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Marshall Edwards (MSH)

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Wednesday 14 September, 2005

Marshall Edwards

Form 10K Annual Report - Pt 1

Marshall Edwards, Inc.
14 September 2005








                             Marshall Edwards, Inc.

                                 ANNUAL REPORT

                           (for AIM filing purposes)

                              For the period ended

                                 30 JUNE, 2005





                             MARSHALL EDWARDS, INC.

                               TABLE OF CONTENTS





PART I


Item 1:         Business


Item 2:         Properties


Item 3:         Legal Proceedings


Item 4:         Submissions of Matters to a Vote of Security Holders




PART II

Item 5:         Market for the Registrants Common Equity, Related Stockholder
                Matters and Issuer Purchases of Securities


Item 6:         Selected Financial Data


Item 7:         Management's Discussion and Analysis of Financial Condition and
                results of Operations.


Item 7a:       Quantitative and Qualitative Disclosures about Market Risk


Item 8:         Financial Statements and Supplementary Data


Item 9:         Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure


Item 9a:       Controls and Procedures


Item 9b:       Other Information




PART III

Item 10:       Directors and Officers of the Registrant


Item 11:       Executive Compensation


Item 12:       Security Ownership of Certain Beneficial Owners and Management
               and Related Stockholder Matters


Item 13:       Certain Relationships and Related Transactions


Item 14:       Principle Accountant Fees and Services




PART IV

Item 15:       Exhibits and Financial Statement Schedules






Cautionary Statement about Forward-Looking Statements



This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Security Exchange Act of 1934, as amended.  All statements other than
statements of historical facts contained in this Annual Report, including
statements regarding the future financial position, business strategy and plans
and objectives of management for future operations, are forward-looking
statements. The words 'believe,' 'may,' 'will,' 'estimate,' 'continue,' '
anticipate,' 'intend,' 'should,' 'plan,' 'expect,' and similar expressions, as
they relate to the Company, are intended to identify forward-looking statements.
The Company has based these forward-looking statements largely on current
expectations and projections about future events and financial trends that it
believes may affect financial condition, results of operations, business
strategy and financial needs.  These forward-looking statements are subject to a
number of risks, uncertainties and assumptions, including, without limitation,
those described in 'Risk Factors' and elsewhere in this Form 10-K, including,
among other things:


•         our inability to obtain any additional required financing or financing 
          available to us on acceptable terms;


•         our failure to successfully commercialize our product candidates;


•         costs and delays in the development and/or receipt of FDA or other 
          required governmental approvals, or the failure to obtain such 
          approvals, for our product candidates;


•         uncertainties in clinical trial results;


•         our inability to maintain or enter into, and the risks resulting from
our dependence upon, collaboration or contractual arrangements necessary for the
development, manufacture, commercialization, marketing, sales and distribution
of any products;


•         continued cooperation and support of Novogen, our parent company;


•         competition and competitive factors;


•         our inability to protect our patents or proprietary rights and obtain
necessary rights to third party patents and intellectual property to operate our
business;



•         our inability to operate our business without infringing the patents
and proprietary rights of others;


•         general economic conditions;


•         the failure of any products to gain market acceptance;


•         technological changes;


•         government regulation generally and the receipt of the regulatory approvals;


•         changes in industry practice; and


•         one-time events.



These risks are not exhaustive. Other sections of this Annual Report on Form
10-K may include additional factors which could adversely impact our business
and financial performance. Moreover, we operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it
is not possible for us to predict all risk factors, nor can we assess the impact
of all factors on our business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained
in any forward-looking statements.



You should not rely upon forward looking statements as predictions of future
events. We cannot assure you that the events and circumstances reflected in the
forward looking statements will be achieved or occur. Although we believe that
the expectations reflected in the forward looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.






PART I



Item 1. Business





Overview of Our Business



We are a developmental stage pharmaceutical company, incorporated on December 1,
2000 as a wholly-owned subsidiary of Novogen Limited, an Australian Company. We
commenced operation in May 2002 and our business purpose is the development and
commercialization of drugs for the treatment of cancer. We are presently engaged
in the clinical development and commercialization of a drug candidate called
phenoxodiol, which we believe may have broad application against a wide range of
cancers. Phenoxodiol appears to target a number of key components involved in
cancer cell survival and proliferation based on the emerging field of signal
transduction regulation, with little or no effect on normal cells detected in
pre-clinical testing.



Novogen Limited, an Australian company publicly traded on the Australian Stock
Exchange and the Nasdaq National Market, owns approximately 86.9% of our
outstanding common stock. We were incorporated as a separate subsidiary of
Novogen to focus on the development and commercialization of drugs for the
treatment of cancer. In contrast, Novogen has a broader business focus which, in
addition to the business conducted by us, includes a consumer health division
that focuses on the development of a range of non-prescription products for the
health needs of both men and women and a pharmaceutical division which focuses
on the development of prescription drugs. We believe that Novogen's corporate
structure, with us functioning as a corporate entity separate from Novogen's
other lines of business, has provided us with:



•         greater strategic focus on the development of phenoxodiol and other
cancer drugs with dedicated financial resources;



•         direct access to the capital markets and investors who focus on the
development of cancer drugs and the ability to raise debt or equity should
additional funding be required in the future; and



•         the ability to offer equity interests, co-development rights and other
arrangements to strategic partners who focus on the market for the treatment and
prevention of cancer.



During fiscal year 2005, we made significant progress in the clinical
development of phenoxodiol including:



•         In May 2005, we announced preliminary results from the combination
therapy trial for patients with late stage refractory ovarian cancer being
conducted at Yale New Haven Hospital in the United States and the Royal Women's
Hospital in Australia.  These preliminary results revealed that 33% (12/36) of
patients who were on combination therapy that included phenoxodiol experienced a
complete or partial response.



•         In January 2005, we announced that we had appointed a global research
organization to manage our planned 'pivotal' Phase IIb multinational ovarian
cancer study.  The trial will be known as the Ovature trial. We are discussing
trial design with the U.S. Food and Drug Administration (FDA) to develop a trial
protocol that is intended to support marketing approval of phenoxodiol,
including the number of treatment arms to be included and the number of patients
required to be tested in each arm of the trial.



•         In November 2004, we announced that the FDA granted phenoxodiol Fast
Track status for its intended use as a chemo-sensitizing agent in patients with
recurrent late stage ovarian cancer.  In January 2005, we announced that the FDA
granted phenoxodiol Fast Track status for its intended use in patients with
hormone-refractory prostate cancer.  Under the FDA Modernization Act of 1997,
designation as a Fast Track product means that phenoxodiol is eligible for
certain programs for accelerated marketing approval.





Scientific Overview



Phenoxodiol belongs to a class of drugs that we refer to as Multiple Signal
Transduction Regulators ('MSTRs').



Signal transduction refers to the means by which cells respond to chemical
signals that come from within the cell itself, from neighboring cells, and from
elsewhere in the body. These signals regulate such vital functions as the growth
and survival of the cell. We believe that malfunctions in key components of the
signal transduction process (whereby a series of chemical signals within a cell
leads to the expression of a particular function) are fundamental to neoplastic
diseases such as cancer, where cells respond abnormally to normal levels of
signals, typically by over-responding to them with increased cell growth and
survival.



We believe that identifying malfunctions in the signal transduction process and
then designing drugs to block or correct them has become a basis for the
development of the next generation of anti-cancer drugs. These drugs have become
known as signal transduction inhibitors. These drugs are being designed to
target a specific signaling pathway which typically is over-active in a tumor
cell, and by blocking its progression, so to prevent or reduce the ability of
the tumor cell to divide or to survive. We believe that signal transduction
inhibitors, while displaying anti-tumor activity against a small number of
different types of cancer, generally have failed to provide more than modest
prolongation of survival of cancer patients. We believe this is because most
human cancers involve errors of multiple signaling pathways, and inhibition of a
single pathway by any one drug alone cannot reasonably be expected to provide
more than a temporary halt to cancer progression.



We believe that phenoxodiol increases the potency of signal transduction
inhibitors by targeting multiple signaling pathways, and in particular, those
pathways vital to the survival of most, if not all, human cancer cells. In the
term MSTR, 'multiple' refers to the fact that more than one signaling pathway is
targeted by the drug, and 'regulator' refers to the fact that while the drug
predominantly inhibits errant 'pro-survival' signaling pathways, it conversely
can also activate 'pro-death' signaling pathways.



We believe that phenoxodiol is able to exert a  multiplicity of effects,
including on both 'pro-survival' and 'pro-death' signaling systems, as a result
of its primary target on the tumor cell being a protein whose function in the
tumor cell is so fundamental to cell biochemistry that to shut it down produces
a broad range of biochemical consequences.



The potential explanation for this effect on the fundamental biochemistry of
tumor cells was provided by a discovery of a research team at Purdue University
in Indiana. This team has a long-standing research interest in a family of
proteins at the cell surface that are involved in the transport of waste
electrons, particularly hydrogen ions, across the cell membrane. This function
is so fundamental to normal cell function and viability, that any loss of
function of this electron pump will disrupt a wide range of biochemical
processes as a consequence of elevated waste hydrogen levels. One of the key
components of this electron pump mechanism is a protein known as NADH oxidase
(abbreviated as NOX). This protein is situated on the outside of the cell
membrane of all living matter, and regulates the flow of waste hydrogen across
the cell membrane. The Purdue University studies have now shown that all forms
of human cancer express a variant form of the constitutive (or normal) NOX,
known as tumor-specific NADH oxidase (abbreviated as tNOX). Based on Purdue
University studies, we believe that tNOX is a primary molecular target for
phenoxodiol. Phenoxodiol appears to specifically block the action of tNOX, with
the resulting inhibition of H+ efflux from the cell leading to extensive
disruption to signaling pathways and to eventual inhibition of cell
proliferation and activation of apoptosis, the process of programmed cell death
by which a cell dies naturally. The Purdue studies also show that phenoxodiol
has no effect on the normal form of NOX, providing an explanation for how
phenoxodiol can be so selective in its action, with its cytotoxic effects being
limited to cancer cells.



Purdue University studies recently have also shown that one of the important
consequences of a rise in intra-cell levels of waste hydrogen ions is inhibition
of an enzyme known as sphingosine kinase. This enzyme is responsible for the
production of a compound within cells known as sphingosine-1-phosphate
(abbreviated as S-1-P). S-1-P plays an important role in all cells in activating
a wide range of 'pro survival' signal transduction mechanisms, including the
production of proteins known as 'anti-apoptosis proteins' whose task it is to
block the apoptosis process. S-1-P levels have been reported to be elevated in
tumor cells, and in particular in tumor cells that have become resistant to
standard chemotherapy drugs.



This finding is relevant because of results from laboratory studies at Yale
University that have revealed that the killing effect of phenoxodiol of cancer
cells occurs through the loss of the ability of the tumor cell to manufacture
anti-apoptosis proteins such as  XIAP and c-FLIP. Collectively, the Yale
University and Purdue University results provide a rational mechanism of action
of phenoxodiol starting with the inhibition of tNOX, leading in turn to the loss
of S-1-P activity, leading eventually to the loss of anti-apoptosis proteins.



Recent laboratory studies conducted by Novogen and Yale University have
confirmed that this chain of biochemical events following exposure of tumor
cells to phenoxodiol also provides an explanation for why phenoxodiol is able to
reverse resistance that builds up in tumor cells to standard anti-cancer drugs
such as cisplatin, gemcitabine and taxanes.



In one aspect of this effect, phenoxodiol appears to restore sensitivity to
these drugs in cells such as ovarian cancer cells that have acquired resistance
to such drugs. In another aspect, pretreatment of tumor cells with phenoxodiol
considerably increases the sensitivity of virgin tumor cells to the cytotoxic
effects of standard chemotoxic drugs. Both of these effects are achieved without
increasing the toxicity of the standard chemotoxic drugs to non tumor-cells.



Overall Clinical Development Strategy



Based on the early clinical and pre-clinical work conducted on phenoxodiol, we
believe that based on its mode of action, phenoxodiol has the potential to
become a treatment option for a wide range of human cancers, and to be employed
at various stages of cancer development ranging from early-stage cancer through
to late-stage cancer.



The immediate priority, is to focus on those therapeutic indications that will
expedite drug marketing approval of phenoxodiol by regulatory bodies. To this
end, we will continue our work in late-stage chemo--resistant, ovarian and
prostate cancers. In chemo-resistant cancers we hope to show that phenoxodiol
will provide in humans what it has demonstrated in the laboratory and in animal
models, which is the restoration of chemo-sensitivity to standard chemotoxic
agents. In this way, phenoxodiol will be used to condition the tumor cells to
the more destructive effects of drugs such as cisplatin, gemcitabine and taxanes
with the combined effects of all drugs providing a potent force able to attack
well established and extensive cancer disease. In January 2005, we announced
that researchers from Yale University School of Medicine found that phenoxodiol
considerably enhances the ability of the drug docetaxel to kill human ovarian
cancer cells in the laboratory.  In addition, in May 2005, we announced
preliminary results from the combination therapy trial for patients with late
stage refractory ovarian cancer being conducted at Yale New Haven Hospital in
the United States and the Royal Women's Hospital in Australia.  These
preliminary results revealed that 33% (12/36) of patients who were on
combination therapy that included phenoxodiol experienced a complete or partial
response.





In due course, it is possible that other forms of cancer, generally regarded as
unresponsive to standard drugs, will be added to this program in order to
maximize the opportunity for treating chemo-resistant cancers.



Phenoxodiol is also being developed for use in earlier-stage cancers. This is
the basis of the clinical program involving the use of phenoxodiol as a
monotherapy in squamous cell carcinoma (SCC) of the cervix, vagina and vulva.
This area also is being targeted as a matter of priority. The commercial
attraction of this area is that cervical cancer is a form of cancer for which
early diagnosis is commonly available, and for which a non-invasive,
non-surgical drug option might be an attractive therapeutic option.



History of Phenoxodiol Development



In 1995, the phenoxodiol structure was suggested as a potential metabolite of
daidzein, a naturally occurring isoflavone. Isoflavones are a family of
structurally-related compounds found in foods such as legumes, red clover,
lentils and chickpeas. When eaten, isoflavones are converted in the body into a
wide range of compounds known as isoflavone metabolites.



Commencing in 1995, Novogen scientists synthesized a number of the
naturally-occurring isoflavone metabolites and screened them for anti-cancer
action. The rationale for this was the purported beneficial role of dietary
isoflavones in cancer prevention. Phenoxodiol was found to be the most potent
anti-cancer compound among the compounds tested. It was cytostatic and cytotoxic
against a wide range of human cancer cells, but without toxicity against
non-tumor cells. In vivo (in animals) studies in laboratory animals subsequently
showed that phenoxodiol administered either orally or systemically was
adequately bio-available (absorbed into the body in useful form) and
significantly retarded tumor development, in particular in athymic mice bearing
xenografts of human prostate cancer. Such anti-cancer effects in animals were
achieved without evidence of toxicity, and thus phenoxodiol was selected for
development as a human anti-cancer drug.



Subsequent pre-clinical studies identified a range of molecular targets of
phenoxodiol within human cancer cells, prompting us to classify the drug as a
Multiple Signal Transduction Regulator.



The broad anti-cancer action of phenoxodiol against an extensive library of
different human cancer cell lines such as prostate, breast, ovarian, lung and
cervical cancer, mesothelioma, melanoma, glioma and rhabdomyosarcoma, suggested
potential clinical application against a wide range of types of human cancer.
Further pre-clinical studies showed that phenoxodiol has a number of indirect
anti-cancer effects including a potent ability as an anti-androgen, which is a
process that reduces the biological impact of male sex hormones like
testosterone, and an ability to induce apoptosis of hyperplastic prostate smooth
muscle cells, the main type of stromal cells found in the prostate gland, that
suggested prostate cancer as a particularly suitable clinical target, leading to
this form of cancer being identified early as a prime potential clinical target
for the drug. However, with a view to allowing further time to identify those
cancer types that are the most sensitive types of cancer to phenoxodiol, the
strategy adopted was to conduct Phase I studies in patients with a wide
selection of solid tumors in order to gain preliminary evidence of efficacy
across a range of different tumor types.



Early animal studies had been conducted with both oral and intravenous dosage
forms of phenoxodiol. For human use, both dosage forms of phenoxodiol are being
trialed.



A Phase lb safety study was commenced in Australia in November 2000 and finished
in March 2002. Twenty-one patients with late-stage solid cancers of any type
were given phenoxodiol by weekly bolus injections, which are intravenous
injections delivered quickly, usually over several minutes, for 12 weeks. This
was a dose-escalating study with different patients receiving doses ranging from
1 to 30 mg/kg/dose. An important end-point for Phase 1b safety studies is to
determine the maximum tolerated dose, abbreviated as MTD, which is the highest
dose of drug that can be delivered without causing life-threatening toxicity.
The only safety issue reported in this study was hypersensitivity represented by
rashes, headaches or fever in 3 patients which was considered likely to be
associated with the material used to suspend the phenoxodiol in the intravenous
dosage form. The MTD was not reached by the 30 mg/kg dose, and the study was
terminated at that point, with that dosage being the highest that could
practically be administered.



A second Phase lb safety study commenced in Australia in April 2001 and
concluded in 2002. Twenty-one patients with late-stage solid cancers of any type
were given phenoxodiol by continuous intravenous infusion. The rationale here
was to test the concept of delivering phenoxodiol on a continuous basis in order
to maintain drug levels in the blood at a steady, moderate, continuous level,
rather than the short, infrequent peak levels achieved with the bolus injection
method. Laboratory studies had suggested that when used as a monotherapy,
phenoxodiol was more effective when given to animals on a repeated and frequent
basis. This again was a dose-escalating study, with different patients receiving
doses from 1 to 40 mg/kg/day. As in the previous study, the MTD was not reached
and no significant toxicities were encountered.



An Investigational New Drug Application ('IND') for the intravenous dosage form
of phenoxodiol became effective in the US in January 2001, allowing a third
Phase lb toxicity study to commence at The Cleveland Clinic, Ohio, in August
2001. This study concluded in 2002. Nineteen patients with late-stage solid
cancers of any type were given phenoxodiol by continuous intravenous infusion in
a repeat of the Australian study. The rationale here was to conduct a clinical
study in the US as part of a program with the ultimate aim of seeking to conduct
a study to support marketing approval in the US. This was a dose-escalating
study, with inter-patient escalation from 0.5 to 64 mg/kg/day. As with the
Australian study,  no MTD was reached and no significant toxicities were
encountered.



The main conclusions from this Phase I safety program of the intravenous dosage
form were:



•         that the intravenous dosage form was generally well-tolerated and
without significant safety issues, but that it was associated with some
intolerance (hypersensitivity);

•         that continuous intravenous infusion was unlikely to deliver blood
levels of drug that were thought to be potentially clinically relevant for the
treatment of cancer, and that the bolus injection method was potentially better;
and

•         that preliminary evidence of an anti-tumor effect was obtained in some
patients with solid tumors.



Concurrent with the Phase I clinical trial program outlined above, pre-clinical
studies were being conducted at Yale University Medical School that focused on
the use of phenoxodiol in the treatment of ovarian cancer, in particular,
late-stage cancers that had become resistant to standard anti-cancer drugs.
Those studies found that phenoxodiol was particularly effective in cell culture
and in animals in killing highly chemo-resistant ovarian cancer cells. It also
was found that phenoxodiol displayed a potent ability to restore the sensitivity
of these chemo-resistant cancer cells to standard anti-cancer drugs including
platinums and taxanes, the standard drugs used in the treatment of ovarian
cancer.



These Yale studies led to the development of a strategy to use phenoxodiol to
restore sensitivity to drugs such as cisplatin or carboplatin and paclitaxel or
docetaxel in late-stage ovarian cancer that had become resistant to such drugs.
It was decided to give phenoxodiol by bolus injection, and to give it on two
consecutive days each week as a way of increasing the exposure of the cancer to
drug. A Phase Ib safety study was conducted in the first instance using this new
regimen. This was conducted at Yale-New Haven Hospital, CT, commencing 2002 and
ending 2003 in patients with late-stage, platinum- and taxane-resistant ovarian
cancers. It was a dose-escalating study in 40 women, with 10 women each
receiving 1, 3, 10 or 20 mg/kg/day. No particular safety issues were encountered
with the three lower dosages, although the 20 mg/kg dose produced two incidences
of thrombocytopenia, or reduced platelet levels. This was an effect observed
earlier in safety studies in dogs, and was thought to be due to the carrier
compound in which the phenoxodiol was dissolved. Evidence of an anti-tumor
effect (stabilization of disease) was observed in the three lower dosages, but
not the highest dose.



At the conclusion of this study, a Phase IIa study was commenced in both
Australia and the US in 60 women with chemo-resistant, late-stage ovarian
cancer, where phenoxodiol was used in combination with cisplatin or paclitaxel
to see if the chemo-resistance could be reversed. This study commenced in early
2004 and is ongoing. The investigators have reported that phenoxodiol has
produced a 33% tumor response (tumor shrinkage) rate in these patients (12/36)
and have concluded that this provides preliminary proof-of-concept.



The tumor responses observed in these patients led to the drug receiving Fast
Track status from the FDA in 2004 for recurrent late stage ovarian cancer that
is resistant or refractory to platins and taxanes.



Starting in 2002 it was decided to pursue the development of the oral dosage
form of phenoxodiol. This was driven by the realization that continuous delivery
of drug was preferable for an anti-cancer effect, and that the oral dosage form
was a more practical way of achieving this compared to the intravenous dosage
form which could only be given no more than two days per week because of the
logistics of bringing patients into hospital for treatment. The oral dosage
form, on the other hand, could be administered on an out-patient basis.



The first clinical study was a Phase lb/IIa study which began in early 2002 on
the use of phenoxodiol in patients with hematological tumors. This was
predominantly a bio-availability and safety study, but also was intended to look
for any evidence of anti-tumor activity in non-solid tumors. It was a
dose-escalation study, where each patient was given a rising dose up to a
maximum of 55 mg/kg/day over two 12-hourly doses. The study confirmed that the
drug was readily absorbed from the gut to the extent of about 30%, and that
there were no safety or intolerance issues, even at the highest dose. No
evidence of anti-tumor effect was observed, leading to the conclusion that
phenoxodiol is not appropriate for hematological cancers due to the presence of
phenoxodiol in the blood in conjugated form (glucuronides and sulfates). While
such conjugation is not thought to impede the drug's ability to attack most
solid tumors, it is an impediment with blood-based cancers because of the
inability of blood to deconjugate drug. Solid tissues generally possess the
necessary ability to deconjugate these complexes to release the bio-active,
unconjugated drug.



The next clinical study undertaken with the oral dosage form was in Australia in
men with hormone-refractory prostate cancer. This study commenced in 2003 and is
ongoing. Twenty-four patients are being treated with different dosages of
phenoxodiol (20, 80, 200 and 400 mg) every 8-hours until they show disease
progression. The investigators in this study have reported that the drug has
produced a delay in disease progression in a number of men in the 200 and 400 mg
dose groups, and that there have been no safety or intolerance issues.



The Prostate Specific Antigen, PSA, responses observed in some patients in this
study led to the oral dosage form receiving Fast Track status from the FDA for
this indication in 2004.



An IND for the oral dosage form of phenoxodiol became effective in the US in
June 2003 which allowed a study in collaboration with Yale University School of
Medicine to be conducted in patients with cancer of the cervix vulva and vagina.
This dose-response Phase IIa study is ongoing. Phenoxodiol is being used on a
neo-adjuvant, monotherapy basis in patients following a primary diagnosis of
cancer. Phenoxodiol is being given at dosages of 50, 200 or 400 mg (8-hourly)
for four weeks prior to surgery. The study is intended to measure the effect of
treatment on tumor size and tumor biology.



A Phase IIa study commenced in Australia in early 2004 in order to assess the
safety of administering high dose oral phenoxodiol therapy on a continuous basis
in combination with carboplatin or cisplatin. This study is being conducted in
patients with solid cancers, and renal cancer in particular.



In early 2005, we announced that we were proposing to take phenoxodiol into a
pivotal study for marketing approval with the indication to be sought of using
phenoxodiol to restore sensitivity to carboplatin in platinum-refractory ovarian
cancer.



Competition



The development of phenoxodiol and other drug candidates is highly competitive.
A number of other companies have products or drug candidates in various stages
of pre-clinical or clinical development that are intended for the same
therapeutic indications for which phenoxodiol is being developed.  Some of these
potential competing drugs are further advanced in development than phenoxodiol
and may be commercialized sooner. Even if we are successful in developing
effective drugs, phenoxodiol may not compete successfully with products produced
by our competitors.



With respect to the use of phenoxodiol for late-stage prostate cancer,
docetaxel, a drug distributed by Aventis, was approved in 2004 by the FDA for
the treatment of hormone refractory prostate cancer, establishing a new
bench-mark for standard chemotherapy in late-stage prostate cancer.  We do not
believe this is a direct competitor because our strategy is to develop
phenoxodiol as a chemosensitizer for docetaxel in patients with prostate cancer
who become refractory to docetaxel. A number of pharmaceutical and biotechnology
companies are known to be seeking to develop drugs for the same indication.



With respect to the use of phenoxodiol as a chemo-sensitizing agent to restore
sensitivity to platinum-based drugs in late-stage ovarian cancer, the
experimental drug, Telcyta (Telik Inc.) is a directly competitive drug.  Telcyta
currently is in a Phase III registration trial suggesting that it has shown
sufficient promise in a Phase II study to warrant progression to a Phase III
study. The different trialing regimes being used by us with phenoxodiol and by
Telik Inc with Telcyta make it difficult to compare the two drugs for efficacy
in this area and, as a result, we cannot evaluate the level of competition.
However, we expect that at any level of efficacy, Telcyta, should it be approved
for marketing, would represent a significant competitor for phenoxodiol.



Our competitors include pharmaceutical companies and biotechnology companies, as
well as universities and public and private research institutions. In addition,
companies active in different but related fields represent substantial
competition for us. Many of our competitors developing oncologic drugs have
significantly greater capital resources, larger research and development staffs
and facilities and greater experience in drug development, regulation,
manufacturing and marketing than we do. These organizations also compete with
Novogen, our services provider, to recruit qualified personnel, and with us to
attract partners for joint ventures and to license technologies that are
competitive with our technologies. As a result, our competitors may be able to
more easily develop technologies and products that would render our technologies
or our drug candidates obsolete or non-competitive.



Intellectual Property



Novogen has been granted patents and has additional patents pending in a number
of countries which cover a family of chemically related compounds with
potentially broad ranging and complementary anti-cancer effects. Novogen has
granted to us an exclusive license, with respect to its patent rights and
intellectual property know-how to develop, market and distribute one of these
compounds, phenoxodiol, as an anti-cancer agent, except in topical form.  See
Part III, Item 13 'Certain Relationships and Related Transactions' for more
information regarding our agreements with Novogen.



We have licensed from Novogen the rights to the Novogen patents and applications
as they relate to phenoxodiol as an anti-cancer agent. Excluded from these
rights is phenoxodiol in a topical formulation. The patent rights we have
licensed from Novogen can be largely classified into two broad groups: patent
rights relating to phenoxodiol used as an anti-cancer agent, which we refer to
as 'therapeutic patent rights,' and patent rights relating to the manufacture of
phenoxodiol for anti-cancer purposes, which we refer to as 'manufacturing patent
rights.' The pending and issued Novogen patent rights can be further broken down
into four families, three families belonging to the therapeutic patent rights
and one family belonging to the manufacturing patent rights. The three families
in the therapeutic patent rights relate to:

•         phenoxodiol in the treatment of cancer (thirteen pending and nine
issued);

•         compositions and methods for protecting skin from ultraviolet induced
immunosuppression and skin damage, including phenoxodiol (nine pending and four
issued); and

•         therapeutic methods and compositions involving isoflav-3-ene and
isoflavan structure, including phenoxodiol (PCT pending).

•         The family relating to the manufacturing patent rights relate to:

o        the production of isoflavone derivatives, including phenoxodiol
(sixteen pending and one issued).



Novogen has been granted a U.S. Patent (No. 6,649,648) by the United States
Patent and Trademark Office (USPTO) relating to the treatment of cancerous
disease with isoflavone derivatives including phenoxodiol. U.S. Patent 6,649,648
also includes claims specifically directed to the treatment of ovarian cancer,
breast cancer, prostate cancer, uterine cancer, bowel cancer, testicular cancer,
endometrial cancer, leukemia and metastatic cancer with isoflavone derivatives
including phenoxodiol.



As patent applications in the United States are maintained in secrecy until
published by the USPTO at 18 months from filing, for all cases filed after
November 29, 2000, or at issue, for cases filed prior to November 29, 2000, and
as publication of discoveries in the scientific or patent literature often lag
behind the actual discoveries, we cannot be certain that Novogen was the first
to make the inventions covered by the Novogen patents and applications as they
relate to phenoxodiol as an anti-cancer agent referred to above. Moreover,
pursuant to the terms of the Uruguay Round Agreements Act, patents filed on or
after June 8, 1995 have a term of twenty years from the date of such filing,
irrespective of the period of time it may take for such patent to ultimately
issue. This may shorten the period of patent protection afforded to therapeutic
use of phenoxodiol as patent applications in the biopharmaceutical sector often
take considerable time to issue. However, in some countries patent term may be
extended.



In order to protect the confidentiality of our technology, including trade
secrets and know-how and other proprietary technical and business information,
we require all of our consultants, advisors and collaborators to enter into
confidentiality agreements that prohibit the use or disclosure of information
that is deemed confidential. The agreements also oblige our consultants,
advisors and collaborators to assign to us developments, discoveries and
inventions made by such persons in connection with their work with us. We cannot
be sure that confidentiality will be maintained or disclosure prevented by these
agreements or that our proprietary information or intellectual property will be
protected thereby or that others will not independently develop substantially
equivalent proprietary information or intellectual property.



The pharmaceutical industry is highly competitive and patents may have been
applied for by, and issued to, other parties relating to products competitive
with phenoxodiol.  Use of phenoxodiol and any other drug candidates may give
rise to claims that they infringe the patents or proprietary rights of other
parties, existing now and in the future. An adverse claim could subject us to
significant liabilities to such other parties and/or require disputed rights to
be licensed from such other parties. We cannot be sure that any license required
under any such patents or proprietary rights would be made available on terms
acceptable to us, if at all. If we do not obtain such licenses, we may encounter
delays in product market introductions, or may find that the development,
manufacture or sale of products requiring such licenses may be precluded. We
have not conducted any searches or made any independent investigations of the
existence of any patents or proprietary rights of other parties.



Relationship with Novogen



Novogen has been granted patents and has additional patent applications pending
in a number of countries pertaining to phenoxodiol's family of compounds and to
phenoxodiol itself and their use in anti-cancer therapeutics. Novogen has
granted to us an exclusive license under its patent rights and the intellectual
property rights in its relevant know-how to develop, market and distribute all
forms of administering phenoxodiol for anti-cancer applications, except topical
applications.



Novogen is active in the discovery and development of new drugs based on the
emerging field of signal transduction regulation. Signal transduction regulators
offer the potential for effective, well-tolerated treatment of common diseases,
including cancer and heart disease. Novogen has developed a family of chemically
related compounds with potentially broad ranging and complementary anti-cancer
effects.



We have entered into certain key agreements with Novogen. These agreements,
discussed briefly below, are more fully detailed in Part III, Item 13 'Certain
Relationships and Related Transactions.'



Under the license agreement, Novogen granted us an exclusive world-wide,
non-transferable license, under the Novogen patent rights, to conduct clinical
trials and commercialize and distribute all forms of administering phenoxodiol
except topical applications. The agreement covers uses of phenoxodiol in the
field of prevention, treatment or cure of cancer in humans. Our business is
currently focused on advancing the clinical program underway for the development
of phenoxodiol.



Under a manufacturing license and supply agreement, we have granted Novogen a
sublicense to manufacture and supply phenoxodiol to us in its primary
manufactured form for both the research and development program and
phenoxodiol's ultimate commercial use. Novogen has a pilot phenoxodiol
manufacturing plant which we believe has sufficient capacity and which can be
augmented by third party manufacturing facilities to meet the projected amount
of phenoxodiol required to complete the proposed clinical program.



Under a license option deed, Novogen granted us an exclusive first right to
accept and an exclusive last right to match any proposed dealing by Novogen with
its intellectual property rights in other synthetic compounds developed by
Novogen that have known or potential anti-cancer applications in all forms other
than topical applications.



Pursuant to a services agreement, Novogen provides services reasonably required
by us relating to the development and commercialization of phenoxodiol. We do
not currently intend to directly employ any staff and are reliant on Novogen for
the provision of resources to conduct our business.




Research and Development



The objective of our research and development program is the generation of data
sufficient to achieve regulatory approval of phenoxodiol in one or more dosage
forms in major markets such as the United States, and/or to allow us to enter
into a commercial relationship with another party. The data is generated by our
clinical trial programs.



The key aspects of this program are to provide more complete characterization of
the following:



•         the relevant molecular targets of action of phenoxodiol;



•         the relative therapeutic indications of different dosage forms of
phenoxodiol;



•         the relative therapeutic benefits and indications of phenoxodiol as a
monotherapy or as part of combinational therapy with other chemotoxics; and



•         the most appropriate cancer targets for phenoxodiol.



Research expenses were $2.279 million for the year ended June 30, 2005, $2.381
million for the year ended June 30, 2004 and $2.024 million for the year ended
June 30, 2003.



Regulation

U.S. Regulatory Requirements



The U.S. Food and Drug Administration, or FDA, and comparable regulatory
agencies in foreign countries, regulate and impose substantial requirements upon
the research, development, pre-clinical and clinical testing, labeling,
manufacture, quality control, storage, approval, advertising, promotion,
marketing, distribution and export of pharmaceutical products including
biologics, as well as significant reporting and record-keeping obligations.
State governments may also impose obligations in these areas.



In the United States, pharmaceutical products are regulated by the FDA under the
Federal Food Drug and Cosmetic Act or FDCA and other laws including in the case
of biologics, the Public Health Service Act. We believe, but cannot be certain,
that our products will be regulated as drugs by the FDA. The process required by
the FDA before drugs may be marketed in the United States generally involves the
following:





•         pre-clinical laboratory evaluations, including formulation and
stability testing, and animal tests performed under the FDA's Good Laboratory
Practices regulations to assess potential safety and effectiveness;



•         submission and approval of an IND, including results of pre-clinical
tests and protocols for clinical tests, which must become effective before
clinical trials may begin in the United States;



•         obtaining approval of Institutional Review Boards to administer the
products to human subjects in clinical trials;



•         adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product for the product's intended use;



•         development of manufacturing processes which conform to FDA current
Good Manufacturing Practices, or cGMPs, as confirmed by FDA inspection;



•         submission of pre-clinical and clinical test results, and chemistry,
manufacture and control information on the product to the FDA in a New Drug
Approval Application, or NDA; and



•         FDA review and approval of an NDA, prior to any commercial sale or
shipment of a product.



The testing and approval process requires substantial time, effort, and
financial resources, and we cannot be certain that any approval will be granted
on a timely basis, if at all.



The results of the pre-clinical tests, together with initial specified
manufacturing information, the proposed clinical trial protocol, and information
about the participating investigators are submitted to the FDA as part of an
IND, which must become effective before we may begin human clinical trials.
Additionally, an independent Institutional Review Board at each clinical trial
site proposing to conduct the clinical trials must review and approve each study
protocol and oversee conduct of the trial. An IND becomes effective 30 days
after receipt by the FDA, unless the FDA, within the 30-day period, raises
concerns or questions about the conduct of the trials as outlined in the IND and
imposes a clinical hold. If the FDA imposes a clinical hold, the IND sponsor
must resolve the FDA's concerns before clinical trials can begin. Pre-clinical
tests and studies can take several years to complete, and there is no guarantee
that an IND we submit based on such tests and studies will become effective
within any specific time period, if at all.



Human clinical trials are typically conducted in three sequential phases that
may overlap.



•  Phase I: The drug is initially introduced into healthy human subjects or
patients and tested for safety and dosage tolerance. Absorption, metabolism,
distribution, and excretion testing is generally performed at this stage.



•  Phase II: The drug is studied in controlled, exploratory therapeutic trials
in a limited number of subjects with the disease or medical condition for which
the new drug is intended to be used in order to identify possible adverse
effects and safety risks, to determine the preliminary or potential efficacy of
the product for specific targeted diseases or medical conditions, and to
determine dosage tolerance and the optimal effective dose.



•  Phase III: When Phase II studies demonstrate that a specific dosage range of
the drug is likely to be effective and the drug has an acceptable safety profile
controlled, large-scale therapeutic Phase III trials are undertaken at multiple
study sites to demonstrate clinical efficacy and to further test for safety in
an expanded patient population.



We cannot be certain that we will successfully complete Phase I, Phase II, or
Phase III testing of our products within any specific time period if at all.
Furthermore the FDA, the Institutional Review Board or we may suspend or
terminate clinical trials at any time on various grounds, including a finding
that the subjects or patients are being exposed to an unacceptable health risk.



Results of pre-clinical studies and clinical trials, as well as detailed
information about the manufacturing process, quality control methods, and
product composition, among other things, are submitted to the FDA as part of an
NDA seeking approval to market and commercially distribute the product on the
basis of a determination that the product is safe and effective for its intended
use. Before approving an NDA, the FDA will inspect the facilities at which the
product is manufactured and will not approve the product unless cGMP compliance
is satisfactory. If applicable regulatory criteria are not satisfied, the FDA
may deny the NDA or require additional testing or information. As a condition of
approval, the FDA also may require post-marketing testing or surveillance to
monitor the product's safety or efficacy. Even after an NDA is approved, the FDA
may impose additional obligations or restrictions (such as labeling changes), or
even suspend or withdraw a product approval on the basis of data that arise
after the product reaches the market, or if compliance with regulatory standards
is not maintained. We cannot be certain that any NDA we submit will be approved
by the FDA on a timely basis, if at all. Also, any such approval may limit the
indicated uses for which the product may be marketed. Any refusal to approve,
delay in approval, suspension or withdrawal of approval, or restrictions on
indicated uses could have a material adverse impact on our business prospects.



Each NDA must be accompanied by a user fee, pursuant to the requirements of the
Prescription Drug User Fee Act, or PDUFA, and its amendments.  According to the
FDA's fee schedule, effective on October 1, 2004 for the fiscal year 2005, the
user fee for an application requiring clinical data, such as an NDA, is
$672,000.  The FDA adjusts the PDUFA user fees on an annual basis.  PDUFA also
imposes an annual product fee for prescription drugs and biologics ($41,710),
and an annual establishment fee ($262,200) on facilities used to manufacture
prescription drugs and biologics.  A written request can be submitted for a
waiver for the application fee for the first human drug application that is
filed by a small business, but there are no waivers for product or establishment
fees.  We are not at the stage of development with our products where we are
subject to these fees, but they are significant expenditures that will be
incurred in the future and must be paid at the time of application submissions
to FDA.



Satisfaction of FDA requirements typically takes several years. The actual time
required varies substantially, based upon the type, complexity, and novelty of
the pharmaceutical product, among other things. Government regulation imposes
costly and time-consuming requirements and restrictions throughout the product
life cycle and may delay product marketing for a considerable period of time,
limit product marketing, or prevent marketing altogether. Success in
pre-clinical or early stage clinical trials does not assure success in later
stage clinical trials. Data obtained from pre-clinical and clinical activities
is not always conclusive and may be susceptible to varying interpretations that
could delay, limit, or prevent marketing approval. Even if a product receives
marketing approval, the approval is limited to specific clinical indications.
Further, even after marketing approval is obtained, the discovery of previously
unknown problems with a product may result in restrictions on the product or
even complete withdrawal of the product from the market.



After product approval, there are continuing significant regulatory requirements
imposed by the FDA, including record-keeping requirements, obligations to report
adverse side effects in patients using the products, and restrictions on
advertising and promotional activities. Quality control and manufacturing
procedures must continue to conform to cGMPs, and the FDA periodically inspects
facilities to assess cGMP compliance. Additionally, post-approval changes in
ingredient composition, manufacturing processes or facilities, product labeling,
or other areas may require submission of an NDA Supplement to the FDA for review
and approval. New indications will require additional clinical tests and
submission of an NDA Supplement. Failure to comply with FDA regulatory
requirements may result in an enforcement action by the FDA, including Warning
Letters, product recalls, suspension or revocation of product approval, seizure
of product to prevent distribution, impositions of injunctions prohibiting
product manufacture or distribution, and civil and criminal penalties.
Maintaining compliance is costly and time-consuming. We cannot be certain that
we, or our present or future suppliers or third-party manufacturers, will be
able to comply with all FDA regulatory requirements, and potential consequences
of noncompliance could have a material adverse impact on our business prospects.



The FDA's policies may change, and additional governmental regulations may be
enacted that could delay, limit, or prevent regulatory approval of our products
or affect our ability to manufacture, market, or distribute our products after
approval. Moreover, increased attention to the containment of healthcare costs
in the United States and in foreign markets could result in new government
regulations that could have a material adverse effect on our business. Our
failure to obtain coverage, an adequate level of reimbursement, or acceptable
prices for our future products could diminish any revenues we may be able to
generate. Our ability to commercialize future products will depend in part on
the extent to which coverage and reimbursement for the products will be
available from government and health administration authorities, private health
insurers, and other third-party payers. European Union and U.S. government and
other third-party payers increasingly are attempting to contain healthcare costs
by consideration of new laws and regulations limiting both coverage and the
level of reimbursement for new drugs. We cannot predict the likelihood, nature
or extent of adverse governmental regulation that might arise from future
legislative or administrative action, either in the United States or abroad.



Our activities also may be subject to state laws and regulations that affect our
ability to develop and sell our products. We are also subject to numerous
federal, state, and local laws relating to such matters as safe working
conditions, clinical, laboratory, and manufacturing practices, environmental
protection, fire hazard control, and disposal of hazardous or potentially
hazardous substances. We may incur significant costs to comply with such laws
and regulations now or in the future, and the failure to comply may have a
material adverse impact on our business prospects.



The FDCA includes provisions designed to facilitate and expedite the development
and review of drugs and biological products intended for treatment of serious or
life-threatening conditions that demonstrate the potential to address unmet
medical needs for such conditions.  These provisions set forth a procedure for
designation of a drug as a 'fast track product.'  The fast track designation
applies to the combination of the product and specific indication for which it
is being studied.  A product designated as fast track is ordinarily eligible for
additional programs for expediting development and review, but products that are
not in fast track drug development programs may also be able to take advantage
of these programs.  These programs include priority review of NDAs and
accelerated approval.  Drug approval under the accelerated regulations may be
based on evidence of clinical effect on a surrogate endpoint that is reasonably
likely to predict clinical benefit.  A postmarketing clinical study will be
required to verify clinical benefit, and other restrictions to assure safe use
may be imposed.



Under the Drug Price Competition and Patent Term Restoration Act of 1984 (the '
Patent Act'), a sponsor may obtain marketing exclusivity for a period of time
following FDA approval of certain drug applications, regardless of patent
status, if the drug is a new chemical entity or if new clinical studies were
required to support the marketing application for the drug.  This marketing
exclusivity prevents a third party from obtaining FDA approval for an identical
or nearly identical drug under an Abbreviated New Drug Application ('ANDA') or a
'505(b)(2) New Drug Application.'  The statute also allows a patent owner to
obtain an extension of applicable patent terms for a period equal to one-half
the period of time elapsed between the filing of an IND and the filing of the
corresponding NDA plus the period of time between the filing of the NDA and FDA
approval, with a five year maximum patent extension.  We cannot be certain that
Novogen will be able to take advantage of either the patent term' extension or
marketing exclusivity provisions of these laws.



The Best Pharmaceuticals for Children Act, signed into law on January 4, 2002,
provides an additional six months of marketing exclusivity for new or marketed
drugs, for which specific pediatric studies were conducted at the written
request of the FDA. On December 3, 2003, the Pediatric Research Equity Act was
signed into law, authorizing the FDA to require pediatric studies for drugs and
biological products to ensure the drugs' or products' safety and effectiveness
in children. This Act required that New Drug Applications ('NDAs') or
supplements to NDAs contain data assessing the safety and effectiveness for the
claimed indication in all relevant pediatric subpopulations. Dosing and
admistration must be supported for each pediatric subpopulation for which the
drug is safe and effective. The FDA may grant deferrals for submission of data,
or full or partial waivers. We cannot be certain that we will be able to take
advantage of these statutory pediatric marketing exclusivity provisions.



Australian Regulatory Requirements



The Therapeutic Goods Act 1989, or 1989 Act, sets out the legal requirements for
the import, export, manufacture and supply of pharmaceutical products in
Australia. The 1989 Act requires that all pharmaceutical products to be imported
into, supplied in, manufactured in or exported from Australia be included in the
Australian Register of Therapeutic Goods, or ARTG, unless specifically exempted
under the Act.



In order to ensure that a product can be included in the ARTG, a sponsoring
company must make an application to the Therapeutic Goods Administration, or
TGA. The application usually consists of a form accompanied by data (usually
based on the European Union requirements) to support the quality, safety and
efficacy of the drug and payment of a fee.   Application details are available
on the TGA website http://www.tga.gov.au.



The first phase of evaluation, known as the Application Entry Process, is
usually a short period during which an application is assessed on an
administrative level to ensure that it complies with the basic guidelines. The
TGA must decide within 40 working days whether it will accept the application
for evaluation.



Once an application is accepted for evaluation, aspects of the data provided are
allocated to evaluators, who prepare evaluation reports. The evaluation reports
are then sent to the sponsoring company who then has the opportunity to comment
on the views expressed within the evaluation report and to submit supplementary
data to address any issues raised in the evaluation reports. Following this
evaluation, the chemistry and quality control aspects of a product may be
referred to a sub-committee of the Australian Drug and Evaluation Committee, or
ADEC, to review the evaluation reports.



Once the evaluations are complete, the TGA prepares a summary document on the
key issues on which advice will be sought from the ADEC. This summary is sent to
the sponsoring company which is able to submit a response to the ADEC dealing
with issues raised in the summary and those not previously addressed in the
evaluation report. The ADEC provides independent advice on the quality,
risk-benefit, effectiveness and access of the drug and conduct medical and
scientific evaluations of the application. The ADEC's resolutions are provided
to the sponsoring company after 5 working days after the ADEC meeting.



The TGA takes into account the advice of the ADEC in reaching a decision to
approve or reject a product. Any approval for registration on the ARTG may have
conditions associated with it.



From the time that the TGA accepts the initial application for evaluation, the
TGA must complete the evaluation and make a decision on the registration of the
product within 255 working days. The TGA also has a system of priority
evaluation for products that meet certain criteria, including where the product
is a new chemical entity that it is not otherwise available on the market as an
approved product, and is for the treatment of a serious, life-threatening
illness for which other therapies are either ineffective or not available.



European Union Regulatory Requirements



Outside the United States, our ability to market our products will also be
contingent upon receiving marketing authorizations from the appropriate
regulatory authorities and compliance with applicable post-approval regulatory
requirements. Although the specific requirements and restrictions vary from
country to country, as a general matter, foreign regulatory systems include
risks similar to those associated with FDA regulation, described above. Under EU
regulatory systems, marketing authorizations may be submitted either under a
centralized or decentralized procedure. Under the centralized procedure, a
single application to the European Medicines Evaluation Agency (EMEA) leads to
an approval granted by the European Commission which permits the marketing of
the product throughout the EU. The centralized procedure is mandatory for
certain classes of medicinal products, but optional for others.  For example,
all medicinal products developed by certain biotechnological means must be
authorized via the centralized procedure.  We assume that the centralized
procedure will apply to our products that are developed by means of a
biotechnology process. The decentralized procedure provides for mutual
recognition of nationally approved decisions and is used for products that are
not required to be authorized by the centralized procedure. Under the
decentralized procedure, the holders of a national marketing authorization may
submit further applications to the competent authorities of the remaining member
states, which will then be requested to recognize the original authorization
based upon an assessment report prepared by the original authorizing competent
authority. The recognition process should take no longer than 90 days, but if
one member state makes an objection, which under the legislation can only be
based on a possible risk to human health, we have the option to withdraw the
application from that country or take the application to arbitration by the
Committee for Proprietary Medicinal Products (CPMP) of the EMEA. If a referral
for arbitration is made, the procedure is suspended, and in the intervening
time, the only EU country in which the product can be marketed will be the
country where the original authorization has been granted, even if all the other
designated countries are ready to recognize the product. The opinion of the
CPMP, which is binding, could support or reject the objection or alternatively
could reach a compromise position acceptable to all EU countries concerned.
Arbitration can be avoided if the application is withdrawn in the objecting
country, but once the application has been referred to arbitration, it cannot be
withdrawn. The arbitration procedure may take an additional year before a final
decision is reached and may require the delivery of additional data.



As with FDA approval we may not be able to secure regulatory approvals in Europe
in a timely manner, if at all. Additionally, as in the United States,
post-approval regulatory requirements, such as those regarding product
manufacture, marketing, or distribution, would apply to any product that is
approved in Europe, and failure to comply with such obligations could have a
material adverse effect on our ability to successfully commercialize any
product.





New European Legislation was introduced in 2001 designed to harmonize the
regulation of clinical trials across the EU.  This legislation has now been
implemented in all EU countries.  In addition, the entire EU regulatory regime
has recently undergone a significant revision and new laws have been introduced
that amend the current EU Medicines Directive. These amendments are due to come
into effect by October 30, 2005 and are currently being implemented on a country
by country basis.  For example, the centralized procedure for the authorization
of new medicines will be compulsory for biotechnology products and those
developed for cancer and other specified diseases and disorders.  Accordingly,
there is a marked degree of change and uncertainty both in the regulation of
clinical trials and in respect of marketing authorizations which face us for our
products in Europe.



Government Funding



Novogen received financial support for the phenoxodiol drug program from the
Australian government under what is known as the START Program. The START
Program is a merit-based program designed to encourage and assist Australian
companies to undertake research and development and commercialization through a
range of grants and loans. The START Program is administered by the Industry
Research and Development, or IR&D Board. The IR&D Board is made up of private
sector and academic members with expertise and experience in research and
development and commercialization. In 1998, the Australian government agreed to
provide A$2.7 million (approximately U.S. $1.8 million) to Novogen, enabling it
to expedite phenoxodiol into clinical trials, provided that the grant money was
matched by an equal expenditure by Novogen. The START grant was awarded after
the government's review of the pertinent research results, the intellectual
property driving the program, and the likelihood and potential for commercial
success of the drug.



The terms of the grant require Novogen to obtain the consent of the Australian
government to deal with the intellectual property rights which have arisen
through the program conducted to date. Novogen has obtained the consent of the
Australian government to the grant of the license to us and to the other
arrangements between us and Novogen concerning the development and
commercialization of phenoxodiol.



Under the START Program, Novogen must meet certain project development and
commercialization obligations. Novogen has met the project development
obligations and has received final payment thereon. Novogen believes that it is
currently in compliance with its commercialization schedule and that it has
fulfilled all of its obligations under the terms of the START Program and
expects to continue to do so in the future. For additional information on the
consequences to us in the event Novogen fails to comply with its obligations
under the START Program, see the 'Intellectual Property' and 'Risk Factors'
sections of this annual report.



Employees



We do not have any employees. Novogen provides us with staff and other financial
and administrative services under our services agreement with Novogen.




Risk Factors



In addition to the other information in this Annual Report the following risk
factors should be considered carefully in evaluating us and our business.



Risks Related to Our Business



We have a limited operating history, and we are likely to incur operating losses
for the foreseeable future.



You should consider our prospects in light of the risks and difficulties
frequently encountered by early stage and developmental companies. Although we
were incorporated in December 2000, we have only been in operation since May
2002. We have incurred net losses of $18,115,000 since our inception, including
net losses of $6,421,000, $8,538,000 and $3,033,000  for the years ended June
30, 2005, 2004 and 2003, respectively. We anticipate that we will incur
operating losses and negative cash flow for the foreseeable future. We have not
yet commercialized any products and cannot be sure that we will ever be able to
do so, or that we may ever become profitable. We expect to expand our clinical
trials significantly, which will result in increasing losses, and may continue
to incur substantial losses even if we begin to generate revenues from the
distribution and sale of phenoxodiol.



If we are unable to successfully develop and commercialize phenoxodiol or
license other viable drug candidates, our ability to sustain future operations
will be significantly diminished.



We are currently developing only one drug, phenoxodiol. We cannot guarantee that
phenoxodiol will be successful. Although we have rights to potentially develop
other related compounds discovered and developed by Novogen under the terms of
our license option deed with Novogen, our rights under our license agreement
with Novogen are limited to the commercialization of phenoxodiol as an
anti-cancer agent and these rights specifically exclude phenoxodiol in a topical
application. If we are unable to successfully develop and commercialize
phenoxodiol or other viable drug candidates, we may be required to cease or
reduce our operations.



If we do not receive regulatory approval for marketing phenoxodiol or such
approval is withdrawn, we will not be able to commercialize phenoxodiol.



We need regulatory approval in order to commercialize phenoxodiol. We may never
receive marketing approval or if we do receive marketing approval, it will be
limited to those disease states and conditions for which phenoxodiol has been
proven to be safe and effective. Phenoxodiol currently is in various Phase 1b/
11a clinical trials with the intention of being developed as both a monotherapy
and a chemo-sensitizing agent for use with first-line chemotherapies in the
areas of hormone-refractory prostate carcinoma, early stage cancer of the
cervix, vagina and vulva, late stage ovarian carcinoma and renal cancer.
Phenoxodiol has been granted fast track status by the FDA for use in hormone
refractory prostate cancer for patients with recurrent late stage ovarian
cancer. Product approval, if granted, can be withdrawn for failure to comply
with regulatory requirements or upon the occurrence of adverse events following
commercial introduction. In addition, our ability to market phenoxodiol in
overseas countries is contingent upon receiving the required regulatory
approvals in those countries. If we cannot commercialize phenoxodiol, we may be
required to cease or reduce our operations. We cannot assure you that material
delays, difficulties or adverse developments in the regulatory process will not
be encountered in the future.



If the data from our clinical trials does not demonstrate the safety and
effectiveness of phenoxodiol to the FDA's satisfaction, we will not receive FDA
approval to market phenoxodiol in the United States.



To obtain FDA approval for marketing, our pivotal trials must generate data
demonstrating that phenoxodiol is safe and effective for each indication for
which approval is sought.  The FDA's grant of permission to proceed with
clinical trials does not constitute a binding commitment that the FDA will
consider the trial design adequate to support approval, or that the data
generated during pivotal trials will meet the safety and effectiveness
endpoints, or otherwise produce results that will lead the FDA to grant
marketing approval.  If the FDA concludes that the data from our clinical trials
has failed to demonstrate the safety and effectiveness of phenoxodiol for any
indication, we will not receive FDA approval to market phenoxodiol for those
indications in the United States.



We may not complete our pivotal trials on schedule, or at all, or they may be
conducted improperly, which may delay or preclude FDA marketing approval.



The completion of our pivotal trials may be delayed or terminated for many
reasons, including, but not limited to, if:



•         the FDA does not grant permission to proceed and places the trial on
clinical hold;

•         subjects do not enroll in our pivotal trials at the rate we currently
expect;

•         subjects experience an unacceptable rate or severity of adverse side
effects;

•         third party clinical investigators do not perform our pivotal trial on
our anticipated schedule or consistent with the clinical trial protocol, Good
Clinical Practice and regulatory requirements, or other third parties do not
perform data collection and analysis in a timely or accurate manner;

•         inspections of our clinical trial sites by the FDA or Institutional
Review Boards, (IRBs), find regulatory violations that require us to undertake
corrective action, suspend or terminate one or more sites, or prohibit us from
using some or all of the data in support of our marketing applications;

•         one or more IRB suspends or terminates the trial at an investigational
site, precludes enrollment of additional subjects, or withdraws its approval of
the trial; or

•         one or more of our clinical investigators withdraws from our trials or
deviates from our approved protocol.



Our development costs will increase if we have material delays in our pivotal
trials, or if we are required to modify, suspend, terminate or repeat a pivotal
trial.



We may not be able to secure and maintain suitable research institutions to
conduct our clinical trials.



We rely on suitable research institutions, of which there are many, to conduct
our clinical trials. While we have not previously experienced problems with
third parties upon whom we rely for research or clinical trials, our reliance
upon research institutions, including hospitals and cancer clinics, provides us
with less control over the timing and cost of clinical trials and the ability to
recruit patients than if we had conducted the trials on our own. Further, there
is a greater likelihood that disputes may arise with these research institutions
over the ownership of intellectual property discovered during the clinical
trials. If we are unable to reach agreement with suitable research institutions
on acceptable terms, or if any resulting agreement is terminated and we are
unable to quickly replace the applicable research institution with another
qualified institution on acceptable terms, the research could be delayed and we
may be unable to complete development, or commercialize phenoxodiol, which will
adversely affect our ability to generate operating revenues.



Any failure in our clinical trials could impair the commercial prospects for
phenoxodiol.



Clinical trials have a high risk of failure. A number of companies in the
pharmaceutical industry, including biotechnology companies, have suffered
significant setbacks in advanced clinical trials, even after achieving promising
results in earlier trials. While we have not had any material delays in our
clinical testing program if we experience delays in the testing or approval
process or need to perform more or larger clinical trials than originally
planned our commercial prospects for phenoxodiol or any other drug candidates
may be impaired and we may be required to cease or reduce our operations.



Our ability to achieve profitability is dependent on a number of factors, many
of which have uncertain outcomes.



Our ability to achieve profitability is dependent on a number of factors
including:


•      completing our clinical trial program and receiving marketing approval. Clinical testing is a prerequisite to
the receipt of the regulatory approval necessary to commercialize phenoxodiol. We cannot control the outcome of our
testing program or whether we receive regulatory approval. We will not be able to generate sales revenues until we
receive marketing approval;


•      establishing strategic partnerships to market and sell phenoxodiol. Our negotiating position with potential
strategic partners will be affected by the success of our clinical program. If we are unable to attract partners and
negotiate favorable terms, we may have difficulty generating revenues from our commercialization of phenoxodiol;


•      maintaining a low cost operation and scalable supply of phenoxodiol
capable of meeting the demands of the commercial market. We have contracted with
Novogen for the supply of phenoxodiol and Novogen has fully complied with the
terms of our manufacturing license and supply agreement. Under the terms of the
manufacturing license and supply agreement, the supply of phenoxodiol is charged
to us on a cost-plus basis. We do not have direct control over the manufacturing
costs of phenoxodiol. We cannot control Novogen's ability to expand its
production capabilities to produce the large quantities that may be required by
the commercial market. If our costs for the supply of phenoxodiol rise or if
Novogen fails to supply sufficient quantities of phenoxodiol, our profitability
could be adversely affected; and



•      our ability to license from Novogen rights to commercialize new cancer
compounds. We may license from Novogen the rights to other cancer compounds
under the terms of the license option deed. If development of phenoxodiol is
unsuccessful or if we choose to expand to the development of additional
compounds, our success may depend on controlling the costs of developing such
new compounds and negotiating a favorable license agreement with Novogen. The
availability of new compounds to commercialize and the cost to develop these
compounds is outside of our direct control.



We have no direct control over the costs of manufacturing phenoxodiol and
increases in these costs would increase the costs of conducting clinical trials
and could adversely affect future profitability if these costs increase
significantly.



We do not intend to manufacture phenoxodiol ourselves and we will be relying on
third parties for our supplies of phenoxodiol both for clinical trials and for
commercial quantities in the future. We have contracted with Novogen to
manufacture and supply us with our requirements of phenoxodiol. The cost of
manufacturing phenoxodiol is charged to us on a cost plus markup basis. We have
no direct control over the costs of manufacturing phenoxodiol. If the costs of
manufacturing phenoxodiol increase or if the cost of the materials used to make
phenoxodiol increases these costs will be passed on to us by Novogen making the
cost of conducting clinical trials more expensive. If, in the future, a third
party other than Novogen manufactures and supplies us with phenoxodiol, we will
not have direct control over those manufacturing costs. Once we are able to
commercialize phenoxodiol, increases in manufacturing costs could adversely
affect our future profitability if we are unable to pass all of the increased
costs along to our customers.



Final approval by regulatory authorities of phenoxodiol for commercial use may
be delayed, limited or prevented, any of which would adversely affect our
ability to generate operating revenues.



Any of the following factors may serve to delay, limit or prevent the final
approval by regulatory authorities of phenoxodiol for commercial use:



•         phenoxodiol is in the early stages of clinical development and we will
need to conduct significant clinical testing to prove safety and efficacy before
applications for marketing can be filed with the FDA, or with the regulatory
authorities of other countries, to approve phenoxodiol for final use;



•         data obtained from pre-clinical and clinical tests can be interpreted
in different ways, which could delay, limit or prevent regulatory approval;



•         development and testing of product formulation, including
identification of suitable excipients;



•         it may take us many years to complete the testing of phenoxodiol or
any other drug candidates, and failure can occur at any stage of this process;



•         negative or inconclusive results or adverse medical events during a
clinical trial could cause us to delay or terminate our development efforts;



•         there is relatively limited scientific understanding of the means by
which cells respond to chemical signals that reach them through the bloodstream,
which we refer to as multiple signal transduction regulation or MSTR, the class
of drug compounds to which phenoxodiol belongs; and



•         the commercialization of phenoxodiol may be delayed if the FDA or
another regulatory authority requires us to expand the size and/or scope of the
clinical trials.



While we have not encountered any material delays or adverse events from the
factors described above to date, we cannot assure you that such delays or
adverse events will not be encountered in the future.



We may not be able to establish the strategic partnerships necessary to market
and distribute phenoxodiol.



A key part of our business plan is to establish relationships with strategic
partners. We must successfully contract with third parties to package, market
and distribute phenoxodiol. We have not yet established any strategic
partnerships. Potential partners may not wish to enter into agreements with us
due to Novogen's current equity position as our majority stockholder or our
contractual relationships with Novogen. Similarly, potential partners may be
discouraged by our limited operating history. Additionally, our relative
attractiveness to potential partners and consequently, our ability to negotiate
acceptable terms in any partnership agreement will be affected by the results of
our clinical program. For example, if phenoxodiol is shown to have high efficacy
against a broad range of cancers we may generate greater interest from potential
partners than if phenoxodiol was demonstrated to be less effective or applicable
to a narrower range of cancers. There is no assurance that we will be able to
negotiate commercially acceptable licensing or other agreements for the future
exploitation of phenoxodiol, including the continued clinical development,
manufacture or marketing of phenoxodiol. If we are unable to successfully
contract for these services, or if arrangements for these services are
terminated, we may have to delay our commercialization program for phenoxodiol
which will adversely affect our ability to generate operating revenues.



We face a risk of product liability claims and may not be able to obtain
adequate insurance.



Our business exposes us to the risk of product liability claims. This risk is
inherent in the manufacturing, testing and marketing of human therapeutic
products. We have product liability insurance coverage of up to approximately
$14 million. Although we believe that this amount of insurance coverage is
appropriate for our business at this time, it is subject to deductibles and
coverage limitations, and the market for such insurance is becoming more
restrictive. We may not be able to obtain or maintain adequate protection
against potential liabilities. If we are unable to sufficiently

insure against potential product liability claims, we will be exposed to
significant liabilities, which may materially and adversely affect our business
development and commercialization efforts.



We will need to raise additional funds to complete Phase III clinical trials and
commercialize phenoxodiol, and the actual amount of funds we will need will be
determined by a number of factors, some of which are beyond our control.



While we believe that we have sufficient funds to complete our current clinical
trial program, we will require additional funds to further the evaluation of
phenoxodiol beyond the current objectives including the completion of any Phase
III clinical trials for phenoxodiol, and to pursue the commercialization of
phenoxodiol. The actual amount of funds that we will need will be determined by
many factors, some of which are beyond our control. As a result, we may need
additional funds sooner than we currently anticipate. These factors include:


•         the progress of research activities, the number and scope of research
programs;



•         the progress of pre-clinical and clinical development activities;



•         the progress of the development efforts of Novogen or any other
parties with whom we enter into research and development agreements;



•         our ability to establish and maintain current and new research and
development and licensing arrangements;



•         our ability to achieve milestones under licensing arrangements; and



•         the costs involved in enforcing or defending patent claims and other
intellectual property rights; and the costs and timing of regulatory approvals.



If our capital resources are insufficient to meet future capital requirements,
we will have to raise additional funds. If we are unable to obtain additional
funds on favourable terms we may be required to cease or reduce our operations.
Also, if we raise more funds by selling additional shares of our common stock or
securities convertible into or exercisable for shares of our common stock, your
ownership interests may be diluted.



Our commercial opportunity will be reduced or eliminated if competitors develop
and market products that are more effective, have fewer side effects or are less
expensive than phenoxodiol.



The development of phenoxodiol and other drug candidates is highly competitive.
A number of other companies have products or drug candidates in various stages
of pre-clinical or clinical development that are intended for the same
therapeutic indications for which phenoxodiol is being developed.  Some of these
potential competing drugs are further advanced in development than phenoxodiol
and may be commercialized sooner. Even if we are successful in developing
effective drugs, phenoxodiol may not compete successfully with products produced
by our competitors.



With respect to the use of phenoxodiol for late-stage prostate cancer,
docetaxel, a drug distributed by Aventis, was approved in 2004 by the FDA for
the treatment of hormone refractory prostate cancer, establishing a new
bench-mark for standard chemotherapy in late-stage prostate cancer.  We do not
believe this is a direct competitor because our strategy is to develop
phenoxodiol as a chemosensitizer for docetaxel in patients with prostate cancer
who become refractory to docetaxel. A number of pharmaceutical and biotechnology
companies are known to be seeking to develop drugs for the same indication.



With respect to the use of phenoxodiol as a chemo-sensitizing agent to restore
sensitivity to platinum-based drugs in late-stage ovarian cancer, the
experimental drug, Telcyta (Telik Inc.) is a directly competitive drug.  Telcyta
currently is in a Phase III registration trial suggesting that it has shown
sufficient promise in a Phase II study to warrant progression to a Phase III
study. The different trialing regimes being used by us with phenoxodiol and by
Telik Inc with Telcyta make it difficult to compare the two drugs for efficacy
in this area and, as a result, we cannot evaluate the level of competition.
However, we expect that at any level of efficacy, Telcyta, should it be approved
for marketing, would represent a serious competitor for phenoxodiol.



Our competitors include pharmaceutical companies and biotechnology companies, as
well as universities and public and private research institutions. In addition,
companies active in different but related fields represent substantial
competition for us. Many of our competitors developing oncologic drugs have
significantly greater capital resources, larger research and development staffs
and facilities and greater experience in drug development, regulation,
manufacturing and marketing than us. These organizations also compete with
Novogen, our services provider, to recruit qualified personnel, and with us to
attract partners for joint ventures and to license technologies that are
competitive with ours. As a result, our competitors may be able to more easily
develop technologies and products that would render our technologies or our drug
candidates obsolete or non-competitive.



Our right to develop and exploit phenoxodiol is subject to the terms and
conditions of agreements we have entered into with Novogen, and under these
agreements our rights may be terminated under certain circumstances, some of
which may be beyond our control.



We have licensed the intellectual property in the phenoxodiol technology from
Novogen. All forms of administering phenoxodiol for the treatment of cancer are
licensed to us, excluding topical applications. If we fail to meet our
obligations under our license agreement, the manufacturing license and supply
agreement or the services agreement with Novogen, any or all of these agreements
may be terminated by Novogen and we could lose our rights to develop
phenoxodiol. As of the date of this annual report, we have no reason to believe
that we will be unable to satisfy our obligations under these agreements. In
addition, each of these agreements may be terminated immediately by Novogen in
the event that we undergo a change of control without the consent of Novogen. A
'change of control' means a change in control of more than half the voting
rights attaching to the shares of our subsidiary, a change in control of more
than half of the issued shares of our subsidiary (not counting any share which
carries no right to participate beyond a specified amount in the distribution of
either profit or capital) or a change in control of the composition of the board
of directors of our subsidiary. Each of these agreements may also be terminated
if we become the subject of certain bankruptcy proceedings or cease for any
reason to be able to lawfully carry out all the transactions required by each
respective agreement.



Our license rights are fundamental to our business and therefore a loss of these
rights will likely cause us to cease operations.



The rights granted to us under the license agreement, the manufacturing license
and supply agreement and the license option deed with Novogen are fundamental to
our business.



The license agreement grants us the right to make, have made, market,
distribute, sell, hire or otherwise dispose of phenoxodiol products in the field
of prevention, treatment or cure of cancer in humans by pharmaceuticals
delivered in all forms except topical applications. Our business purpose is to
develop and commercialize cancer drugs including phenoxodiol, which we would be
unable to pursue without the rights granted to us under the license agreement.



Under the manufacturing license and supply agreement, we have granted to Novogen
an exclusive sub-license to manufacture and supply phenoxodiol to us in its
primary manufactured form and Novogen has agreed to manufacture for us our
required quantities of phenoxodiol. This agreement enables us to protect the
licensed intellectual property rights used in the manufacturing process while
securing the services of a manufacturing partner in Novogen, which through its
equity position in us, shares a common interest in the production of
phenoxodiol. The license option deed grants us an exclusive first right to
accept and exclusive last right to match any proposed dealing by Novogen with
its intellectual property rights with a third party relating to certain
compounds (other than phenoxodiol) developed by Novogen and its affiliates which
have applications in the field of prevention, treatment or cure of cancer in
humans. The license option deed is important to our business because it allows
us to maintain control over the sale by Novogen of complementary as well as
potentially competitive intellectual property rights to third party competitors.



Any loss of the rights under any of these agreements will likely cause us to
cease operations.



The success of phenoxodiol is largely dependent on Novogen's ability to obtain
and maintain patent protection and preserve trade secrets, which cannot be
guaranteed.



Patent protection and trade secret protection are important to our business and
our future will depend, in part on our ability and the ability of Novogen to
maintain trade secret protection, obtain patents and operate without infringing
the proprietary rights of others both in the United States and abroad.
Litigation or other legal proceedings may be necessary to defend against claims
of infringement, to enforce our patents, or to protect our trade secrets or the
trade secrets of Novogen. Such litigation could result in substantial costs and
diversion of our management's attention. Novogen has not been involved in any
opposition re-examination trade secret dispute, infringement litigation or any
other litigation or legal proceedings pertaining to the licensed patent rights.



The patent positions of pharmaceutical and biotechnology companies can be highly
uncertain and involve complex legal and factual questions. Novogen has applied
for patents in a number of countries with respect to the use of phenoxodiol for
the treatment, prevention or cure of cancer. We have licensed both issued
patents and pending patent applications from Novogen. Novogen has issued patents
in the United States, Australia and Singapore covering the use of phenoxodiol to
prevent, or treat skin cancer from ultraviolet damage. Novogen also has patents
issued in Australia, Hong Kong, New Zealand and the United Kingdom related to
phenoxodiol for the treatment of a variety of cancers and has recently received
a notice of allowance in the United States that is also related to phenoxodiol
for the treatment of a variety of cancers.



Novogen's applications may not proceed to grant or may be amended to reduce the
scope of protection of any patent granted. The applications and patents may also
be opposed or challenged by third parties. Our commercial success will depend,
in part, on the ability of Novogen and our ability to obtain and maintain
effective patent protection for the technologies underlying phenoxodiol and
other compounds, and to successfully defend patent rights in those technologies
against third-party challenges. As patent applications in the United States are
maintained in secrecy until published or issued and as publication of
discoveries in the scientific or patent literature often lag behind the actual
discoveries, we cannot be certain that Novogen was the first to make the
inventions covered by its pending patent applications or issued patents or that
it was the first to file patent applications for such inventions. Additionally,
the breadth of claims allowed in biotechnology and pharmaceutical patents or
their enforceability cannot be predicted. We cannot be sure that any additional
patents will issue from any of Novogen's patent applications or, should any
patents issue, that we will be provided with adequate protection against
potentially competitive products. Furthermore, we cannot be sure that should
patents issue, they will be of commercial value to us, or that private parties,
including competitors, will not successfully challenge our patents or circumvent
our patent position in the United States or abroad.



Claims by other companies that we infringe their proprietary technology may
result in liability for damages or stop our development and commercialization
efforts.



The pharmaceutical industry is highly competitive and patents have been applied
for by, and issued to, other parties relating to products competitive with
phenoxodiol. Therefore, phenoxodiol and any other drug candidates may give rise
to claims that they infringe the patents or proprietary rights of other parties
existing now and in the future. Furthermore, to the extent that we or Novogen or
our respective consultants or research collaborators use intellectual property
owned by others in work performed for us or Novogen, disputes may also arise as
to the rights in such intellectual property or in resulting know-how and
inventions. An adverse claim could subject us to significant liabilities to such
other parties and/or require disputed rights to be licensed from such other
parties.



Under the terms of the Manufacturing License and Supply Agreement, Novogen is
responsible for producing the required amount of phenoxodiol for our clinical
program and subsequent commercial quantities.  Novogen is currently undertaking
formulation development and manufacturing process development work for both the
intravenous and oral dose formulations. This work is being conducted to ensure
that there is a robust production process which meets the expected commercial
quantities of phenoxodiol and that both the intravenous and oral dose
formulations are manufactured on a cost effective basis.



During this process Novogen has identified a number of excipients that may be
used in the formulations of phenoxodiol. Excipients, among other things, perform
the function of a carrier of the active drug ingredient in the intravenous
formulation. Some of these identified excipients or carriers may be included in
third party patents in some countries.  We intend to seek a license if we decide
to use a patented excipient in the marketed intravenous product or we may choose
one of those excipients that do not have a license requirement.



We cannot be sure that any license required under any such patents or
proprietary rights would be made available on terms acceptable to us, if at all.
If we do not obtain such licenses, we may encounter delays in product market
introductions, or may find that the development, manufacture or sale of products
requiring such licenses may be precluded. We have not conducted any searches or
made any independent investigations of the existence of any patents or
proprietary rights of other parties.



We may be subject to substantial costs stemming from our defense against
third-party intellectual property infringement claims.



Third parties may assert that we or Novogen are using their proprietary
information without authorization. Third parties may also have or obtain patents
and may claim that technologies licensed to or used by us infringe their
patents. If we are required to defend patent infringement actions brought by
third parties, or if we sue to protect our own patent rights, we may be required
to pay substantial litigation costs and managerial attention may be diverted
from business operations even if the outcome is not adverse to us. In addition,
any legal action that seeks damages or an injunction to stop us from carrying on
our commercial activities relating to the affected technologies could subject us
to monetary liability and require us or Novogen or any third party licensors to
obtain a license to continue to use the affected technologies. We cannot predict
whether we or Novogen would prevail in any of these types of actions or that any
required license would be made available on commercially acceptable terms or at
all.



In the event that Novogen does not comply with its obligations under a grant
from the Australian government under which phenoxodiol was, in part, developed,
our rights to use the intellectual property relating to phenoxodiol and
developed by Novogen may revert back to the Australian government.



Novogen developed phenoxodiol in part using funds from the Australian government
under what is known as the START Program. Under the START Program, Novogen must
meet certain project development and commercialization obligations. Novogen has
met the project development obligations and has received final payment thereon.
Novogen believes it is currently in compliance with its commercialization
schedule. Although Novogen believes that it has complied with its obligations
under the START Program, if the Australian government disagrees or if Novogen
undergoes a change of control without the prior consent of the Australian
Government, the Australian government has a right to demand that intellectual
property created during the course of the project funded by the grant be vested
back in the Australian government or demand repayment of the funds paid to
Novogen under the program. The Australian government may then license the
intellectual property rights related to phenoxodiol to other parties and may
demand other intellectual property rights from Novogen. Any such reclamation by
the Australian government could preclude our use of Novogen's intellectual
property in the development and commercialization of phenoxodiol and we may have
to compete with other companies to whom the Australian government may license
the intellectual property.



The enforcement of civil liabilities against our officers and directors may be
difficult.



All of our officers and directors are residents of jurisdictions outside the
United States. As a result it may be difficult for you to effect service of
process within the United States upon our officers and directors or to enforce
judgments obtained against our officers and directors or us in United States
courts.



Our revenue is affected by fluctuations in currency exchange rates.

Much of our expenditures and potential revenue will be spent or derived outside
of the United States. As a result, fluctuations between the United States dollar
and the currencies of the countries in which we operate may increase our costs
or reduce our potential revenue. At present, we do not engage in hedging
transactions to protect against uncertainly in future exchange rates between
particular foreign currencies and the U.S. dollar.

We are authorized to issue a class of blank check preferred stock, which could
adversely affect the holders of our common stock.



Our restated certificate of incorporation allows us to issue a class of blank
check preferred stock with rights potentially senior to those of our common
stock without any further vote or action by the holders of our common stock. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to the holders of our common stock or could adversely
affect the rights and powers including voting rights, of such holders. In
certain circumstances such issuance could have the effect of decreasing the
market price of our shares, or making a change in control of us more difficult.



We are in the process of strengthening our internal control over financial
reporting.



We have determined that the personnel and management of Novogen, who perform our
accounting and financial reporting functions pursuant to our services agreement
with Novogen, are not sufficiently expert in U.S. GAAP and the requirements of
the Securities and Exchange Commission and the Public Company Accounting
Oversight Board and that this lack of expertise represents a material weakness
in the operation of the our internal control over financial reporting.  In
addition, we have also determined that our system of financial reporting was not
designed to prepare financial statements in accordance with U.S. GAAP and that
our system of internal control, in particular our processes to review and
analyze elements of the financial statement close process and prepare
consolidated financial statements in accordance with U.S. GAAP, has not reduced
to a relatively low level the risk that errors in amounts that would be material
in relation to those financial statements may occur and may not be detected
within a timely period by management in the normal course of business.



We and Novogen have undertaken a re- evaluation of our internal controls and
procedures and have implemented such enhancements as appropriate.  While we have
taken measures designed to address the above matters, we and Novogen may need to
implement additional measures to further enhance our internal controls and
procedures.



We are exposed to certain potential risks from recent legislation requiring
companies to evaluate their internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act of 2002.



We are evaluating our internal controls systems in order to allow management to
report on the effectiveness of our internal control over financial reporting and
our registered independent public accounting firm to attest to this report, as
required by Section 404 of the Sarbanes-Oxley Act. We are performing the system
and process evaluation and testing, and implementing any necessary remediation
required, in an effort to comply with the management reporting and public
accounting firm attestation requirements and continue to incur additional
expenses and devote significant management time towards completing actions
required for management's evaluation. The evaluation and attestation processes
required by Section 404 are new and, consequently, public companies and public
accounting firms  are still developing their experience in complying with these
requirements. While we have developed and are implementing plans to fully
implement the requirements relating to internal controls and all other aspects
of Section 404 in a timely fashion, we cannot be certain as to the timing of
completion of our evaluation, testing and remediation actions or the impact of
the same on our operations since, like other public companies, we are undergoing
the process for the first time in a regulatory environment where the standards
to assess adequacy of compliance are under development. We cannot assure you
that there may not be significant deficiencies or material weaknesses that would
be required to be reported as a result of the process.



Risks Related to Our Relationship with Novogen



As our majority stockholder, Novogen has the ability to determine the outcome of
all matters submitted to our stockholders for approval and Novogen's interests
may conflict with ours or our other stockholders' interests.



Novogen beneficially owns approximately 86.9% of our outstanding shares of
common stock. As a result, Novogen will have the ability to effectively
determine the outcome of all matters submitted to our stockholders for approval,
including the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets.



Novogen will have the ability to effectively control our management and affairs.
Novogen's interests may not always be the same as that of our other
stockholders. In addition this concentration of ownership may harm the market
price of our shares by:


•       delaying, deferring or preventing a change in control;


•       impeding a merger, consolidation, takeover or other business combination
involving us;



•       discouraging a potential acquirer from making a tender, offer or
otherwise attempting to obtain control of us; or


•       selling us to a third party.



A number of our directors are officers and/or directors of Novogen which may
create a conflict of interest.



Three of our six existing board members currently serve as board members of
Novogen. Our President and Chief Executive Officer, Christopher Naughton, is the
Managing Director of Novogen. Our Chairman and Phenoxodiol Research Director,
Professor Graham Kelly, is an executive of Novogen. Our Chief Financial Officer
and Secretary, David Ross Seaton, is the Chief Financial Officer of Novogen.
Simultaneous service as a Novogen director or officer can create, or appear to
create, a conflict of interest, when such directors or officers are presented
with decisions that could have different implications for us and for Novogen.



We depend on a number of key personnel whose services are provided by Novogen
under our services agreement. If we are not able to procure these services in
the future, the strategic direction of the clinical development program would be
disrupted, causing a delay in phenoxodiol's commercialization.



We currently rely on Professor Graham Kelly, our Chairman and Phenoxodiol
Program Director, Professor Alan Husband, Novogen Research Director, and Mr.
Christopher Naughton, our President and CEO, to provide the strategic direction
for the clinical development of phenoxodiol. If we are unable to secure the
ongoing services of these key personnel, the commercialization program for
phenoxodiol will be disrupted and will cause delays in obtaining marketing
approval. Novogen has entered into employment agreements and maintains key man
life insurance policies for each of these persons.



The ongoing criminal investigations involving Professor Kelly, our Chairman and
Phenoxodiol Program Director, could have a material adverse effect on our
business or cause our stock price to decline.



Professor Kelly is one of a number of individuals who, and whose associated
entities and advisors, have been the subject of investigations by certain
Australian authorities relative to their alleged involvement in the evasion of
Australian tax, fraud and money laundering. Professor Kelly has informed us that
he does not believe that he has committed any wrongdoing and denies that he has
been involved in any wrongdoing. Nevertheless, Professor Kelly may need to
allocate time and resources to deal with the investigation. Additionally, if the
Australian authorities were to decide to prosecute Professor Kelly upon
concluding their investigation and if such prosecution were to result in a
conviction, Professor Kelly may be barred from acting as an officer or director
and may become unavailable to us. Any publicity related to this investigation or
potential prosecution or conviction of Professor Kelly could have a material
adverse effect on our business or cause our stock price to decline.



Novogen can compete with us.



We have no contract, arrangement or understanding with Novogen to preclude it
from developing a product which may be competitive with phenoxodiol or to use
phenoxodiol for any uses other than anticancer applications. Novogen has
reserved the intellectual property rights and know-how rights relating to
topical applications of phenoxodiol even in the field of cancer. There can be no
assurance that Novogen or its subsidiaries will not pursue alternative
technologies or product candidates as a means of developing treatments for the
conditions targeted by phenoxodiol or any other product candidate which we seek
to exploit.



We are dependent on Novogen for our personnel.



We have no employees. We rely on Novogen to provide or procure the provision of
staff and other financial and administrative services under our services
agreement with Novogen. We believe Novogen has fully complied with the terms of
our services agreement. As discussed above, though, we have determined that the
personnel and management of Novogen, who perform our accounting and financial
reporting functions pursuant to our services agreement with Novogen, are not
sufficiently expert in U.S. GAAP and the requirements of the Securities and
Exchange Commission and the Public Company Accounting Oversight Board.  While we
and Novogen have taken measures designed to address this matter, we cannot
assure you that Novogen will be able to provide personnel and management that
are sufficiently expert in these areas.  To successfully develop phenoxodiol, we
will require ongoing access to the personnel who have, to date, been responsible
for the development of phenoxodiol. The services agreement does not specify a
minimum amount of time that Novogen employees must devote to our operations. If
we are unable to secure or if we lose the services of these personnel, the
ability to develop phenoxodiol could be materially impaired. Moreover, if our
business experiences substantial and rapid growth, we may not be able to secure
the services and resources we require from Novogen or from other persons to
support that growth.



We are largely dependent on Novogen for our supply of phenoxodiol and should
Novogen be unable to supply commercial quantities of phenoxodiol, it may be
difficult to secure an alternative source.



We currently intend that phenoxodiol will be supplied to us in its primary
manufactured form by Novogen under the manufacturing license and supply
agreement. As the manufacturing process for phenoxodiol has not been tested in
the quantities needed for commercial sales, we may he unable to receive the
necessary quantities in a timely manner. In addition, in order for Novogen to
supply commercial quantities of phenoxodiol in due course, it will need to
contract third party manufacture.



If Novogen materially and persistently fails to supply us with the quantities of
phenoxodiol that we require, the manufacturing license and supply agreement
permits us, and we could consider contracting with third party manufacturers for
the production of phenoxodiol. Any third party manufacturer would have to
satisfy cGMPs and would have to meet our quality assurance standards. In
addition, it may be difficult to negotiate acceptable terms with any third party
manufacturer.



Risks Related to Our Common Stock



The trading price of the shares of our common stock could be highly volatile and
could decline in value and we may incur significant costs from class action
litigation.



The trading price of our common stock could be highly volatile in response to
various factors, many of which are beyond our control, including:


  • developments concerning phenoxodiol;


  • announcements of technological innovations by us or our competitors;


  • new products introduced or announced by us or our competitors;


  • changes in financial estimates by securities analysts;


  • actual or anticipated variations in operating results;


  • expiration or termination of licenses, research contracts or other collaboration
    agreements;


  • conditions or trends in the regulatory climate and the biotechnology,
    pharmaceutical and genomics industries;


  • changes in the market valuations of similar companies;


  • the liquidity of any market for our securities;


  • trading prices of our common stock on the Alternative Investment Market of the
    London Stock Exchange; and



  • additional sales by us or Novogen of shares of our common stock.




In addition equity markets in general and the market for biotechnology and life
sciences companies in particular have experienced substantial price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of companies traded in those markets. In addition, changes in
economic conditions in the United States, Europe or globally, could impact upon
our ability to grow profitably. Adverse economic changes are outside our control
and may result in material adverse impacts on our business or our results of
operations. These broad market and industry factors may materially affect the
market price of our shares of common stock, regardless of our development and
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against that company. Such litigation, if instituted
against us, could cause us to incur substantial costs and divert management's
attention and resources.



You will not be able to exercise the warrants if we do not maintain the
effectiveness of the registration statement and a current prospectus.



If we do not maintain an effective registration statement and a current
prospectus or comply with applicable state securities laws, you may not be able
to exercise the warrants. In order for you to be able to exercise the warrants,
the shares underlying the warrants must be covered by an effective registration
statement and a current prospectus and be qualified for sale or exempt from
qualification under the applicable securities laws of the state in which you
reside. Although we cannot assure you that we will actually be able to do so, we
will use our best efforts to:

•         maintain an effective registration statement and a current prospectus
covering the shares of our common stock underlying the warrants at all times
when the market price of the common stock exceeds the exercise price of the
warrants until the expiration of the warrants; and



•         maintain the registration of such shares under the securities laws of
the states, if any, in which we initially qualify the common stock units for
sale in this offering.



Future sales of our common stock may depress our stock price.



The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, including the
shares covered by this annual report, or the perception that these sales could
occur. In addition, these factors could make it more difficult for us to raise
funds through future equity offerings. As of July 31, 2005, we had 56,938,000
shares of our common stock outstanding not including the 2,392,000 shares of
common stock underlying the warrants.



We may also acquire other companies or technologies or finance strategic
alliances by issuing equity, which may result in additional dilution to our
stockholders.



We will have broad discretion over the use of the net proceeds to us from any
exercise of outstanding warrants.



We will have broad discretion to use the net proceeds to us upon any exercise of
outstanding warrants, and you will be relying on the judgment of our board of
directors and management regarding the application of these proceeds. Although
we expect to use a substantial portion of the net proceeds from any exercise of
the warrants for general corporate purposes, including potential payments to
Novogen under the terms of the license agreement, potential licensing of other
cancer compounds developed by Novogen under the license option deed and
potential expansion of the clinical trial program for phenoxodiol to include
other forms of cancer, we have not allocated these net proceeds for specific
purposes.





Item 2.  Properties



The Company does not own or lease any property.







Item 3.  Legal Proceedings



None.



Item 4.  Submission of Matters to a Vote of Security Holders



No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Annual Report on Form 10-K.


PART II



Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters
and Issuer  Purchases of Securities



The following tables set forth for the period indicated the high and low sale
prices of our common stock and warrants as reported by the Nasdaq National
Market and for our common stock as reported by the AIM. The trading price for
our shares of common stock on the AIM are quoted as sterling (£), the
lawful currency of the United Kingdom.


Common Stock                              Nasdaq National Market                 AIM Market
                                           High             Low             High            Low
                                            $                $               £              £
Year Ended June 30, 2004
First Quarter                                     -                -            3.93           3.25
Second Quarter                                12.99             6.25            5.60           3.80
Third Quarter                                 13.10             7.63            6.12           5.09
Fourth Quarter                                12.00             7.31            6.10           5.20

Year Ended June 30, 2005
First Quarter                                                                   4.85           4.25
                                               9.27             5.74
Second Quarter                                                                  5.10           4.60
                                              10.49             6.71
Third Quarter                                                                   4.52           3.60
                                               9.54             6.79
Fourth Quarter                                                                  4.05           3.60
                                               9.32             6.72

Warrants

Year Ended June 30, 2004
First Quarter                                     -                -
Second Quarter                                 8.64             2.30
Third Quarter                                  7.40             3.35
Fourth Quarter                                 6.95             4.65

Year Ended June 30, 2005
First Quarter                                  5.75             2.95
Second Quarter                                 6.00             4.06
Third Quarter                                  5.55             3.60
Fourth Quarter                                 5.10             3.70





The following table sets forth, for the period indicated, the high, low, average
and period-end noon buying rate for sterling, expressed in dollars per sterling
in New York City as certified for customs purposes by the Federal Reserve Bank
of New York.


Period Ended                            High             Low            Average         Period-End

Year Ended June 30, 2004
First Quarter                        $    1.6718      $    1.5728      $    1.6071      $    1.6620
Second Quarter                       $    1.7842      $    1.6598      $    1.7079      $    1.7842
Third Quarter                        $    1.9045      $    1.7902      $    1.8385      $    1.8400
Fourth Quarter                       $    1.8564      $    1.7544      $    1.8071      $    1.8126

Year Ended June 30, 2005
First Quarter                        $    1.8734      $    1.7733      $    1.8193      $    1.1809
Second Quarter                       $    1.9482      $    1.7790      $    1.8687      $    1.9160
Third Quarter                        $    1.9292      $    1.8570      $    1.8911      $    1.8880
Fourth Quarter                       $    1.9197      $    1.7930      $    1.8560      $    1.7930






As of July 29, 2005, the last reported closing price of our common stock and
warrants on the Nasdaq National Market was $7.00 and $3.75 respectively. The
price of our common stock on the AIM market was £3.97 as of July 31,
2005. There were approximately 1420 stockholders on record of our common stock



Dividends



We have never declared or paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to fund the expansion and growth of
our business. Payments of any future cash dividends will be at the discretion of
our board of directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs,
plans for expansion and other factors that our board of directors deem relevant.





Use of Proceeds of Initial Public Offering



The effective date of the registration statement (Registration No. 333-109129)
filed on Form S-1 and registration statement (Registration No. 333-111291) filed
on Form S-1 pursuant to Rule 462(b), both relating to the initial public
offering in the United States of common stock units (each unit consisting of one
share of the Company's common stock and one warrant to purchase a share of the
Company's common stock at an exercise price of $9.00 per share), was December
17, 2003. Proceeds to the Company from the offering, after deduction of
underwriting discounts and commissions of approximately $806,000 and offering
costs of approximately $1,612,000, totalled approximately $15,522,000. As of
June 30, 2005, the Company had used $13,066,000 of the proceeds of the offering
of which: $5,000,000 was used to make the first license fee payment due to
Novogen under the terms of the license agreement; $2,000,000 was used to make
the milestone license fee payment due to Novogen under the terms of the license
agreement; and $6,066,000 was used to pay the ongoing expenses of clinical
trials, amounts due to Novogen under the services agreement and the
manufacturing license and supply agreement and general corporate expenses. All
remaining proceeds of the offering have been invested in short-term money market
accounts.



The Company intends to use the balance of the proceeds invested in short-term
money market accounts of approximately $2.5 million to complete Phase II
clinical trials of phenoxodiol and other research projects currently underway.





Stock Repurchases



The Company has not repurchased any shares of common stock during the fourth
quarter of the fiscal year ended June 30, 2005.





Equity Compensation

The following table sets forth, as of June 30, 2005 outstanding awards and
shares remaining available for future issuance under the Company's compensation
plans under which equity securities are authorized for issuance.
                                     (a)                        (b)                        (c)

                          Number of securities to be Weighted-average exercise     Number of securities
                           issued upon exercise of      price of outstanding     remaining available for
Plan Category                outstanding options,      options, warrants and      future issuance under
                             warrants and rights               rights           equity compensation plans

Equity compensation plans       Not Applicable          $     Not Applicable          Not Applicable
approved by security
holders
Equity compensation plans            None               $     Not Applicable          Indeterminable
not approved by security
holders
Total                                None               $     Not Applicable          Indeterminable



Our employee share option plan provides our directors, employees, employees of
our affiliates and certain of our contractors and consultants with the
opportunity to participate in our ownership. Our remuneration committee
addresses participation, the number of options offered and any conditions of
exercise. In making these determinations the committee will generally consider
the participant's position and record of service to us and our affiliates and
potential contribution to the growth of us and our affiliates. Any other matters
tending to indicate the participant's merit may also be considered. Options will
be exercisable between two years and five years after grant, unless otherwise
determined by the committee appointed by the board. Options granted will be
exercisable at a price determined by the committee at the time of issue (and
will be subject to adjustment in accordance with the terms of the plan). Other
key terms of the plan include:



  • Options will lapse if the participants cease to be engaged by us or our
    affiliates. The committee will have the discretion to waive this provision.



  • The terms of the plan also provide for adjustments to the rights of an
    option holder as a result of a reorganisation of our capital or other
    corporate event. The holder of an option is not permitted to participate in
    any distribution by us or in any rights or other entitlements issued by us
    to stockholders in respect of our shares unless the options are exercised
    prior to the relevant record; and



  • All options vest on the occurrence of certain events such as a change of
    control, as defined in the share option plan.



The plan also contains standard provisions dealing with matters such as
administration of the plan, amendment of the plan and termination or suspension
of the plan.

Item 6. Selected Financial Data



The following selected financial data should be read in conjunction with Item 7.
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and Item 8. 'Financial Statements' included elsewhere in this Annual
Report on Form 10-K.




Statement of Operations                       Years Ended June 30,
                                2005         2004         2003         2002
                                       (in thousands, except per share data)

Revenues:
Interest and
other income                   $ 308        $ 193        $ 145          $ 7
Total revenues                   308          193          145            7

Loss from
operations                    (6,421)      (8,538)      (3,033)        (122)
Income tax
expense                            -            -            -           (1)
Net loss
arising during
development
stage                     $ (6,421)    $ (8,538)    $ (3,033)    $ (123)

Net loss per common
share:
Basic and
diluted                   $ (0.11)     $ (0.16)     $ (0.06)     $ (0.00)

Weighted
average common
shares
outstanding               56,938,000   54,954,578   52,023,247   49,769,581

Balance Sheet Data                          As of June 30,
                                2005        2004        2003         2002
                                          (in thousands)

Cash and cash
equivalents                $ 9,238     $ 24,819    $ 7,244     $ 9,164

Total assets               $ 19,364    $ 24,849    $ 7,286     $ 9,185

Total
stockholders'
equity                     $ 16,521    $ 22,942    $ 5,933     $ 8,899







Item 7. Management's Discussion and Analysis of Financial Condition and results
of Operations.



The following discussion and analysis should be read in conjunction with 'Item
8. Financial Statements and Supplementary Data' included below. Operating
results are not necessarily indicative of results that may occur in future
periods. This discussion and analysis contains forward-looking statements that
involve risks uncertainties and assumptions. The actual results may differ
materially from those anticipated in the forward-looking statements as a result
of many factors including, but not limited to, those set forth under 'Cautionary
Statements About Forward-Looking Statements' and 'Risk Factors' in Item 1. '
Business' included above in this Annual Report. All forward-looking statements
included in this document are based on the information available to us on the
date of this document and we assume no obligation to update any forward-looking
statements contained in this Annual Report.



Overview



We are a development stage company incorporated on December 1, 2000 as a
wholly-owned subsidiary of Novogen Limited. The Company commenced operations in
May 2002 and its business purpose is the development and commercialization of
drugs for the treatment of cancer. The Company is presently engaged in the
clinical development of the anti-cancer drug phenoxodiol. A Novogen subsidiary,
Novogen Research Pty Limited, has granted to the Company's subsidiary, Marshall
Edwards Pty Limited, or MEPL, a worldwide non-transferable license under its
patent right and patent applications and its relevant know-how to conduct
clinical trials and commercialize and distribute all forms of phenoxodiol for
uses in the field of prevention, treatment, and cure of cancer in humans, except
topical applications. Novogen currently owns approximately 86.9% of the
outstanding shares of the Company's common stock.



The Company's main focus since commencing operations is to undertake human
clinical testing of phenoxodiol. The Company does not employ any staff directly
but obtains services from Novogen under a services agreement. The Company has
incurred losses since inception and expects to incur operating losses and
generate negative cash flows from operations for the foreseeable future as it
expands research and development activities and moves phenoxodiol into later
stages of development. As of June 30, 2005, the Company had accumulated losses
of $18,115,000.



During fiscal year 2005, we made significant progress in the clinical
development of phenoxodiol including:

•         In May 2005, we announced preliminary results from the combination
therapy trial for patients with late stage refractory ovarian cancer being
conducted at Yale New Haven Hospital in the United States and the Royal Women's
Hospital in Australia.  These preliminary results revealed that 33% (12/36) of
patients who were on combination therapy that included phenoxodiol experienced a
complete or partial response.



•       In January 2005, we announced that we had appointed a global research
organization to manage our planned 'pivotal' Phase IIb multinational ovarian
cancer study.  The trial will be known as the Ovature trial.  We are discussing
trial design with the U.S. Food and Drug Administration (FDA)  to develop a
trial protocol that is intended to support marketing approval of phenoxodiol,
including the number of treatment arms to be included and the number of patients
required to be tested in each arm of the trial.



•         In November 2004, we announced that the FDA granted phenoxodiol Fast
Track status for its intended use as a chemo-sensitizing agent in patients with
recurrent late stage ovarian cancer.  In January 2005, we announced that the FDA
granted phenoxodiol Fast Track status for its intended use in patients with
hormone-refractory prostate cancer. Under the FDA Modernization Act of 1997,
designation as a Fast Track product means that phenoxodiol is eligible for
certain programs for accelerated marketing approval.





The Company has not generated any revenues from operations since inception other
than interest on cash assets.



Expenses have consisted primarily of costs associated with conducting the
clinical trials of phenoxodiol and costs incurred under the license agreement,
the services agreement and the manufacturing license and supply agreements with
Novogen and its subsidiaries, including the costs of the clinical trial drug
supplies. See Part III, Item 13 'Certain Relationships on Related Transactions'
for a description of these agreements.



To date, operations have been funded primarily through the sale of equity
securities.



The Company expects that quarterly and annual results of operations will
fluctuate for the foreseeable future due to several factors including the timing
and extent of research and development efforts and the outcome and extent of
clinical trial activities. The Company's limited operating history makes
accurate prediction of future operating results difficult or impossible.





Critical Accounting Estimates



The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from those estimates.



Clinical Trials Expenses



Estimates have been used in determining the expense liability under certain
clinical trial contracts where services have been performed but not yet
invoiced. The actual costs of those services could differ in amount and timing
from the estimates used in completing the financial results.



Clinical trial expenses of $1,156,000 have been included in the financial
statements for the year ended June 30, 2005, of which $304,000 has been accrued
at June 30, 2005. These estimates are based on the number of patients in each
trial and the drug administration cycle.



Clinical research contracts may vary depending on the clinical trial design and
protocol. Generally the costs, and therefore estimates, associated with clinical
trial contracts are based on the number of patients, drug administration cycles,
the type of treatment and the outcome being measured. The length of time before
actual amounts can be determined will vary depending on length of the patient
cycles and the timing of the invoices by the clinical trial partners.



Development Expenses



Research and development costs incurred since inception through June 30, 2005
amount to $6,753,000.



Research and development costs are expensed as they are incurred and are
expected to increase in the future as the phenoxodiol clinical program
progresses.



Historical research and development costs and clinical trial costs have not been
documented on a project by project basis. In addition, research and development
resources are supplied by Novogen across several projects. As a result, the
costs incurred for each clinical project cannot be stated precisely on a project
by project basis.



The Company expects that a large percentage of research and development expenses
in the future will be incurred in support of current and future clinical
development programs. These expenditures are subject to a number of
uncertainties in timing and cost to completion.



The duration and cost of clinical trials may vary significantly over the life of
a project as a result of:

•     the number of sites included in the trials;



•     the length of time required to enroll suitable patients;



•     the number of patients that participate in the trials;



•     the indication being studied; and



•     the efficacy and safety profile of the product.



The Company's strategy also includes the option of entering into collaborative
arrangements with third parties to participate in the development and
commercialization of phenoxodiol. In the event third parties have control over
the clinical development process, the completion date would largely be under the
control of that third party.



As a result of these uncertainties, the Company is unable to determine the
duration of or completion costs for research and development projects or when
and to what extent it will receive cash inflows from the commercialization and
sale of phenoxodiol.



The Company intends to continue the clinical development of phenoxodiol and to
assess the opportunity to license other cancer drugs developed by Novogen as the
opportunities arise.



Results of Operations



Summary of Revenue and Expenses



The following table provides a summary of revenues and expenses to supplement
the more detailed discussions below:


Revenues                               Years Ended June 30,
                                             2005        2004         2003
                                       (in thousands)

Interest and
other income                                $ 308       $ 193        $ 145
Total revenues                                308         193          145


Research and development expenses                 Years Ended June 30,
                                             2005        2004         2003
                                                    (in thousands)
Clinical trial
study costs                              $ (1,156)     $ (774)     $ (1,060)
Clinical trial
drug costs                                   (612)       (761)        (164)
Research and
development
service charge                               (385)       (811)        (790)
Other                                        (126)        (35)         (10)
Total Research
and
Development
Costs                                      (2,279)     (2,381)      (2,024)


License Fees                                       Years Ended June 30,
                                             2005        2004         2003
                                                   (in thousands)
License Fees                               (3,000)     (5,500)        (500)


Selling, general and administrative                 Years Ended June 30,
expenses
                                             2005        2004         2003
                                                       (in thousands)
Legal and
professional                          
fees                                       $ (371)     $ (250)      $ (119)
Administrative
service charge                               (688)       (302)        (285)
Other                                        (391)       (298)        (250)
Total
operating
expenses                                   (1,450)       (850)        (654)



Year Ended June 30, 2005 Compared to the Year Ended June 30, 2004



The Company recorded a consolidated loss of $6,421,000 and $8,538,000 for the
years ended June 30, 2005 and 2004, respectively.



Revenues: The Company received interest on cash assets and cash equivalents of
$308,000 for the year ended June 30, 2005 versus $193,000 for the year ended
June 30, 2004. This increase was due to the Company's investing activities in
higher yielding interest bearing deposits and higher average cash balances
following the Company's December 2003 public offering.



Research and Development: Research and Development expenses decreased $102,000
to $2,279,000 for the year ended June 30, 2005 compared to $2,381,000 for the
year ended June 30, 2004. This decrease was due primarily to a reduction in the
research and development service charge from Novogen under the terms of the
services agreement reflecting lower costs incurred by Novogen and reduced time
spent by Novogen personnel on the development of phenoxodiol. Clinical trial
drug costs have also reduced as many patients have now completed the treatment
cycles. These costs have partially been offset by an increase in clinical trial
costs. This increase in clinical trial costs result from an increase patient
data management and analysis costs associated with reporting and summarizing the
outcomes of the clinical trials.



License Fees: Milestone license fees of $2,000,000 have been accrued in the
twelve months ended June 30, 2005 in connection with the annual milestone
license fee of $4,000,000 that is payable to Novogen within 30 days after
December 31, 2005 under the terms of the license agreement with Novogen.
Milestone license fees of $1,000,000 were accrued during the twelve months ended
June 30, 2004 in connection with the annual milestone license fee of $2,000,000
due to Novogen within 30 days after December 31, 2004. The December 31, 2004
license fee was paid to Novogen in January 2005.



Selling, General and Administrative: Selling, general and administrative
expenses increased by $600,000 to $1,450,000 for the year ended June 30, 2005
compared to $850,000 for the year ended June 30, 2004. The increase was due
primarily to the increase in costs associated with professional fees and
increased costs incurred for administration and accounting services provided by
Novogen under the terms of the services agreement and other fees relating to
compliance with United States securities reporting requirements and FDA
regulations. Included in selling, general and administrative expenses are
foreign exchange gains and losses which occur when revaluing cash denominated in
foreign currencies and translation gains and losses upon consolidation of MEPL.
MEPL uses US dollars as its functional currency and also engages in transactions
in foreign currencies. However, MEPL's accounts and financial statements are
denominated in Australian dollars. Translation of MEPL's financial statements
into U.S. dollars did not have a material impact on the Company's financial
position. At June 30, 2004, the Company had not established a foreign currency
hedging program. Net foreign exchange losses during the twelve months ended June
30, 2005 were $24,000 compared with net exchange gains of $58,000 during the
twelve months ended June 30, 2004. MEPL's accounts are maintained in Australian
dollars, however, its functional currency is US dollars. Foreign exchange gains
and losses occur upon consolidation of MEPL and also as a result of translations
in foreign currency.



Year Ended June 30, 2004 Compared to the Year Ended June 30, 2003



The Company recorded a consolidated loss of $8,538,000 and $3,033,000 for the
years ended June 30, 2004 and 2003, respectively.



Revenues: The Company received interest on cash assets and cash equivalents of
$193,000 for the year ended June 30, 2004 versus $145,000 for the year ended
June 30, 2003. This increase was due to the Company's higher cash balances
following the Company's December 2003 public offering.



Research and Development: Research and Development expenses increased $357,000
to $2,381,000 for the year ended June 30, 2004 compared to $2,024,000 for the
year ended June 30, 2003. This increase was due primarily to the increase in
cost of phenoxodiol supplied for use in the clinical trial program.



License Fees: A license fee of $5,000,000 was paid to Novogen in February 2004
under the terms of the license agreement following the exercise of warrants and
the receipt of proceeds from the public offering completed in December 2003.
Milestone license fees of $1,000,000 were accrued at June 30, 2004 in connection
with the annual milestone license fee of $2,000,000 that was payable to Novogen
on December 31, 2004 under the terms of the license agreement with Novogen.



Selling, General and Administrative: Selling, general and administrative
increased by $196,000 to $850,000 for the year ended June 30, 2004 compared to
$654,000 for the year ended June 30, 2003. The increase was due primarily to the
increase in costs associated with professional and other fees relating to
compliance with United States reporting requirements. Other expenses including
those related to compliance costs and related on-going investor relations also
increased. The Company conducts a portion of its business in Australian dollars.
At June 30, 2004, the Company had not established a foreign currency hedging
program. Net foreign exchange gains during the twelve months ended June 30, 2004
were $58,000 compared with net exchange gains of $3,000 during the twelve months
ended June 30, 2003. MEPL's accounts are maintained in Australian dollars,
however, its functional currency is US dollars. Foreign exchange gains and
losses occur upon consolidation of MEPL and also as a result of translations in
foreign currency.



Liquidity and Capital Resources



At June 30, 2005, the Company had cash resources of $19,238,000 compared to
$24,819,000 at June 30, 2004. The decrease was due to expenditures in the
clinical trial program and other corporate expenses incurred during the year.
Funds are invested in short term bank accounts, pending use. The implementation
of the Company's business plan is dependent on the Company's ability to maintain
adequate cash resources to complete the clinical development program.



Source and Uses of Cash



Cash Used in Operating Activities



Cash used in operating activities for the year ended June 30, 2005 was
$5,581,000 compared to $7,972,000 for the same period in 2004. The decrease in
cash outflow of $2,391,000 for the year ended June 30, 2005 was due primarily to
reduced losses of $2,117,000 incurred during the year which included the
milestone license fee of $2,000,000 paid in January 2005, a reduction of
$3,000,000 from the previous years lump sum license fee, paid under the terms of
the license agreement with Novogen. This reduction was partially offset by
increased operating expenses for clinical trials and administrative costs.



Cash Used in Financing Activities



During the year ended June 30, 2005, $10,000,000 was placed in a high interest
yielding cash deposit account for a term of seven months. The interest earned on
these funds has been accrued in the accounts.



Cash Requirements



The Company believes that it will have sufficient cash resources to fund
existing operations at least through the end of June 2006 and to complete the
current Phase I and lb/IIa clinical trial program.



The Company is currently planning to conduct a pivotal clinical study to support
marketing approval of phenoxodiol for ovarian cancer. The trial will use
phenoxodiol in combination with carboplatin and will assess phenoxodiol's
efficacy for late stage ovarian cancer patients who are refractory to standard
chemotherapies. The Company is discussing trial design with the FDA to develop a
trial protocol, including the number of treatment arms needed to be completed
and the number of patients required to be tested in each arm. The Company is
still in the planning stage of the trial design and has not determined the cash
resources needed to complete the trial.



Also, additional cash resources may be required if a new cancer compound is
developed by Novogen and the Company secures a license under the terms of the
Company's license option deed from Novogen. Novogen has notified the Company
that its new anti-cancer compound NV-196 (previously referred to as NV-18) is
now an 'option compound' under the terms of the license option deed and that
Novogen has commenced Phase I clinical trials. The Company has commissioned an
independent report on NV-196 and will review initial clinical results before
making a decision to commence license negotiations with Novogen.



Ongoing operations through the conduct of the clinical trial program will
continue to consume cash resources without generating revenues.



The Company is required to make payments under the terms of the License
Agreement with Novogen as follows:



1. A lump sum license fee of $5,000,000 is payable to Novogen on November 1,
2003 or such later date when the cumulative total of all funds received from
debt or equity issuances and revenue received from commercialization (income
other than sales) and sales of phenoxodiol products exceeds $50,000,000. We have
not yet met these preconditions for payment.



2. In addition to the amount above, until the expiration of the exclusivity
period of the license, MEPL must pay Novogen 2.5% of all net sales and 25% of
commercialization income. After the exclusivity period of the license, 1.5% of
net sales must be paid to Novogen. The preconditions to such payments have not
yet occurred.



3. In addition to the amounts above, amounts payable for annual milestone
license fees under the license agreement for the calendar years ended December
31 are as follows:





Calendar Year
             2005                                                 $4,000,000

Each calendar year thereafter during the exclusivity period       $8,000,000



The 'Exclusivity Period' ends on the later of:

(a) the date of expiration or lapsing of the last Patent Right in the patents
and patent applications set out in the licence agreement with Novogen; or



(b) the date of expiration or lapsing of the last Licensed Patent Right which
MEPL would, but for the licence granted in licence agreement, infringe in any
country in the Territory by doing in that country any of the things set out in
the licence agreement.



At June 30, 2004 an amount of $1,000,000 was accrued and reflected in amounts
due to the parent company, being 50% of the $2,000,000 milestone payment payable
to Novogen on December 31, 2004 under the terms of the license agreement with
Novogen. The Company paid the $2,000,000 due to Novogen at the end of January
2005. Milestone license fees of $2,000,000 have been accrued at June 30, 2005 in
connection with the $4,000,000 payment due within 30 days following December 31,
2005.



The Company will also be required to make payments to Novogen under the services
agreement and manufacturing license and supply agreement.



The Company does not intend to incur any significant capital expenditures in the
foreseeable future.



The Company is currently assessing its future cash requirements needed to fund
new clinical trial initiatives and licensing options available to it under the
license option deed.



Contractual Obligations



The following table summarizes our future payment obligations and commitments as
of June 30, 2005:

(In thousands)                             Payment due by period
Contractual                 Total   less than    1 - 3     3 - 5     More than
Obligations                         1 Year       Years     Years     5 Years

Purchase
Obligations              $ 2,285    $ 1,821      $ 464     $ -       $ -

                 Total   $ 2,285    $ 1,821      $ 464     $ -       $ -



No amounts have been included in the above table for future payments to Novogen
which may arise in connection with the license agreement, the services agreement
or the manufacturing and supply agreement.



Off-Balance Sheet Arrangements



The Company does not currently have any off-balance sheet arrangements.



Recent Accounting Announcements



Share-Based Payments



In December 2004, the FASB Issued Statement of Financial Accounting Standards
No. 123R (Statement 123R), 'Share-Based Payments', the provisions of which
become effective for the Company in fiscal 2006. This Statement eliminates the
alternative to use APB No. 25's intrinsic value method of accounting that was
provided in Statement 123 as originally issued. Statement 123R requires
companies to recognize the cost of employee services received in exchange for
awards of equity instruments based on the grant-date fair value of those awards.
While the fair-value-based method prescribed by Statement 123R is similar to the
fair-value-based method disclosed under the provisions of Statement 123 in most
respects, there are some differences. The Company's stock option plan provides
for the grant of options to the Company's directors, employees, employees of the
Company's affiliates and certain of the Company's contractors and consultants.
To date no options have been issued under the plan.



Accounting Changes and Error Corrections



In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154
(SFAS 154), 'Accounting Changes and Error Corrections' which provides guidance
on the accounting for and reporting of accounting changes and correction of
errors. This statement changes the requirements for the accounting for and
reporting of a change in accounting principle and applies to all voluntary
changes in accounting principle. It also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition provisions. This statement is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We do not anticipate a material effect upon the
adoption of this statement.



Item 7a. Quantitative and Qualitative Disclosures about Market Risk



Interest Rate Risk



The Company places cash in 'on call' and 'short-term' deposit accounts with high
quality financial institutions.



In the normal course of business operations may be exposed to fluctuations in
interest rates. These fluctuations can vary the costs of financing and
investing. Because we have no debt there was no material impact on earnings due
to fluctuations in interest rates.



The Company does not use derivative financial instruments to hedge its risks
associated with the fluctuations of interest rates.



Foreign Currency Risk



The Company conducts a portion of its business in various currencies, primarily
in U.S. and Australian dollars. At June 30, 2005, the Company had not
established a foreign currency hedging program. Net foreign exchange losses
during the twelve mo    nths ended June 30, 2005 were $24,000 compared with net
exchange gains of $58,000 during the twelve months ended June 30, 2004. Foreign
exchange gains and losses occur upon consolidation of MEPL, which uses U.S.
dollars as its functional currency and also engages in transactions in foreign
currencies. MEPL's accounts are denominated in Australian dollars. Translation
of MEPL's financial statements into U.S. dollars did not have a material impact
on the Company's financial position.



The Company does not consider the effects of foreign currency movements to be a
material risk to its financial condition.





 Item 8. Financial Statements and Supplementary Data



                                 Marshall Edwards, Inc
                             Index to Financial Statements



Report of BDO Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements






Report of Independent Registered Public Accounting Firm



The Board of Directors

Marshall Edwards, Inc.



We have audited the accompanying consolidated balance sheet of Marshall Edwards,
Inc. (a development stage company) as of June 30, 2005, and the related
statements of operations, stockholders' equity, and cash flows for the year then
ended, and for the period from December 1, 2000 (inception) through June 30,
2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements as of June 30, 2004 and
for the period from December 1, 2000 (inception) through June 30, 2004, were
audited by other auditors whose report dated August 13, 2004 expressed an
unqualified opinion on those statements. The financial statements for the period
from December 1, 2000 (inception) through June 30, 2004 include total revenues
and net loss of $345,000 and $11,694,000, respectively. Our opinion on the
statements of operations, stockholders' equity, and cash flows for the period
from December 1, 2000 (inception) through June 30, 2005, insofar as it relates
to amounts for prior periods through June 30, 2004, is based solely on the
report of other auditors.



We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
other auditors provide a reasonable basis for our opinion.



In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Marshall Edwards, Inc. at June 30, 2005,
and the consolidated results of its operations and its cash flows for the year
then ended and the period from December 1, 2000 (inception) through June 30,
2005, in conformity with accounting principles generally accepted in the United
States of America.



BDO
Sydney, NSW, Australia
September 13, 2005




            Report of Independent Registered Public Accounting Firm



The Board of Directors
Marshall Edwards, Inc.



We have audited the accompanying consolidated balance sheet of Marshall Edwards,
Inc. (a development stage enterprise) (the 'Company') as of June 30, 2004, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended, and for the period from December 1, 2000
(inception) through June 30, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements as of June 30, 2003, and for the period from December 1, 2000
(inception) through June 30, 2003, were audited by other auditors whose report
dated July 31, 2003 expressed an unqualified opinion on those statements. The
financial statements for the period from December 1, 2000 (inception) through
June 30, 2003 include total revenues and net loss of US$l52,000 and
US$3,156,000, respectively. Our opinion on the statements of operations,
shareholders' equity, and cash flows for the period from December 1, 2000
(inception) through June 30, 2004, insofar as it relates to amounts for prior
periods through June 30, 2003, is based solely on the report of other auditors.



We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
other auditors provide a reasonable basis for our opinion.



In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Marshall Edwards, Inc. at June 30, 2004,
and the consolidated results of its operations and its cash flows for the year
then ended and the period from December 1, 2000 (inception) through June 30,
2004, in conformity with U.S. generally accepted accounting principles.


Ernst & Young


Sydney, Australia
13 August 2004





            Report of Independent Registered Public Accounting Firm



The Board of Directors Marshall Edwards, Inc.



We have audited the accompanying consolidated statement of operations,
shareholder's equity and cash flows of Marshall Edwards, Inc. (a development
stage company) for the year ended June 30, 2003 and for the period from December
1, 2000 (inception) through June 30, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.



We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Marshall Edwards, Inc., for the year ended June 30, 2003 and the
period from December 1, 2000 (inception) through June 30, 2003, in conformity
with U.S. generally accepted accounting principles.



Ernst & Young LLP
July 31, 2003



                             MARSHALL EDWARDS, INC.
                         (A Development Stage Company)
                          CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)

                                             
                                                  June 30,      June 30,
                                                     2005          2004

ASSETS

Current assets
Cash and cash
equivalents                                       $ 9,238       $ 24,819
Short-term
investments                                        10,000              -
Prepaid expenses and
other current assets                                  126             30
   Total current assets                            19,364         24,849
   Total assets                                  $ 19,364       $ 24,849

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable                                 $    254       $    192
Accrued expenses                                      403            437
Amount due to parent
company                                             2,186          1,278
   Total current liabilities                        2,843          1,907

Stockholders' equity:
Preferred stock, $0.01 par value, authorized
100,000 shares, none outstanding                        -             -

Common stock, $ 0.00000002 par value,
113,000,000 authorized
shares; shares issued and outstanding:
56,938,000 at June 30, 2005 and 56,938,000 at 
June 30, 2004                                           -             -

Additional paid-in capital                         34,636        34,636
Deficit accumulated
during development stage                          (18,115)      (11,694)
Accumulated other comprehensive income                  -             -
Total stockholders' equity                         16,521        22,942
Total liabilities and stockholders' equity       $ 19,364      $ 24,849


                            See accompanying notes.

                             MARSHALL EDWARDS, INC.
                         (A Development Stage Company)
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)
                                                                       Period from
                                                                       December 1,
                                                                       2000 (Inception)
                                         Years Ended June 30,          through June 30,
                                      2005         2004         2003         2005

Revenues:
Interest and
other income                         $ 308        $ 193        $ 145        $ 653
Total revenues                         308          193          145          653

Operating expenses:
Research and
development                         (2,279)      (2,381)      (2,024)      (6,753)
License fees                        (3,000)      (5,500)        (500)      (9,000)
Selling, general and administrative (1,450)        (850)        (654)      (3,014)

Total
operating expenses                  (6,729)      (8,731)      (3,178)     (18,767)
Loss from operations                (6,421)      (8,538)      (3,033)     (18,114)
Income tax expense                       -            -            -           (1)
Net loss arising during
development stage                 $ (6,421)    $ (8,538)    $ (3,033)    $ (18,115)

Net loss per common share:
Basic and diluted                 $ (0.11)     $ (0.16)     $ (0.06)

Weighted average common
shares outstanding             56,938,000   54,954,578   52,023,247


                            See accompanying notes.

                             MARSHALL EDWARDS, INC.
                         (A Development Stage Company)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                                    Period from
                                                                    December 1,
                                                                    2000  (Inception)
                                           Years Ended June 30,     through  June 30,
                                         2005      2004      2003        2005

Operating activities

Net loss arising during development
stage                                  (6,421)   (8,538)   (3,033)    (18,115)
Adjustments to reconcile net loss to
net cash used in operating activities:

Changes in operating assets and
liabilities:
Prepaid expenses and other current
assets                                    (96)       12       (21)       (126)
Accounts payable                           62      (241)      381         254
Accrued expenses                          (34)      159       278         403
Amounts due to parent company             908       636       554       2,186
Net cash used in operating activities  (5,581)   (7,972)   (1,841)    (15,398)

Financing activities
Net proceeds from issuance
of Common Stock                             -    25,578        36      34,636
Amounts payable in connection with
issuance of Common Stock                    -         -      (146)          -
Investment in short-term deposits     (10,000)        -         -     (10,000)
Net cash (used in) provided
by financing activities               (10,000)   25,578      (110)     24,636
Effect of exchange rate changes on
cash and cash equivalents                  -       (31)       31           -
Net (decrease) increase in cash and
cash equivalents                      (15,581)   17,575    (1,920)      9,238
Cash and cash equivalents at
beginning of period                    24,819     7,244     9,164           -
Cash and cash
equivalents at end of period            9,238    24,819     7,244       9,238
Income taxes paid                           -         -         -           -

                            See accompanying notes.

                             MARSHALL EDWARDS, INC.
                         (A Development Stage Company)
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                       (In thousands, except share data)

                           Common       Additional Deficit     Accumulated     Total
                           Stock        paid in    accumulated other
                                        capital    during      comprehensive
                                                   development income/(loss)
                                                   stage
                           (shares)

Balance June
30, 2001                   49,500,000   $ -        $ -         $ -           $ -
Net loss
arising during
development stage                                  (123)                   (123)
Common Stock issued May
22, 2002
(including
2,523,000
warrants)                   2,523,000      9,022                          9,022
Balance at
June 30, 2002              52,023,000      9,022   (123)            -     8,899
Net loss
arising during development
stage                                            (3,033)                 (3,033)
Foreign currency
translation  adjustments                                           31        31
Comprehensive Loss                                                       (3,002)
Common Stock issued June
26, 2003                        9,000        36                              36
Balance at
June 30, 2003              52,032,000      9,058      (3,156)      31     5,933
Net loss
arising during development
stage                                                 (8,538)            (8,538)
Foreign currency translation
adjustments                                                      (31)       (31)
Comprehensive Loss                                                       (8,569)
Common Stock issued
November 30, 2003           2,514,000     10,056                         10,056
Common Stock issued
December 18, 2003
(including 2,392,000
warrants)                   2,392,000     15,522                         15,522
Balance at
June 30, 2004              56,938,000   $ 34,636   $ (11,694)  $ -     $ 22,942
Net loss arising during
development stage                                     (6,421)            (6,421)
Comprehensive Loss                                                       (6,421)
Balance at
June 30, 2005              56,938,000     34,636     (18,115)   -      $  16,521



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