of $525,000.
No proceeds can be expected to be received from the exercise of the
warrants unless the market price of our common stock is higher than the
applicable exercise price.
No commissions are payable by us or the holders of the warrants in
connection with an exercise.
The following table sets forth, as of July 15, 2003 (except as
otherwise indicated in the footnotes): (1) the name of each selling shareholder,
(2) the number and percentage of shares of our Common Stock beneficially owned
by each selling shareholder, including the number of shares purchasable upon
exercise of warrants, and conversion of Preferred Stock and Convertible Notes,
(3) the maximum number of shares of Common Stock which the selling shareholders
can sell pursuant to this prospectus and (4) the number and percentage of shares
of Common Stock that the selling
15
shareholders would own if they sold all their shares registered by this
prospectus. Each selling shareholder will receive all of the net proceeds from
the sale of its shares of Common Stock offered by this prospectus.
Because the selling shareholders may sell all or part of their shares
of Common Stock pursuant to this prospectus and this offering is not being
underwritten on a firm commitment basis, we cannot estimate the number and
percentage of shares of Common Stock that the selling shareholders will hold in
the aggregate at the end of the offering covered by this prospectus.
PERCENTAGE NUMBER OF
OF CLASS SHARES NUMBER OF
OWNED BY OF COMMON SHARES OF PERCENTAGE OF
THE SELLING STOCK COMMON STOCK CLASS TO BE OWNED
NAME OF NUMBER OF SHARES OF SHAREHOLDER BEING REGISTERED TO BE OWNED BY THE SELLING
SELLING COMMON STOCK OWNED BEFORE THIS BY THIS AFTER THIS SHAREHOLDER AFTER
SHAREHOLDER BEFORE THIS OFFERING OFFERING (5) PROSPECTUS (6) OFFERING THIS OFFERING (8)
------------ -------------------- ------------ ---------------- ------------ -----------------
(1)
----
Royal Bank of Canada 1,875,000 (2) 5.53% 2,020,833 0 *
The Tail Wind Fund Ltd. (4) 2,683,558 (2)(3) 7.50% 611,000 (7) 2,222,731 (9) 6.23%
Solomon Strategic Holdings, Inc. (4) 539,622 (2)(3) 1.59% 116,835 (7) 460,299 (10) 1.36%
Midsummer Investment, Ltd. 693,755 (2)(3) 2.05% 404,167 318,755 (11) *
Omicron Master Trust 187,500 (2) * 202,083 0 *
Provident Master Fund, Ltd. 266,597 (2)(3) * 101,041 172,848 (12) *
Chula Partners, LP 151,876 (2)(3) * 60,625 95,626 (13) *
Dynamic Equity Hedge Fund 46,407 (2) * 40,417 8,907 (14) *
Morton A. Cohen TTEE FBO The 37,500 (2) * 40,417 0 *
Morton A. Cohen Revocable Living Trust
Viking Global Equities LP 370,550 (2) 1.11% 222,292 164,300 (15) *
VGE III Portfolio Ltd. 303,850 (2) * 181,875 135,100 (15) *
Islandia, L.P. 375,000 (2) 1.12% 404,167 0 *
Totals 7,531,215 19.95% 4,405,752 3,578,566 9.74%
* Less than 1%
(1) None of the selling shareholders nor any of their officers, directors or
principal equity holders has held any position or office or has had any
material relationship with us within the past three years.
(2) Includes shares of Common Stock and warrants to purchase shares of Common
Stock issued in connection with the Common Stock and Warrant Purchase
Agreement dated July 2, 2003.
(3) Includes shares of Common Stock issuable on conversion of Preferred Stock
held by the selling shareholders as of July 15, 2003 at a conversion price
of $1.5686 per share but does not include shares of Common Stock issuable
upon the exercise of warrants which were purchased in connection with our
Preferred Stock and Warrant offering of April 21, 2003 and which are not
exercisable until April 21, 2005 (See footnotes 9-13 for the number of
shares of Common Stock issuable upon the conversion of the Preferred Stock
and the exercise
16
of such warrants by each selling shareholder). The agreements we entered
into with the purchasers of Preferred Stock prohibit each such purchaser
from converting Preferred Stock or exercising the warrants issued in
connection with the sale of Preferred Stock to the extent that, upon such
conversion or exercise, such purchaser's and its affiliates' beneficial
ownership of the Company's Common Stock (excluding beneficial ownership of
Common Stock by virtue of ownership of certain securities or rights to
acquire securities that have similar limitations on the right to convert,
exercise or purchase) would exceed 4.95% of the total number of shares of
Common Stock of the Company then issued and outstanding.
(4) As of July 8, 2003.
(5) This percentage is calculated using as the numerator, the number of shares
of Common Stock included in the prior column and as the denominator,
33,448,633 shares of Common Stock outstanding as of July 15, 2003 plus the
number of shares of Common Stock issuable upon the exercise of options,
warrants or other convertible securities held by the selling shareholder
before this offering. This percentage includes shares of Common Stock
issuable on conversion of the Preferred Stock, but excludes shares of
Common Stock issuable on exercise of warrants not exercisable within 60
days.
(6) Pursuant to the terms of an Investor Rights Agreement dated as of July 2,
2003 between the Company and the holders of the Common Stock and warrants,
we agreed to register for resale the shares of Common Stock purchased
pursuant to the Common Stock and Warrant Purchase Agreement and 130% of the
number of shares issuable on exercise of the warrants purchased pursuant to
such Agreement.
(7) Pursuant to the terms of a registration rights agreement dated June 11,
2002 with The Tail Wind Fund, Ltd. and Solomon Strategic Holdings, Inc., we
agreed to register for each such selling shareholder a number of shares of
Common Stock equal to 130% of the number of shares issuable upon full
conversion of the Convertible Notes (currently at $1.96 per share) plus
100% of the number of shares of Common Stock issuable upon the exercise of
warrants. Resale of such shares has been registered on registration
statements filed with, and declared effective by, the Securities and
Exchange Commission. Pursuant to the anti-dilutive provisions of the
Convertible Notes and a separate agreement with such holders, we have been
required to adjust downward the conversion rate of the Notes, resulting in
a greater number of shares of Common Stock becoming issuable on conversion.
We are registering an additional 162,000 shares of our Common Stock in
order to remain in compliance with the terms of such registration rights
agreement.
(8) This percentage is calculated using as the numerator, the number of shares
of Common Stock included in the prior column and as the denominator,
33,448,633 shares of Common Stock outstanding as of July 15, 2003 plus the
number of shares of Common Stock issuable upon the exercise of all options,
warrants or other convertible securities held by the selling shareholder
after this offering, assuming the sale by the selling shareholder of all of
its shares covered by this prospectus. This percentage includes shares of
Common Stock issuable on conversion of the Preferred Stock, but excludes
shares of Common Stock issuable on exercise of warrants not exercisable
within 60 days.
(9) Consists of 14,317 shares of Common Stock, 382,507 shares issuable upon the
conversion of Preferred Stock and 1,825,907 of the 1,836,735 shares of
Common Stock issuable upon conversion of the Notes. The resale of these
shares has been registered under Registration Statements Number 333-96813
and 333-105509. Does not include 329,912 shares of Common Stock issuable
upon the exercise of warrants which are not exercisable until April 21,
2005.
(10) Consists of 5,437 shares of Common Stock and 454,862 of the 459,184 shares
of Common Stock issuable upon conversion of the Notes. The resale of these
shares has been registered under Registration Statements 333-96813 and
333-105509. Does not include 54,985 shares of Common Stock issuable upon
the exercise of warrants which are not exercisable until April 21, 2005.
(11) Consists of 318,755 shares of Common Stock issuable upon the conversion of
the Preferred Stock. The resale of these shares has been registered under
Registration Statement 333-105509. Does not include 274,927 shares of
Common Stock issuable upon the exercise of warrants which are not
exercisable until April 21, 2005.
(12) Consists of 902 shares of Common Stock, 44,444 shares of Common Stock
issuable upon the exercise of warrants and 127,502 shares of Common Stock
issuable upon the conversion of the Preferred Stock. The resale of the
shares issuable upon conversion of the Preferred Stock has been
registered under Registration Statement 333-105509. Does not include
109,971 shares of Common Stock issuable upon the exercise of warrants
which are not exercisable until April 21, 2005.
(13) Consists of 95,626 shares of Common Stock issuable upon the conversion of
the Preferred Stock. The resale of these shares has been registered under
Registration Statement 333-105509. Does not include 82,478 shares of Common
Stock issuable upon the exercise of warrants which are not exercisable
until April 21, 2005.
(14) Consists of shares of Common Stock issuable upon the exercise of warrants.
(15) Consists of shares of Common Stock.
17
PLAN OF DISTRIBUTION
We are registering the shares of Common Stock on behalf of the selling
shareholders. Sales of shares may be made by selling shareholders, including
their respective donees, transferees, pledgees or other successors-in-interest
directly to purchasers or to or through underwriters, broker-dealers or through
agents. Sales may be made from time to time on the Nasdaq National Market, any
other exchange upon which our shares may trade in the future, in the
over-the-counter market or otherwise, at market prices prevailing at the time of
sale, at prices related to market prices, or at negotiated or fixed prices. The
shares may be sold by one or more of, or a combination of, the following:
- - a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction (including crosses in
which the same broker acts as agent for both sides of the transaction);
- - purchases by a broker-dealer as principal and resale by such
broker-dealer, including resales for its account, pursuant to this
prospectus;
- - ordinary brokerage transactions and transactions in which the broker
solicits purchases;
- - through options, swaps or derivatives;
- - in privately negotiated transactions;
- - in making short sales or in transactions to cover short sales; and
- - put or call option transactions relating to the shares.
The selling shareholders may effect these transactions by selling
shares directly to purchasers or to or through broker-dealers, which may act as
agents or principals. These broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the selling shareholders and/or
the purchasers of shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The selling
shareholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities.
The selling shareholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with those
transactions, the broker-dealers or other financial institutions may engage in
short sales of the shares or of securities convertible into or exchangeable for
the shares in the course of hedging positions they assume with the selling
shareholders. The selling shareholders may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery of shares offered by this prospectus to those broker-dealers or
other financial institutions. The broker-dealer or other financial institution
may then resell the shares pursuant to this
18
prospectus (as amended or supplemented, if required by applicable law, to
reflect those transactions).
The selling shareholders and any broker-dealers that act in connection
with the sale of shares may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, and any commissions received by
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals may be deemed to be underwriting discounts or commissions
under the Securities Act. The selling shareholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against liabilities, including liabilities arising under the
Securities Act. We have agreed to indemnify each of the selling shareholders and
each selling shareholder has agreed, severally and not jointly, to indemnify us
against some liabilities in connection with the offering of the shares,
including liabilities arising under the Securities Act.
The selling shareholders will be subject to the prospectus delivery
requirements of the Securities Act. We have informed the selling shareholders
that the anti-manipulative provisions of Regulation M promulgated under the
Securities Exchange Act of 1934 may apply to their sales in the market.
Selling shareholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of Rule 144.
Upon being notified by a selling shareholder that a material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplement to
this prospectus, if required pursuant to Rule 424(b) under the Securities Act,
disclosing:
- - the name of each such selling shareholder and of the participating
broker-dealer(s);
- - the number of shares involved;
- - the initial price at which the shares were sold;
- - the commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
- - that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus; and
- - other facts material to the transactions.
In addition, if required under applicable law or the rules or
regulations of the Commission, we will file a supplement to this prospectus when
a selling shareholder notifies us that a donee or pledgee intends to sell more
than 500 shares of common stock.
19
We are paying all expenses and fees in connection with the registration
of the shares. The selling shareholders will bear all brokerage or underwriting
discounts or commissions paid to broker-dealers in connection with the sale of
the shares.
Wells Fargo Bank Minnesota, N.A., located at P.O. Box 64854, South St.
Paul, MN 55164-0854, is the transfer agent and registrar for our common stock.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of
the shares of Common Stock offered by this prospectus have been passed upon on
behalf of the Company by Schreck Brignone, Las Vegas, Nevada.
EXPERTS
The financial statements incorporated in this prospectus by reference
to our Annual Report on Form 10-K for the year ended December 31, 2002, have
been so incorporated in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 1 to the financial statements) of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
20
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NEXMED, INC.
4,405,752 Shares
Common Stock
----------------------
PROSPECTUS
----------------------
July 28, 2003
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