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Marshall Edwards (MSH)

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Friday 13 February, 2004

Marshall Edwards

Interim Results

Marshall Edwards, Inc.
13 February 2004


                             MARSHALL EDWARDS, INC.

                                INTERIM RESULTS
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 2003


CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

                                                  December 31           June 30
                                                         2003              2003
                                                  -----------      ------------
                                                  (unaudited)          (Note 1)

ASSETS
Current assets
Cash and cash equivalents                            $ 32,304           $ 7,244
Prepaid expenses and other current assets                  64                42
                                                  -----------      ------------
Total current assets                                   32,368             7,286
                                                  -----------      ------------
Total assets                                         $ 32,368           $ 7,286
                                                  ===========      ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable                                        $ 926               433
Accrued expenses                                          526               278
Amount due to parent company                            5,245               642
                                                  -----------       -----------
Total current liabilities                               6,697             1,353

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 December 31, 2003 and
52,032,000 at June 30, 2003
Additional paid-in capital                             34,623             9,058
Deficit accumulated during development stage          (8,952)           (3,156)
Accumulated other comprehensive income                      -                31
                                                  -----------       -----------
Total stockholders' equity                             25,671             5,933
                                                  ===========       ===========
Total liabilities and shareholders' equity           $ 32,368           $ 7,286
                                                  ===========       ===========

                            See accompanying notes.



CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
                                                                                                                      
                            Three Months Ended December 31,      Six Months Ended December 31,            Period from   
                                                                                                       December 1, 2000 
                                                                                                          (Inception)   
                                                                                                       through December 
                                                                                                              31        
                                         2003           2002                  2003          2002                2003    
                                   ----------     ----------            ----------    ----------           ----------

  Revenues:                                                                                                           
  Interest and other                     $ 25           $ 37                  $ 46          $ 80                $ 198  
  income                                                                                                              
                                   ----------     ----------            ----------    ----------           ----------
  Total revenues                           25             37                    46            80                  198
                                   ==========     ==========            ==========    ==========           ==========
  Operating expenses:                                                                                                 
  Research and development                (346)         (661)               (1,129)         (995)              (3,222) 
  License fees                         (4,250)             -               (4,500)             -              (5,000) 
  Selling, general and                   (174)         (162)                 (281)         (307)                (968) 
  administrative                                                                                                      
  Foreign Exchange                          63            63                    68          (27)                   41 
  Gains(Losses)                                                                                                       
                                   ----------     ----------            ----------    ----------           ----------
  Total operating expenses            (4,707)          (760)              (5,842)        (1,329)              (9,149)
                                   ==========     ==========            ==========    ==========           ==========
  Loss from operations                 (4,682)          (723)              (5,796)       (1,249)              (8,951)
  Income tax expense                         -             -                     -             -                  (1) 
                                   ----------     ----------            ----------    ----------           ----------
  Net loss arising                   $ (4,682)        $ (723)            $ (5,796)     $ (1,249)            $ (8,952)
  during development stage                                                                                              
                                   ==========     ==========            ==========    ==========           ==========   
  Net loss per common share:                                                                                            
  Basic and diluted                  $ (0.088)      $ (0.014)            $ (0.110)      $ (0.024)                     
                                   ==========     ==========            ==========    ==========          
  Weighted average                  53,356,097     52,023,000           52,694,048     52,023,000                      
  common shares outstanding                                                                                             
                                   ==========     ==========            ==========    ==========                     


                            See accompanying notes.



CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                                                                                                                      
                                                        Six Months Ended             Period from December 1, 2000      
                                                           December 31,            (Inception) through December 31,     
                                                         2003         2002                       2003                   
                                                     ----------   ----------                 ----------
  Operating activities                                                                                                
  Net loss arising during development stage           $ (5,796)    $ (1,249)                  $ (8,952)
  Adjustments to reconcile net loss to net                                                                            
  cash                                                                                                                
  (used in) provided by operating                                                                                     
  activities:                                                                                                         
  Changes in operating assets and                                                                                     
  liabilities:                                                                                                        
  Prepaid expenses and other current assets                (22)         (9)                        (64) 
  Accounts payable                                        (103)         215                         333 
  Accrued expenses                                         (66)           -                         351 
  Amounts due to parent company                           4,500           -                       5,000 
                                                     ----------   ----------                 ----------
  Net cash used in operating activities                 (1,487)      (1,043)                    (3,332)


  Financing activities                                                                                                
  Net proceeds from issuance of Common                   25,565           -                      34,623 
  Stock                                                                                                               
  Amounts payable in connection with                                                                                  
  issuance of                                                                                                         
  Common Stock                                            1,013           -                       1,013 
                                                     ----------   ----------                 ----------
  Net cash provided by financing activities              26,578            -                     35,636
  Effect of exchange rate changes on cash                  (31)           -                           - 
  and cash equivalents                                                                                                
  Net increase (decrease) in cash and cash               25,060      (1,043)                     32,304
  equivalents                                                                                                         
  Cash and cash equivalents at beginning                  7,244       9,164                           - 
  of period                                                                                                           
                                                     ----------   ----------                 ----------
  Cash and cash equivalents at end of                  $ 32,304      $ 8,121                   $ 32,304  
  period                                                                                                              
                                                     ==========   ==========                 ==========
  Income taxes paid                                           -            1                          1 
                                                     ==========   ==========                 ==========


                            See accompanying notes.




CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)


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

  Balance at June 30,         52,032,000              $ 9,058            $ (3,156)                  $ 31      $ 5,933
  2003                                                                                                                

  Net loss arising                                                        (5,796)                             (5,796) 
  during development                                                                                                  
  stage                                                                                                               

  Foreign currency                                                                                   (31)        (31) 
  translation                                                                                                         
  adjustments                                                                                                         

  Comprehensive Loss                                                                                          (5,827) 

  Common Stock issued         2,514,000               10,056                                                   10,056 
  November 30, 2003                                                                                                   

  Common Stock issued                                                                                                 
  December 18, 2003                                                                                                   
  (including 2,392,000        2,392,000               15,509                                                   15,509 
  warrants)                                                                                                           

  Balance at December        56,938,000             $ 34,623            $ (8,952)                     $ -    $ 25,671 
  31, 2003                                                                                                            
                            ===========          ===========          ===========             =========== ===========


                            See accompanying notes.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2003

1. Organization and Basis of Preparation of Financial Statements

The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Registration S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. The Company believes all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months and six months ended December
31, 2003 are not necessarily indicative of the results that may be expected for
the year ending June 30, 2004 or any other period. The balance sheet at June 30,
2003 has been derived from the audited financial statements at that date. The
financial statements and notes should be read in conjunction with the audited
financial statements for the year ended June 30, 2003 which were included in the
Company's Amendment No. 3 to Form S-1 filed December 10, 2003.

Marshall Edwards, Inc. (the 'Company') is a development stage company
incorporated in December 2000 as a wholly-owned subsidiary of Novogen Limited,
an Australian pharmaceutical company. The Company commenced operations in May
2002. The Company, including its wholly-owned Australian subsidiary, Marshall
Edwards Pty. Limited ('MEPL') (together the 'MEI Group') is a pharmaceutical
company with a primary focus on the development and commercialization of drugs
for the treatment of cancer. The Company is presently engaged in the clinical
development and commercialization of a drug candidate called phenoxodiol. The
Company intends to develop phenoxodiol for use in a wide range of human cancers.
The Company operates primarily in Australia and the United States.

Novogen Limited and its subsidiary companies, has granted to the MEI Group an
exclusive license under its patent applications and the intellectual property
rights in the relevant know-how to develop, market and distribute all forms of
administering phenoxodiol for anti-cancer uses except topical applications. In
addition, the MEI Group has an exclusive first right and an exclusive last right
to match any proposed dealings by Novogen with it's intellectual rights in
synthetic compounds, developed by or on behalf of Novogen that have known or
potential anti-cancer applications in all forms other than topical application.

The MEI Group's initial business focus is to continue the clinical program
currently under way for the development and commercialization of phenoxodiol.

In May 2002, the Company sold 2,523,000 shares of its common stock and 2,523,000
warrants, raising proceeds of $9,022,000, net of $1,070,000 of transaction
costs. The warrants were exercisable prior to November 30, 2003 at an exercise
price of $4.00 per share. The common stock was listed for trading on the London
Stock Exchange's Alternative Investment Market ('AIM'). Following the listing,
Novogen Limited retained 95.1% of the Company's common stock.

In June 2003, 9,000 warrants were exercised, resulting in proceeds to the
Company of $36,000. In November 2003 the remaining 2,514,000 warrants were
exercised at an exercise price of $4.00 per share with proceeds to the Company
of $10,056,000.

In December 2003, the Company sold 2,392,000 common stock units at a public
offering price of $7.50 per unit. Each common stock unit consisted of:

   • one share of common stock; and
   • one warrant to purchase a share of common stock, exercisable prior
     to December 18, 2006 at an exercise price equal to $9.00.

In connection with the December 2003 offering, the Company's common stock
and warrants commenced trading separately on the Nasdaq National Market. The
Company received proceeds of $15,509,000, net of $2,431,000 transaction
costs in the December 2003 offering. Following the offering, Novogen Limited
retained 86.9% of the Company's common stock.

2. Accounting Policies

Revenue Recognition

Interest
The only revenue earned to date is interest on cash balances.

Principles of Consolidation

The consolidated financial statements include the accounts of Marshall Edwards,
Inc. and its wholly-owned subsidiary, Marshall Edwards Pty. Limited. Significant
intercompany accounts and transactions have been eliminated in consolidation.

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.

Cash and cash equivalents

Cash on hand and in banks and short-term deposits are stated at the nominal
value. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Income Taxes

Income taxes have been provided for using the liability method in accordance
with FASB Statement No. 109, 'Accounting for Income Taxes.' Under this method,
deferred tax assets and liabilities are recognized and measured using enacted
tax rates in effect for the year in which the differences are expected to be
recognized. Valuation allowances are established against the recorded deferred
income tax assets to the extent that management believes that it is more likely
than not that a portion of the deferred income tax assets are not realizable.

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, including cash and
cash equivalents and accounts payable approximate fair value.

Foreign Currency Translation

The financial statements of MEPL have been translated into U.S. dollars in
accordance with FASB Statement No. 52, 'Foreign Currency Translation.' Assets
and liabilities are translated into U.S. dollars using the exchange rates in
effect at the balance sheet date. Income statement amounts have been translated
using the average exchange rate for the periods. Realized gains and losses from
foreign currency transactions are reflected in the consolidated statements of
operations.

Research and Development Expenses

Research and development expenses relate primarily to the cost of conducting
human clinical trials of phenoxodiol. Research and development costs are charged
to expense as incurred.

Stock-Based Compensation

The Company's stock option plan provides for the grant of options to employees
of the Novogen Group. To date no options have been issued under the plan.

Basic and Diluted Loss Per Share

Basic and diluted earnings or loss per share is calculated in accordance with
FASB Statement No. 128, 'Earnings Per Share.' In computing basic earnings or
loss per share, the dilutive effect of stock options are excluded, whereas for
diluted earnings per share they are included unless the effect is anti-dilutive.

Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive loss. Other
comprehensive loss includes certain changes in shareholders' equity that are
excluded from net loss. Comprehensive loss for all periods presented has been
reflected in the Consolidated Statement of Shareholders' Equity.

3. Loss Per Share

The following table sets forth the computation of basic and diluted net loss per
common share:

                               Three Months Ended         Six Months Ended
                                   December 31               December 31
                                   2003         2002         2003         2002
                                ---------    ---------    ---------    ---------
                                     (In Thousands, except share data)
Numerator
Net loss arising during
development stage             $ (4,682)      $ (723)    $ (5,796)    $ (1,249)
Effect of dilutive                    -            -            -            -
securities                    ---------    ---------    ---------    ---------
Numerator for diluted
earnings per share            $ (4,682)      $ (723)    $ (5,796)    $ (1,249)
                              =========    =========    =========    =========

Denominator
Denominator for basic
earnings per share -
weighted-average shares      53,356,097   52,023,000   52,694,048   52,023,000
Effect of dilutive                    -            -            -            -
securities                    ---------    ---------    ---------    ---------
Dilutive potential common
shares                       53,356,097   52,023,000   52,694,048   52,023,000
                              =========    =========    =========    =========

4. Financial Instruments

The fair value of financial assets and liabilities approximates their carrying
value in the Consolidated Balance Sheets because they are short term and at
market rates of interest.

5. Expenditure Commitments

At December 31, 2003, the Company had contracted to conduct research and
development expenditures of approximately $352,000. Such amounts are expected to
be incurred within the next year.

6. Segment Information

The Company's focus is to continue the clinical program currently underway for
the development and commercialization of phenoxodiol.

           Three Months Ended December 31, 2003   Three Months Ended December 31, 2002
                 USA             Australia              USA             Australia
               ---------          ---------           ---------          ---------
Loss from
operations          $ (45)            $ (4,637)            $ (42)                 (681)
Segment
assets              35,417                2,235             8,941                1,194
at December 31

           Six Months Ended December 31, 2003   Six Months Ended December 31, 2002
                USA             Australia            USA             Australia
              ---------          ---------         ---------          ---------
Loss from
operations         $ (51)           $ (5,745)           $ (71)           $ (1,178)

7. Related Party Transactions

License Agreement

The License Agreement is an agreement under which Novogen grants to MEPL a
worldwide non-transferable license to conduct clinical trials and commercialize
and distribute all forms of phenoxodiol except topical applications. The
agreement covers uses of phenoxodiol in the field of prevention, treatment or
cure of cancer in humans. The license is exclusive until the expiration of the
last relevant Novogen patent right in the world and thereafter is nonexclusive.
MEPL or Novogen may terminate the agreement with three months notice. Amounts
payable to Novogen under terms of the license agreement are as follows:

1.  A lump sum license fee of $5,000,000 is payable to Novogen
on November 1, 2002 or later on the 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 $25,000,000. A lump sum license fee of $5,000,000 became payable to
Novogen in December 2003 and was paid on February 5, 2004.
2.  A lump sum license fee of $5,000,000 is payable to Novogen
on November 1, 2003 or later on the 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.

In addition to the amounts above, 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.

Amounts payable for milestone license fees under the License Agreement for the
calendar years ended December 31 are as follows:

Calendar Year
                          2004                                       2,000,000
                          2005                                       4,000,000
                   Each calendar
                 year thereafter                                     8,000,000

Any amounts payable to Novogen under the above milestone payments will be
reduced for amounts paid under the lump sum license fee requirements above.

License Option Deed

The License Option Deed grants MEPL an exclusive right to accept and an
exclusive right to match any proposed third-party dealing by Novogen of its
intellectual property rights in other synthetic compounds that have known or
potential anti-cancer applications in all forms other than topical applications.

Services Agreement

Neither MEI nor MEPL currently intends to directly employ any staff and Novogen
will provide or procure services reasonably required by the MEI Group relating
to the development and commercialization of phenoxodiol. Novogen will provide
these services at cost plus a 10% mark-up. The Company may terminate the
agreement with three months notice.

Manufacturing License and Supply Agreement

Under the terms of the Manufacturing License and Supply Agreement, Novogen will
supply phenoxodiol in its primary manufactured form for the clinical trial
development program and phenoxodiol's ultimate commercial use. Novogen will
supply phenoxodiol at cost plus a 50% markup. The Company or Novogen may
terminate the agreement at any time.

Transactions amounting to $441,989 and $906,456 were made under the Services
Agreement and the Manufacturing License and Supply Agreement with Novogen during
the three months and six months ended December 31, 2003, respectively, and
$179,170 is included in accounts payable at December 31, 2003.



   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operation

Special Note Regarding Forward-Looking Statements

This quarterly report 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 quarterly 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's
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, among other things:

•  receipt of regulatory approvals;

•  successful completion of clinical trials;

•  future expenses and financing requirements; and

•  competition and competitive factors.

These risks are not exhaustive. Other sections of this quarterly report may
include additional factors which could adversely impact business and financial
performance. Moreover, the Company operates in a very competitive and rapidly
changing environment. You should not rely upon forward-looking statements as
predictions of future events. The Company cannot assure you that the events and
circumstances reflected in the forward-looking statements will be achieved or
occur. Although it believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements.

The following discussion is qualified in its entirety by, and should be read in
conjunction with, the more detailed information set forth in financial
statements and the notes thereto appearing elsewhere in this report.

Overview

The Company is a development stage company incorporated on December 1, 2000 as a
wholly-owned subsidiary of Novogen. The Company commenced operations in May 2002
and it's 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. Novogen has granted to the
Company an exclusive non-transferable license under its patent rights and
intellectual rights in its relevant know-how to develop market and distribute
all forms of administering phenoxodiol for anti-cancer uses, except topical
applications. Novogen currently owns approximately 86.9% of the outstanding
shares of common stock.

The Company's main focus during fiscal 2003 and in the first half of fiscal 2004
was to undertake human clinical testing of phenoxodiol. The Company does not
employ any staff directly but obtain 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 December 31, 2003, the
Company had accumulated losses of $8,952,000.

Expenses have consisted primarily of costs associated with conducting the
clinical trials of phenoxodiol and costs incurred under the license agreement
and the services and manufacturing agreements with Novogen including the costs
of the clinical trial drug supplies.

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

The Company expects that quarterly and annual operating 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.

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 $342,000 have been included in the financial
statements for the six months ended December 31, 2003, of which $351,000 had
been accrued at December 31, 2003. These estimates are based on the number of
patients in each trial and the patient treatment 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, patient treatment 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.

Results of Operations

The Company recorded a consolidated loss of $5,796,000 and $1,249,000 for the
six months ended December, 2003 and 2002, respectively. The Company recorded a
consolidated loss of $4,682,000 and $723,000 for the three months ended December
31, 2003 and 2002, respectively. The Company has not generated any revenues from
operations since inception. The Company has, however received interest on cash
assets of $135,000 from December 1, 2000 to December 31, 2003.

The Company's consolidated operating expenses for the six months ended December
31, 2003 were $5,842,000 versus $1,329,000 for the six months ended December 31,
2002. Significant items of operating expenses include the costs associated with
conducting clinical trials of pheneoxodiol, license fees, research and
development, selling general and administrative expenses and foreign exchange
gains and losses. For the six months ended December 31, 2003 and 2002 operating
expenses included $342,000 and $546,000, respectively, of costs associated with
conducting the clinical trials of phenoxodiol. The license fee of $5,000,000
became due and payable in December 2003 under the terms of the licensing
agreement with Novogen following the exercise of warrants and the receipt of
proceeds from the offering completed in December 2003. As a result, $4,500,000
of license fee expense is included in the Consolidated Statement of Operations
for the six months ended December 2003. The remaining $500,000 had been expensed
in the year ended June 2003. Costs incurred under the services and manufacturing
agreements with Novogen including the costs of the clinical trial drug supplies
were $906,000 and $576,000 for the six months ended December 31, 2003 and 2002
respectively. The increase in costs incurred under the services and
manufacturing agreements related mainly to increased cost of the drug used in
clinical trials reflecting the higher drug doses used in clinical trials during
the six months ended December 31, 2003.

Consolidated operating expenses for the three months ended December 31 2003 were
$4,707,000 versus $760,000 for the three months ended December 31, 2002. Major
operating expenses in the three months ended December 31, 2003 included
$4,250,000 of license fees incurred under the license agreement with Novogen.
This amount represents the remaining amount of the $5,000,000 license fee due to
Novogen following the exercise of warrants and the receipt of proceeds from the
offering completed in December 2003. During the three months ended December 31,
2003 $473,000 was included as costs incurred under the terms of the services and
manufacturing agreements with Novogen including the costs of the clinical trial
drug supplies, compared to $254,000 for the three months ended December 31,
2002.

Research and Development Expenses

Research and development expenses consist mainly of clinical trial expenditures,
payments to Novogen for research support services under the terms of the
services agreement and the cost of phenoxodiol used in the clinical trials
supplied by Novogen under the terms of the manufacturing license and supply
agreement. Research and development expenses were $1,129,000 for the six months
ended December 31, 2003, compared to $995,000 for the six months ended December
31, 2002, an increase of $134,000. The increase was mainly due to the increased
cost of drug supplied for clinical trials. Research and development expenses
amounted to $346,000 for the three months ended December 31, 2003, down from
$661,000 for the three months ended December 31, 2002. This decrease was due to
the reduction in accrued clinical trial expenses reflecting the smaller patient
numbers being treated as the current clinical trials near completion.

Research and development costs incurred since inception through December 31,
2003 amount to $3,222,000.

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; 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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist mainly of expenses
associated with accounting and auditing, professional fees public relations and
administration fees paid to Novogen under the terms of the services agreement.
Total selling, general and administrative expenses for the six months ended
December 31, 2003 were $281,000 a decrease of $26,000 verses the six months
ended December 31, 2002 amount of $307,000. The decrease was primarily due to a
reduction in public relation expenses and legal fees, partially offset by an
increase in share registry costs. Selling general and administrative expenses
amounted to $174,000 for the three months ended December 31, 2003, an increase
of $12,000 over the three months ended December 2002.

Foreign Exchange Gains/(Losses)

Foreign exchange gains/losses occur when revaluing cash denominated in foreign
currencies and upon consolidation of MEI's wholly owned Australian subsidiary
Marshall Edwards Pty Ltd ('MEPL'), which has US dollars as its functional
currency and also has foreign currency transactions. Further, MEPL's accounts
and financial statements are denominated in Australian dollars. For the six
months ended December 31, 2003 exchange gains were $68,000 compared to exchange
losses of $27,000 for the six months ended December 31, 2002. Foreign exchange
gains were $63,000 for the three months ended December 31, 2003 and $63,000 for
the three months ended December 31, 2002.

Liquidity and Capital Resources

At December 31, 2003, the Company had cash resources of $32,304,000 compared to
$7,244,000 at June 30, 2003. The increase is due almost exclusively to the sale
of common stock through the exercise of warrants in November 2003 and as a
result of a public offering of common stock units in December 2003. Funds are
invested in short-term money market accounts, pending use. The implementation of
the business plan is dependent on the Company's ability to maintain adequate
cash resources to complete the clinical development program.

Cash used in operating activities for the six months ended December 31, 2003 was
$1,487,000 compared to $1,043,000 for the same period in 2002. The loss from
operations of $5,796,000 for the six months ended December 31, 2003 included a
provision of $4,500,000 representing the amounts due to Novogen under the terms
of the licence agreement ($500,000 had been provided in the prior year). The
increase in cash outflow of $444,000 resulted from payments of operating
expenses including clinical trial costs and drug supplies.

Cash provided from financing activities for the six months ended December 31,
2003 was $26,578,000.

In November 2003, 2,514,000 warrants were exercised at an exercise price of
$4.00. These warrants were issued as part of the sale of common stock in May
2002. Proceeds from the exercise of the warrants were $10,056,000.

In December 2003, the Company completed an initial public offering in the United
States of 2,392,000 common stock units at an initial public offering price of
$7.50 per unit. Each common stock unit consists of:

   • one share of common stock; and

   • one warrant to purchase a share of common stock at an exercise price
     equal to $9.00.

The net proceeds of the December 2003 offering to the Company were approximately
$15,509,000. At December 31, 2003 offering expenses of $1,013,000 were included
in accounts payable and accrued expenses.

The Company intends to use the proceeds of the offering as follows:

   • Approximately $1.1 million to commence Phase II clinical trials of
     phenoxodiol as a monotherapy in earlier stage cancers;


   • Approximately $4.2 million to commence Phase II clinical trials of
     phenoxodiol in combinational therapy with other anti-cancer drugs for late
     stage chemo-resistant tumors; and


   • The balance for other corporate purposes, including potential payments
     to Novogen under the terms of the license agreement, potential licensing of
     other cancer compounds developed by Novogen and potential expansion of the
     clinical trial program for phenoxodiol to include other forms of cancer.

Based on current plans, the Company believes that it will have sufficient cash
resources to fund operations at least through the end of the current fiscal year
and to complete the current Phase lb/IIa and Phase II clinical trial program,
commence Phase II clinical trials of phenoxodiol as a monotherapy in early stage
cancer, and to commence Phase II clinical trials of phenoxodiol in combinational
therapy with other anti-cancer drugs for late stage chemo- resistant tumors.
Ongoing operations through the conduct of the clinical trial program will
continue to consume cash resources without generating revenues.

If the Phase III clinical program, which is a multi-center study measuring
efficacy in a large number of patients is undertaken, additional funds will be
required to complete the program. The Company is not able to reasonably estimate
at this time either the amount required or when that amount will need to be
raised. This will to a large extent be influenced by the number of patients
enrolled in the trial, which can only be determined accurately upon completion
of Phase II trials. If the Phase II trials are successful the Company will seek
to raise the funds required to complete Phase III trials or enter into a
collaborative arrangement with a major pharmaceutical company.

The Company must pay amounts to Novogen under the license agreement with Novogen
when certain milestones are met. For details of the amounts payable see note 7
to the Financial Statements 'Related Party Transactions', included under Item 1.

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




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