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Marshall Edwards (MSH)

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Friday 10 September, 2004

Marshall Edwards

MEI Annual Report

Marshall Edwards, Inc.
10 September 2004


PART 1
                             MARSHALL EDWARDS, INC.

                                 ANNUAL REPORT

                           (for AIM filing purposes)

                              For the period ended
                                  30 JUNE 2004


                             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
Item 13: Certain Relationships and Related Transactions
Item 14: Principle Accounting Fees and Services


PART IV

Item 15: Exhibits, Financial Statement Schedules and Reports on Form 8-K






PART I



Item 1. Business

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:



•         receipt of regulatory approvals;
•         successful completion of clinical trials;
•         continued cooperation and support of Novogen, our parent company;
•         future expenses and financing requirements and;
•         competition and competitive factors.



These risks are not exhaustive. Our other sections of the 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.





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.



Novogen Limited, an Australian company publicly traded on 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 and were not incorporated
primarily as a finance vehicle. 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 were
established by Novogen to advance Novogen's research on one specific
degenerative disease, cancer. 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 2004, we made significant progress in the clinical development of
phenoxodiol including:


  • The release by Yale researchers of preliminary results of a dose-finding
    study in women with recurrent ovarian cancer that has become unresponsive to
    standard chemotherapy, who received intravenous phenoxodiol. The data
    reflected outcomes of the first 20 of 40 measurable subjects and showed that
    13 patients were able to finish a three month treatment cycle, and 5
    patients were considered to have had disease stabilization. All patients
    ultimately showed disease progression. This trial is now complete and we are
    awaiting final analysis of the trial data;


  • Commencing a clinical trial in cervical cancer at Yale New Haven Hospital.
    The study is the first to be conducted in the U.S. using the oral dosage
    form of phenoxodiol and will be used in patients who have a primary
    diagnosis of cancer for a period of four weeks. Following treatment with
    phenoxodiol, patients will be scheduled for either surgical resection or
    radiotherapy. The study will evaluate the safety and ability of phenoxodiol
    to act as an effective anti-cancer drug when it is given as a monotherapy in
    early stage cancer;


  • Commencing a renal cancer study of phenoxodiol in combination therapy at
    St George Hospital in Sydney, Australia. The study will involve patients
    with late stage cancers that are no longer responding to standard
    chemotherapies. In this study, phenoxodiol will be administered orally;


  • Commencing a new multi-center trial to evaluate phenoxodiol as a
    chemo-sensitizing agent in patients with chemo-resistant ovarian cancer. The
    first site involves up to 40 patients at Yale New Haven Hospital. The two
    main objectives of the study are to investigate the degree to which
    phenoxodiol reverses chemo-resistance, and to compare the relative
    efficacies of paclitaxel and cisplatin, each in combination with
    phenoxodiol;


  • Establishing a second trial site for the multi-center ovarian cancer study
    at the Royal Women's Hospital in Melbourne Australia; and


  • Announcing preliminary data from the late-stage prostate cancer trial
    being conducted at multiple sites in Australia. The data showed that
    phenoxodiol is biologically active by reducing or stabilizing Prostate
    Specific Antigen ('PSA') levels in 8 of 12 patients receiving the study
    drug.






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
degenerative 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 signaling pathways, other signaling pathways
(e.g., anti-survival pathways) can be activated.



We believe that phenoxodiol targets a number of key components involved in
cancer cell survival and proliferation of signal transduction processes. For
example, phenoxodiol appears to target enzymes called kinases that catalyze
phosphorylation of acceptor molecules. These kinases appear to be involved in
signaling related to cell survival and cell growth (e.g., sphingosine kinase, a
kinase believed to be important to both cell survival and cell growth).
Inhibition of these targets results in increased cancer cell death and cancer
cell cytostasis (the inhibition of cell growth or division).



This disrupting effect of phenoxodiol is restricted to tumor cells, with
non-tumor cells remaining unaffected. A potential explanation for this selective
anti-tumor effect was provided by a discovery of a research team at Purdue
University. The research team discovered that phenoxodiol targets a particular
member of the ECTO-NOX family of proteins. This family of proteins regulates
fundamental biological processes at the cell surface that are vital to the
survival and growth of all living matter. One of these proteins, known as
constitutive NADH oxidase ('CNOX') is a fundamental source of hydrogen ions for
all living cells. The Purdue University studies have now shown that all forms of
human cancer express a variant form of CNOX, known as tNOX. The presence of tNOX
disrupts the normal pattern of behavior of the cell, contributing to the
unregulated cell growth and survival that characterizes tumor cells. This makes
tNOX the first pan-cancer expressed protein, identifying it as a potentially
important new target for anti-cancer drug development. Phenoxodiol appears to
specifically block the action of tNOX, with the resulting inhibition of H+
influx into the cell, leading to extensive disruption to signaling pathways and
to eventual apoptosis, which is the process of programmed cell death by which a
cell dies naturally. Phenoxodiol has no effect on CNOX, providing an explanation
of how phenoxodiol can be so selective in its action, with its cytotoxic effects
being limited to cancer cells.



Laboratory studies at Yale University also have revealed that the killing effect
of phenoxodiol of cancer cells occurs through the caspase enzyme pathway, and
that key triggers of this proteolytic pathway are the up-regulation of
production in the cancer cell of pro-apoptotic factors such as Bax and the
increased degradation of anti-apoptotic factors such as c-FLIP and XIAP. The
latter effect facilitates death of cancer cells via either the Fas or TRAIL
death receptor mechanisms, each of which is a signaling molecule that when
activated causes cell death.



Recent laboratory studies conducted by Novogen and Yale University have revealed
that phenoxodiol interacts well with a number of 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 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 that 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 the next stage of our clinical development
program for phenoxodiol in the area of chemo-resistant cancers, it is possible
that other forms of cancer (such as renal carcinoma, head and neck cancer),
generally regarded as unresponsive to standard drugs, will be added to this
program in due course 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 oral phenoxodiol in which Squamous
Cell Carcinoma ('SCC') of the cervix, vagina and vulva, and prostate cancer.
These are also being targeted as a matter of priority. These are all forms 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. In this strategy, phenoxodiol is being studied in the first instance as
an oral monotherapy in the expectation that phenoxodiol alone may provide an
adequate anti-cancer effect.



History of Phenoxodiol Development



In 1995, phenoxodiol was identified as a potential intermediate in the
metabolism of daidzein, a naturally occurring isoflavone. Isoflavones are a
family of structurally related molecules found in foods such as legumes, red
clover, lentils and chickpeas. To date, phenoxodiol has not appeared to have
been isolated or identified in mammals.



Novogen scientists first synthesized phenoxodiol in 1997 as part of a program of
drug discovery based on the structure of naturally occurring isoflavones. When
screened for anti-cancer action against human cancer cells in vitro (in the
laboratory), phenoxodiol was found to be 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 (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 (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.



Phase Ia pharmacokinetic studies, which measure the way a drug is handled by the
body, conducted in cancer patients in May 2000, showed that phenoxodiol, like
steroidal hormones, is prone to conjugation (glucuronide and sulfates) within
the body. These conjugated forms are the means by which a water-insoluble drug
such as phenoxodiol is transported within the body. Conversion of these drugs to
the active form requires deconjugation by relevant enzymes within end tissues to
yield the bioactive (unconjugated) drug form. Bioequivalence studies showed that
phenoxodiol is considerably more prone to conjugation when administered orally
(greater than 99%) compared to intravenously (approximately 85%). Therefore, in
the absence of definitive data on the rates of expression of deconjugating
enzymes by different tumor types, it was decided to commence clinical studies
with an intravenous dosage form of phenoxodiol because of the certainty of
obtaining levels of unconjugated phenoxodiol in the plasma the liquid component
of blood that were known in the laboratory to be highly cytotoxic to cancer
cells.



A Phase lb toxicity study was commenced in Australia in November 2000 and
finished in March 2002. Twenty-one patients with late-stage solid cancers (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 inter-patient escalation from 1 to 30 mg/kg/
dose. No dose-limiting toxicity was reached and no significant toxicities other
than some hypersensitivities to the drug vehicle (cyclodextrin) were
encountered.



A second Phase lb toxicity study commenced in Australia in April 2001 and
concluded in 2002. Twenty-one patients with late-stage solid cancers (any type)
were given phenoxodiol by continuous intravenous infusion. This was a
dose-escalating study, with inter-patient escalation from 1 to 40 mg/kg / day No
dose-limiting toxicity was reached and no significant toxicities were
encountered.



An Investigational New Drug Application ('IND') for the intravenous dosage form
of phenoxodiol became effective 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 (any
type) were given phenoxodiol by continuous intravenous infusion. This was a
dose-escalating study, with inter-patient escalation from 0.5 to 64 mg/kg/day.
No dose-limiting toxicity was reached and no significant toxicities were
encountered.




Concurrent with the Phase I clinical trial program outlined above, pre clinical
studies continued with a view to better understanding the molecular targets of
phenoxodiol and the most appropriate tumor types for therapy. In terms of
molecular targets, a number of important actions were identified:



•         that phenoxodiol has broad inhibitory activity against a range of
kinase enzymes, resulting in disruption to a wide range of signaling pathways
involved in cell survival and growth;



•         that phenoxodiol-induced apoptosis occurred via the caspase cascade;



•         that phenoxodiol induced apoptosis is initiated as a result of
activation of death receptor (Fas, TRAIL) mechanisms and down-regulation of
death receptor blockers (c-FLIP, XIAP); and



•         that a key molecular target is the receptor protein, tNOX, whose
inhibition leads to extensive disruption of pro-survival mechanisms.



A further key pre-clinical finding was that phenoxodiol was effective against
various types of cancer cells including ovarian, mesothelioma and lung cancer
cells that were resistant to all standard chemotoxic anti-cancer drugs, pointing
to the potential usefulness of phenoxodiol, at least in patients with these
cancers who had failed all other forms of chemotherapy.



The selection of specific tumor types in which to test phenoxodiol in Phase II
clinical trials was based on a number of factors. First, the known relevance of
certain actions of phenoxodiol (e.g., the targeting of death receptor activity)
to the survival of certain cancer cell types; second, pre-clinical experience
with the use of phenoxodiol in animals bearing human tumor xenografts; and
third, observations of clinical responses in patients treated with phenoxodiol.
The particular tumor types selected are ovarian cancer, prostate cancer, and SCC
of skin, mucosal surfaces and renal cancer. Breast and pancreatic cancer also
have been identified as potential clinical targets, and may be studied in due
course. A feature of this entire group of cancers that underlies their selection
from a strategic point of view is their aggressiveness and generally low
sensitivity to standard chemotoxic drugs.



Novogen decided to pursue the clinical applications in prostate cancer and SCC
using the oral dosage form of the drug. This followed the trial use of the oral
dosage form in a number of patients who had completed the Phase I trials of the
intravenous dosage form of phenoxodiol. The oral dosage form was found capable
of prolonging survival in patients with advanced disease despite the presence of
phenoxodiol in the blood in an almost completely conjugated form. It appears
that certain types of tumors may have the capacity to deconjugate phenoxodiol
conjugates to the active drug form. Clinical trials on the oral dosage form of
phenoxodiol began in Australia in January 2002. This dosage form currently is
being evaluated in Australian hospitals in Phase II clinical trials for the
treatment of prostate cancer and in a U.S. hospital for the treatment of SCC.



An IND for the oral dosage form of phenoxodiol became effective in June 2003
which cleared the way to commence a study in collaboration with Yale University
School of Medicine in patients with SCC of the cervix vulva and vagina.
Phenoxodiol will be used on a monotherapy basis in patients following a primary
diagnosis of cancer. Phenoxodiol will be administered daily for periods of up to
4 weeks prior to surgery or radiotherapy.



A Phase lb/IIa study began in early 2002 on the use of phenoxodiol in patients
with hematological tumors, in an attempt to test the usefulness of phenoxodiol
in non-solid tumors. However, the apparent greater sensitivity of certain solid
tumors to phenoxodiol and the need to focus resources on those clinical
opportunities mean that an application in hematological tumors is unlikely to be
taken further.




Competition



The clinical development and commercialization of new anti-cancer drugs is
highly competitive. As a developmental stage pharmaceutical company, we compete
with pharmaceutical and biotechnology companies, academic and scientific
institutions, governmental agencies and public and private research
organizations.



Many pharmaceutical and biotechnology companies have drug candidates or non-drug
therapies including vaccines and radiotherapies in various stages of pre
clinical or clinical development to treat prostate cancer, ovarian cancer, SCC
and other cancers. Some of these potentially competitive drugs and therapies are
further advanced in development and may receive FDA or other regulatory approval
and may be commercialized earlier than phenoxodiol. Some of these drugs and
therapies may be directly competitive with phenoxodiol to the extent that they
would obviate the need for phenoxodiol. In other cases, however, phenoxodiol
could offer competitive advantages to these drugs and therapies. In other cases,
these drugs or therapies may not be competitive to the extent that they are not
mutually exclusive and could be used in conjunction with phenoxodiol.



Many pharmaceutical and biotechnology companies are developing drugs
specifically in the area of signal transduction inhibition. Several such drugs
have received marketing approval over the past five years. While much of the
activity in this field is based on rational drug design, meaning that the nature
of action of such drugs is overwhelmingly focused on individual signaling
targets, it would be reasonable to expect that attention will be drawn
increasingly to the development of drugs like phenoxodiol that have activity
against multiple targets.



Two signal transduction drugs have been approved by the FDA in recent years as
cancer therapies and are potentially competing products to phenoxodiol. Iressa
distributed by AstraZeneca, has been granted approval for use in the treatment
of advanced stage non-small cell lung cancer in patients who have already
received specific chemotherapy. Erbitux, distributed by Bristol-Myers Squibb,
was recently granted approval for use in the treatment of patients with
late-stage colo-rectal cancer. In the area of more traditional cytotoxic
anti-cancer drugs, Taxotere, a drug distributed by Aventis, was approved
recently 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 are also aware of the experimental drug, Telcyta, being developed by
Telik Inc. as a chemo-sensitizing drug for various cancers, including refractory
and resistant ovarian cancer, which is an indication also under development for
phenoxodiol.



Our competitors may develop and commercialize products that are safer, less
costly and more efficacious in the treatment of cancers. In addition, we and
Novogen, our services provider, face and will continue to face competition from
companies, institutions, agencies and organizations, including those in fields
unrelated to drug development, to recruit qualified personnel, attract partners
for joint ventures and license competitive technologies.



Many of our competitors 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 at present.
Aventis, which is developing FlavopiridolTM, AstraZeneca, which has been granted
approval for Iressa, and Bristol-Myers Squibb are three such companies with
potentially competitive anti-cancer drugs that have greater size, resources and
market presence than we do.





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 comprise phenoxodiol in the treatment of cancer
(15 pending and seven 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 the
production of isoflavone derivatives, including phenoxodiol (16 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 and 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.



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 Novogen will be able to
take advantage of these statutory pediatric marketing exclusivity provisions.



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 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
degenerative 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 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 $2.381 million for the year ended June 30, 2004, $2.024
million for the year ended June 30, 2003 and $0.069 million for the year ended
June 30, 2002.



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
expanded patient population.



We cannot be certain in 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, 2003 for the fiscal year 2004, the
user fee for an application requiring clinical data, such as an NDA, is
$573,500.  The FDA adjusts the PDUFA user fees on an annual basis.  PDUFA also
imposes an annual product fee for prescription drugs and biologics ($36,080),
and an annual establishment fee ($226,800) 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 experiences, 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 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 law's
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.



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, 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 (based on
the European Union requirements) to support the quality, safety and efficacy of
the drug. In the case of drugs for important medical conditions the TGA will
accept either European or American dossier format in an attempt to expedite the
registration process.



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. 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. 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.



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 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.



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

European Union

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.



There has recently been introduced in Europe new legislation designed to
harmonize the regulation of clinical trials across the EU and that legislation
is currently being implemented on a country by country basis. In addition, the
entire EU regulatory regime has recently undergone significant revision and the
new law is to take effect by the end of 2005. 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 since our inception, including net losses of
$8,538,000, $3,033,000 and $123,000 for the years ended June 30, 2004, 2003 and
2002 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 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 regulatory approval or if we do receive regulatory approval, it will be
limited to those disease states and conditions for which phenoxodiol has proven
to be safe and effective. Phenoxodiol is currently in Phase II clinical trials
in intravenous dosage form to treat late stage chemo-refractory ovarian cancer.
An IND became effective for phenoxodiol in the United States for the oral dosage
form in June 2003 and phenoxodiol in this form is being studied as an adjunctive
therapy for cervical cancer in the US.  The oral dosage form is also being
studied in clinical trials in Australia for prostate cancer and SCC. 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 events in the regulatory process will not be encountered
in the future.



Our ability to achieve profitability is dependent on a number of factors, many
of which are beyond our control.



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



•           Completing our clinical trial program and receiving regulatory
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 regulatory 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. It 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;



•         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 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 retain 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.



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 favorable 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 to treat prostate cancer, ovarian
cancer, SCC and other cancers that are the current focus of phenoxodiol.



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.



Two signal transduction drugs have been approved by the FDA in recent years as
cancer therapies and are potentially competing products to phenoxodiol. Iressa,
distributed by AstraZeneca, has been granted approval for use in the treatment
of advanced stage non-small cell lung cancer in patients who have already
received specific chemotherapy. Erbitux, distributed by Bristol Myers Squibb,
was recently granted approval for use in the treatment of patients with
late-stage colo-rectal cancer. In the area of more traditional cytotoxic
anti-cancer drugs, Taxotere, a drug distributed by Aventis, was approved
recently 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 are also aware of the experimental drug, Telcyta, being developed by
Telik Inc. as a chemo-sensitizing drug for various cancers, including refractory
and resistant ovarian cancer which is an indication also under development 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, including Aventis and AstraZeneca,
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.



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 Dr. Graham Kelly, our Chairman and phenoxodiol Program
Director, Professor Alan Husband, Novogen Research Director, and Mr. Chris
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.



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. See Part III, Item 13 'Certain Relationships and Related
Transactions' for a description of our principal obligations under our
agreements with Novogen. 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 he 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.



We cannot he 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 it the outcome is not adverse to us. In addition,
my 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 commercializa-tion
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.




Risks Related to Our Relationship with Novogen



As our majority stockholder, Novogen will have 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 majority of our directors are officers and/or directors of Novogen which may
create a conflict of interest.



Four of our six existing board members, including our Chairman, currently serve
as board members of Novogen. Our President and Chief Executive Officer,
Christopher Naughton, is the Managing Director 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.



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 anti-cancer 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 either on its own or in collaboration with
others, 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. Novogen has fully complied with the terms of our
services agreement. 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 build
a new manufacturing plant. To build a new manufacturing plant, Novogen will need
to scale up its current pilot plant. If the plant proves difficult to scale up
or requires significant redesign, our ability to commercialize phenoxodiol could
be delayed. Any larger manufacturing plant built by Novogen will also have to
comply with the FDA's current Good Manufacturing Practices, or cGMPs. Also,
significant additional capital will be required to build the plant. Such capital
may not be available to Novogen.



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.



The trading price of the shares of our common stock and warrants 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 and warrants 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 and warrants, 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.





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 market. 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, 2003
First Quarter                             -              -                2.46         2.35
Second Quarter                            -              -                2.49         2.46
Third Quarter                             -              -                2.47         2.28
Forth Quarter                             -              -                3.50         2.35

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
Forth Quarter                               12.00          7.31           6.10         5.20

Warrants

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



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, 2003
First Quarter                      $    1.5800      $    1.5192       $    1.5497      $    1.5700
Second Quarter                     $    1.6095      $    1.5418       $    1.5714      $    1.6095
Third Quarter                      $    1.6482      $    1.5624       $    1.6025      $    1.5790
Forth Quarter                      $    1.6840      $    1.5500       $    1.6183      $    1.6529

Year Ended June 30, 2004
First Quarter                      $    1.6718      $    1.5728       $    1.6107      $    1.6620
Second Quarter                     $    1.7842      $    1.6598       $    1.7079      $    1.7842
Third Quarter                      $    1.9045      $    1.7902       $    1.8385      $    1.8400
Forth Quarter                      $    1.8564      $    1.7544       $    1.8063      $    1.8126





As of July 31, 2004, the last reported closing price of our common stock an
warrants on the Nasdaq National Market was $6.90 and $3.20 respectively. The
price of our common stock on the AIM market was £4.55 as of July 31,
2004. There were approximately 74 stockholders of 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, totaled approximately $15,522,000. As of June
30, 2004, the Company had used $7,485,000 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 and $2,485,000 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 amount invested in short-term money market
accounts 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.



The occurrence of unforeseen events, opportunities or changed business
conditions, however, could cause us to use the net proceeds of the U.S. initial
public offering in a manner other than as described above.



Stock Repurchases



The Company has not repurchased any shares of common stock during the fourth
quarter of the fiscal year ended June 30, 2004.







Equity Compensation

The following table sets forth, as of June 30, 2004 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
holders1

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.



We were incorporated in December 2000 but did not commence operations until May
2002, coinciding with the Company's listing on the Alternative Investment Market
(AIM).


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

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

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

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

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




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

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

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

Total stockholders' equity                                  $   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 '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. Novogen's subsidiary
has granted to the Company's subsidiary, 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, 2004, the Company had accumulated losses
of $11,694,000.



During 2004, we made significant progress in the clinical development of
phenoxodiol including:

•         The release by Yale researchers of preliminary results of a
dose-finding study in women with recurrent ovarian cancer that has become
unresponsive to standard chemotherapy, who received intravenous phenoxodiol.
The data reflected outcomes of the first 20 of 40 measurable subjects and showed
that 13 patients were able to finish a three month treatment cycle, and 5
patients were considered to have had disease stabilization.  All patients
ultimately showed disease progression.  This trial is now complete and we are
awaiting final analysis of the trial data;



•         Commencing a clinical trial in cervical cancer at Yale New Haven
Hospital.  The study is the first to be conducted in the U.S. using the oral
dosage form of phenoxodiol and will be used in patients who have a primary
diagnosis of cancer for a period of four weeks.  Following treatment with
phenoxodiol, patients will be scheduled for either surgical resection or
radiotherapy.  The study will evaluate the safety and ability of phenoxodiol to
act as an effective anti-cancer drug when it is given as a monotherapy in early
stage cancer;



•         Commencing a renal cancer study of phenoxodiol in combination therapy
at St George Hospital in Sydney, Australia.  The study will involve patients
with late stage cancers that are no longer responding to standard
chemotherapies.  In this study, phenoxodiol will be administered orally;



•         Commencing a new multi-center trial to evaluate phenoxodiol as a
chemo-sensitizing agent in patients with chemo-resistant ovarian cancer.  The
first site involves up to 40 patients at Yale New Haven Hospital.  The two main
objectives of the study are to investigate the degree to which phenoxodiol
reverses chemo-resistance, and to compare the relative efficacies of paclitaxel
and cisplatin, each in combination with phenoxodiol;



•         Establishing a second trial site for the multi-center ovarian cancer
study at the Royal Women's Hospital in Melbourne Australia; and



•         Announcing preliminary data from the late-stage prostate cancer trial
being conducted at multiple sites in Australia.  The data showed that
phenoxodiol is biologically active by reducing or stabilizing Prostrate Specific
Antigen (PSA) levels in 8 of 12 patients receiving the study drug.



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 the agreements.



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.



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 $774,000 have been included in the financial
statements for the year ended June 30, 2004, of which $333,000 has been accrued
at June 30, 2004. 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, 2004
amount to $4,474,000.



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.




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,
                                                             2004      2003      2002
                                                                  (in thousands)

Interest and other income                                  $     193  $   145  $       7
                    Total revenues                               193      145          7


Research and development expenses                             Years Ended June 30,
                                                             2004      2003      2002
                                                                  (in thousands)

Clinical trial study costs                                 $   (774) $(1,060)     $ (11)
Clinical trial drug costs                                      (761)    (164)       (12)
Research and development service charge                        (811)    (790)       (45)
Other                                                           (35)     (10)        (1)
Total Research and Development Costs                         (2,381)  (2,024)       (69)


License Fees                                                  Years Ended June 30,
                                                             2004      2003      2002
                                                                  (in thousands)

License Fees                                                 (5,500)    (500)        -


Selling, general and administrative expenses                  Years Ended June 30,
                                                             2004      2003      2002
                                                                  (in thousands)

Legal and professional fees                                $   (250)  $ (119)  $    (14)
Administrative service charge                                  (302)    (285)       (23)
Foreign exchange gains/(losses)                                   58        3        -
Other                                                          (298)    (250)       (23)
                    Total operating expenses                   (792)    (651)       (60)





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 of 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 have been accrued at June 30, 2004 in
connection with the annual milestone license fee of $2,000,000 that is payable
to Novogen on December 31, 2004 under the terms of the license agreement with
Novogen.



Selling, General and Administrative: Selling, administrative and general
expenses increased by $251,000 to $908,000 for the year ended June 30, 2004
compared to $657,000 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.



Foreign Exchange Gains/(Losses): 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.



Year Ended June 30, 2003 Compared to the Year Ended June 30, 2002



The Company recorded a consolidated loss of $3,033,000 and $123,000 for the
years ended June 30, 2003 and 2002 respectively.



MEI commenced operations in May 2002 following its listing on the Alternative
Investment Market in the UK. Consequently, the financial results for the year
ended June 30, 2003 represent the first full year of the Company's operations.
The financial results reported for the year ended June 20, 2002 are the results
of only one month of operations.



Revenues: The Company received interest of $145,000 on cash assets and cash
equivalents for the year ended June 30, 2003 versus $7,000 for the year ended
June 30, 2002. The Company had no cash balance prior to its completion of a
share offering in May 2002. As a result, the Company only had the benefit of
interest income for one month in the year ended June 30, 2002 verses a full year
of interest income in the year ended June 30, 2003.



Research and Development: Research and Development expenses increased $1,955,000
to $2,024,000 for the year ended June 30, 2003 compared to $69,000 of the year
ended June 30, 2002. The Company took responsibility for research and
development costs of May 2002. The increase in research and development costs
for the year ended June 30, 2003 over 2002 was due to the fact that the year
ended June 30, 2003 was the first full year of clinical trial expenses and the
associated 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 of
which, $500,000 had been expensed in the fiscal year ended June 30, 2003.



Selling, General and Administrative: Selling, administrative and general
expenses increased $597,000 to $657,000 for the year ended June 30, 2003
compared to $60,000 for the year ended June 30, 2002. The increase was due
primarily to the fact that the year ended June 30, 2003 was the first full year
of operations.





Liquidity and Capital Resources



At June 30, 2004, the Company had cash resources of $24,819,000 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 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, 2004 was
$7,972,000 compared to $1,841,000 for the same period in 2003. The increase in
cash outflow of $6,131,000 for the year ended June 30, 2004 included the payment
of $5,000,000 to Novogen under the terms of the license agreement. The remaining
cash outflow of $1,131,000 resulted from increased payments of operating
expenses including clinical trial costs and drug supplies and payments to
Novogen for services provided pursuant to the services agreement.



Cash Provided from Financing Activities



Cash provided from financing activities for the year ended June 30, 2004 was
$25,578,000.



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 warrants are immediately exercisable from date of issue and
expire 3 years from their date of issue.

The net proceeds to the company form the offering totaled approximately
$15,522,000



Cash Requirements

Based on current plans, the Company believes that it will have sufficient cash
resources to fund operations at least through the end of June 2005 and to
complete the current Phase lb/IIa and Phase II clinical trial program, complete
the Phase II clinical trials of phenoxodiol as a monotherapy in early stage
cancer which commenced at Yale New Haven Hospital, and to Complete the Phase II
clinical trials of phenoxodiol in combinational therapy with other anti-cancer
drugs for late stage chemo-resistant tumors which also commenced at Yale New
Haven Hospital. 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
8.



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



Contractual Obligations



The following table summarizes our future payment obligations and commitments as
of June 30, 2004:

(In thousands)                                                         Payment due by period

Contractual Obligations                         Total      less than 1     1 - 3          3 - 5      More than 5
                                                              Year         Years          Years          Years
                                                                          

Purchase Obligations                     $      3,796  $      3,167     $     629  $        -    $        -             
Total                                    $      3,796  $      3,167     $     629  $        -    $        -
                                                                           



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



Accounting pronouncements issued by the FASB or other authoritative accounting
standards groups with future effective dates are either not applicable or not
significant to the consolidated financial statements.



Item 7a. Quantitative and Qualitative Disclosures about Market Risk



Interest Rate Risk



The Company places cash in 'on call' deposits with high quality financial
institutions.



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



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 Ernst & Young 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 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.



Sydney, Australia
13 August 2004




Ernst & Young


            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, 2003, and the related
consolidated statements of operations, shareholders' equity, and cash flows and
for each of the two years in the period 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 audits.



We conducted our audits 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 financial position of Marshall Edwards,
Inc. at June 30, 2003 and the consolidated results of its operations and its
cash flows for each of the two years in the period 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.




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,
                                           2004           2003

ASSETS
Current assets
Cash and cash equivalents              $ 24,819       $ 7,244
Prepaid expenses and other current           30            42
assets
Total current assets                     24,849         7,286
Total assets                           $ 24,849       $ 7,286

LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable                          $ 192          $ 433
Accrued expenses                            437            278
Amount due to parent company              1,278            642
Total current liabilities                 1,907          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
June 30, 2004 and 52,032,000 at               -               -
June 30, 2003
Additional paid-in capital               34,636            9,058
Deficit accumulated during              (11,694)          (3,156)
development stage
Accumulated other comprehensive               -               31
income
Total stockholders' equity               22,942            5,933
Total liabilities and                  $ 24,849          $ 7,286
stockholders' equity



                            See accompanying notes.



                             MARSHALL EDWARDS, INC.
                         (A Development Stage Company)
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

                               Years Ended June 30,                   Period from
                                                                      December 1,
                                                                             2000
                                                                      (inception)
                                                                     through June
                                                                               30,
                                     2004         2003         2002          2004

Revenues:
Interest and other income           $ 193        $ 145          $ 7         $ 345
Total revenues                        193          145            7           345

Operating expenses:
Research and development           (2,381)      (2,024)         (69)       (4,474)
License fees                       (5,500)        (500)           -        (6,000)
Selling, general and                 (850)        (654)         (60)       (1,564)
administrative

Total operating expenses           (8,731)      (3,178)        (129)      (12,038)

Loss from operations               (8,538)      (3,033)        (122)      (11,693)
Income tax expense                      -            -           (1)           (1)
Net loss arising during          $ (8,538)    $ (3,033)      $ (123)    $ (11,694)
development stage

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

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



                            See accompanying notes.

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

                                     Years Ended June 30,                  Period from
                                                                           December 1,
                                                                                  2000
                                                                           (Inception)
                                                                          through June
                                                                                   30,
                                           2004        2003        2002           2004

Operating activities
Net loss arising during development      (8,538)     (3,033)       (123)       (11,694)
stage
Adjustments to reconcile net loss to
net cash
used in operating activities:
Changes in operating assets and
liabilities:
Prepaid expenses and other current           12         (21)        (21)           (30)
assets
Accounts payable                           (241)        381          52            192
Accrued expenses                            159         278           -            437
Amounts due to parent company               636         554          88          1,278
Net cash used in operating               (7,972)     (1,841)         (4)        (9,817)
activities

Financing activities
Net proceeds from issuance of Common     25,578          36       9,022         34,636
Stock
Amounts payable in connection with
issuance of
Common Stock                                  -        (146)        146              -
Net cash provided by financing           25,578        (110)      9,168         34,636
activities
Effect of exchange rate changes on
cash and cash
equivalents                                 (31)         31           -              -
Net increase (decrease) in cash and
cash
equivalents                              17,575      (1,920)      9,164         24,819
Cash and cash equivalents at              7,244       9,164           -              -
beginning of period
Cash and cash equivalents at end of      24,819       7,244       9,164         24,819
period
Income taxes paid                             -           -           1              1

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



                            See accompanying notes.






                             MARSHALL EDWARDS, INC.

                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2004





1.   The Company and Summary of Significant Accounting Policies





Marshall Edwards, Inc. ('MEI') is a development stage company incorporated in
December 2000 as a wholly-owned subsidiary of Novogen Limited, an Australian
pharmaceutical company. MEI commenced operations in May 2002.  MEI, including
its wholly-owned Australian subsidiary, Marshall Edwards Pty. Limited ('MEPL')
(together the 'Company') 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 certain of its subsidiary companies (collectively 
'Novogen'), have granted to the Company a worldwide, non transferable license
under their patent and patent applications and in their know-how to conduct
clinical trials and commercialize and distribute all forms of delivering
phenoxodiol in the field of prevention, treatment and cure of cancer in humans
except topical applications. In addition, the Company has an exclusive first
right and an exclusive last right to match any proposed dealing by Novogen of
its intellectual property rights with a third party relating to synthetic
pharmaceutical compounds (other than phenoxodiol), that have known or potential
applications in the field of prevention, treatment or cure of cancer in humans
all forms other than topical applications.



The Company's business focus is to conduct the clinical program for the
development and commercialization of phenoxodiol.



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.



Use of 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.



Revenue Recognition



Interest



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






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.



Concentration of Credit Risk



Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist primarily of cash and cash equivalents. The company
limits its exposure to credit risk by placing its cash with high credit quality
financial institutions. Substantially all of the Company's cash is deposited in
financial institutions that are FDIC insured. These deposits are in excess of
the FDIC insurance limits.



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. Accumulated other comprehensive
loss includes the cumulative translation adjustments. 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. Research and development expenses consist mainly of
clinical trial expenditures, payments to Novogen for research and development
services under the terns of the services agreement and the cost of phenoxodiol
used in clinical trials supplied by Novogen under the terms of the manufacturing
license and supply agreement.



License Fees



Costs incurred related to the acquisition or licensing of products that have not
yet received regulatory approval to be marketed, or that are not commercially
viable and ready for use or have no alternative future use, are charged to
earnings in the period incurred.



Stock-Based Compensation



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.



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 Stockholders' Equity that are
excluded from net loss. Comprehensive loss for all periods presented has been
reflected in the Consolidated Statement of Stockholders' Equity.



Recent Accounting Announcements



Accounting pronouncements issued by the financial accounting standards board or
other authoritative accounting standards groups with future effective dates are
either not applicable or not significant to the consolidated financial
statements.



2.  Income Taxes



Loss from operations consists of the following jurisdictions:
                                                                      Year ended June 30,
                                                              2004            2003                 2002
                                                                        (in thousands $)

                                                                   (321)           (186)           (19)
Domestic                                                         (8,217)         (2,847)          (103)
Foreign                                                          (8,538)         (3,033)          (122)



The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense attributable to loss arising during development
stage is:

                                                       Year ended June 30,
                                              2004          2003          2002
                                               (in     %     (in     %     (in     %
                                            thousands     thousands     thousands
                                               $)            $)            $)

Tax at US statutory rates                     2,988    35   1,062    35    43     35
Australian tax                                (411)   (5)   (142)   (5)   (5)    (5)
Change in valuation allowance                 2,577    30     920    30    38     30
                                                                     
                                                  -     -      -      -     -      -
                                                             


Deferred tax liabilities and assets are comprised of the following:

                                                                   Year ended June 30,
                                                                2004               2003               2002
                                                                  (in thousands $)
Deferred tax liabilities
Unrealised Foreign Exchange Gain                                (25)                 -                  -
Accrued Interest Income                                          (2)                 -                  -
Prepayments                                                        -                 -                  4
Total deferred tax liabilities                                  (27)                 -                  4

Deferred tax assets
Tax carried forward losses                                     3,365               933                 42
Unrealised Foreign Exchange Loss                               (121)             (129)                (4)
Consultant and other accruals                                    318               154                  4
Total deferred tax assets                                       3562               958                 42

Valuation allowance for deferred tax assets                   (3535)             (958)               (38)




Management evaluates the recoverability of the deferred tax asset and the amount
of the required valuation allowance. Due to the uncertainty surrounding the
realization of the tax deductions in future tax returns, the Company has
recorded a valuation allowance against its net deferred tax asset at June 30,
2004 and 2003. At such time as it is determined that it is more likely than not
that the deferred tax assets will be realized, the valuation allowance will be
reduced.



There was no benefit from income taxes recorded for the period from December 1,
2000 (inception) to June 30, 2004 due to the Company's inability to recognize
the benefit of net operating losses. The Company had federal net operating loss
carry forwards of approximately $439,000 at June 30, 2004. The federal net
operating losses will begin to expire in 2022.



Foreign tax losses of approximately $10,702,000 at June 30, 2004, may be carried
forward indefinitely.



3.  Loss Per Share



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


                                                                    Years ended June 30,
                                                                 2004       2003       2002
                                                              (In Thousands, except share data)
Numerator
Net loss arising during development stage                    $ (8,538)   $ (3,033)   $   (123)
Effect of dilutive securities                                        -           -           -
Numerator for diluted earnings per share                       (8,538)     (3,033)       (123)

Denominator
Denominator for basic earnings per share -
Weighted average shares used in computing net loss per
share, basic and diluted.                                   54,954,578  52,023,247  49,769,581
Effect of dilutive securities                                        -           -           -

Dilutive potential common shares                            54,954,578  52,023,247  49,769,581


Basic and Diluted net loss per share                         $  (0.16)   $  (0.06)   $  (0.00)





During all periods presented the Company had warrants outstanding that could
potentially dilute basic earnings per share in the future, but were excluded
from the computation of diluted net loss per share as the effect would have been
anti-dilutive. The outstanding warrants consist of the following potential
common shares:


                                                                      As at June 30,
                                                               2004        2003        2002

Outstanding Warrants                                         2,392,000   2,514,000   2,523,000





The warrants outstanding at June 30, 2004 have an exercise price of $9.00 per
share and are exercisable prior to December 18, 2006.





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 and Contingencies


At June, 30, 2004, the Company contracted with third parties to conduct research
and development expenditures of approximately $3,796,000. Of the expenditure
commitments, clinical trial amounts are based on the assumption that all
patients enrolled in clinical trials will complete the maximum number of allowed
treatment cycles. The amounts, assuming all treatment cycles are completed, are
expected to be incurred as follows:





(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     $ 3,796    $ 3,167    $ 629      $ -        $ -

Total                    $ 3,796    $ 3,167    $ 629      $ -        $ -




No amounts have been included for future payments to Novogen which may arise in
connection with the license agreement, the services agreement or the
manufacturing license and supply agreement. Payments in connection with these
agreements are detailed in Note 7 'Related Party Transactions'



The company is not currently a party to any material legal proceedings.



The Company's certificate of incorporation provided that it will indemnify
Novogen in connection with certain actions brought against Novogen by any of the
Company's stockholders or any other person.



The Company has guaranteed the payment and performance of the obligations of its
subsidiary, Marshall Edwards Pty Limited, to Novogen and its subsidiaries,
Novogen Laboratories Pty Limited and Novogen Research Pty Limited, under the
license agreement, the manufacturing license and supply agreement and the
services agreement. Novogen has guaranteed the performance of the obligations of
Novogen Research Pty Limited under the license agreement and the obligations of
Novogen Laboratories Pty Limited under the manufacturing license and supply
agreement to Marshall Edwards Pty Limited. Each of the Company and Novogen's
obligations in the guarantee and indemnity agreement are absolute, unconditional
and irrevocable.





6.   Segment Information



The Company's focus is to continue the clinical program currently underway for
the development and commercialization of phenoxodiol. The business contains two
major segments based on geographic location.

                                               Year Ended June 30,
                                           2004                        2003                         2002
                    USA      Australia    Total   USA     Australia   Total   USA     Australia    Total
Statement of        (in thousands)
Operations

Interest Revenue       167          26      193     110          35     145       5           2        7

Loss from             (321)     (8,217)  (8,538)   (186)     (2,847)  (3,033)   (19)       (103)    (122)
operations

Income Tax               -           -        -       -           -       -       -          (1)      (1)
Expense

Net loss arising      (321)     (8,217)  (8,538)   (186)     (2,847)  (3,033)   (19)       (104)    (123)
during development
stage

Balance Sheet

Segment assets      34,220         802   35,022     8,896       374   9,270   9,188       1,981   11,169

Elimination of      (10,173)         -   (10,173) (1,984)         -   (1,984) (1,984)         -   (1,984)
investment in
subsidiary

Consolidated                                                             
Assets             $24,047     $   802   $24,849  $6,912    $   374  $ 7,286  $ 7,204    $ 1,981 $  9,185

Segment            $  110      $ 1,797   $1,907   $   43    $ 1,310  $ 1,353  $   185    $   101 $    286
liabilities                                                    





7.   Related Party Transactions



License Agreement



The license agreement is an agreement under which Novogen's subsidiary, Novogen
Research Pty Limited, grants to MEPL a worldwide non-transferable license under
its patent and patent applications and in its know-how to conduct clinical
trials and commercialize and distribute phenoxodiol products. The agreement
covers uses of phenoxodiol in the field of prevention, treatment or cure of
cancer in humans delivered in all forms except topical applications. The license
is exclusive until the expiration or lapsing of the last relevant Novogen
patents or patent applications in the world and thereafter is nonexclusive. MEPL
may terminate the agreement by giving three months' notice to Novogen. Novogen
may also terminate the agreement immediately if a change of control, as defined
in the license agreement, occurs without the consent of Novogen. MEPL paid
$5,000,000 to Novogen in February 2004 which was the first lump sum license fee
payment due under the terms of the license agreement. Future amounts payable to
Novogen under terms of the license agreement are as follows:



1. A second 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.



2. In addition to the amounts 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.



3. Amounts payable for annual 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



At June 30, 2004 an amount of $1,000,000 was accrued and reflected in amounts
due to parent company, being 50% of the milestone payment due December 31, 2004.
(June 2003: $500,000 was accrued). During the years ended June 30, 2004, 2003
and 2002, $5,500,000, $500,000 and Nil were charged to profit and loss.



Novogen developed phenoxodiol in part using funds from the Australian government
under what is known as the START Program. In the event that Novogen fails to
comply with its obligations under the agreement which governs this grant, or if
Novogen undergoes a change of control, the Australian government has the right
to demand that the intellectual property created during the course of the
project funded by the grant be vested back in the Australian government. 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 the Company's use of Novogen intellectual property  in the development
and commercialization of phenoxodiol and the Company may have to compete with
other companies to whom the Australian government may license the intellectual
property.



Termination



The Company may terminate the license agreement at any time, by giving three
months' notice to Novogen. The Company may also terminate the agreement if
Novogen commits a breach of any of its material obligations under the agreement,
becomes the subject of certain bankruptcy proceedings or is unable to lawfully
perform its obligations. Novogen may terminate the agreement if the Company
commits a breach of any of our material obligations under the agreement, become
the subject of certain bankruptcy proceedings or are unable to lawfully perform
our obligations. Novogen may also terminate the agreement immediately if a
change of control, as defined in the license agreement, occurs without the
consent of Novogen.





License Option Deed



The license option deed grants MEPL an exclusive right to accept and an
exclusive right to match any proposed dealing by Novogen of its intellectual
property rights with a third party relating to synthetic compounds (other than
phenoxodiol) that have known or potential applications in the field of
prevention, treatment or cure of cancer in humans in all forms other than
topical applications.







Term and Termination



The term of the deed is sixteen years from the commencement date of the
agreement, unless terminated earlier. The Company may terminate the deed at any
time on three months' notice to Novogen. Either party may terminate the deed
immediately at any time if the other party becomes the subject of certain
bankruptcy proceedings, becomes unable to carry out the transactions
contemplated by the agreement or breaches its obligations and does not cure such
breach within 21 days notice.



Novogen may also terminate the deed immediately if a change of control, as
defined in the license option deed, occurs without the consent of Novogen.



Services Agreement



The Company does not currently intend to directly employ any staff. Under the
terms of the services agreement, Novogen Limited or its subsidiaries have agreed
to provide services reasonably required by the Company relating to the
development and commercialization of phenoxodiol and other administration and
management support services. Novogen has agreed to provide these services at
cost plus a 10% mark-up. The Company may terminate the agreement on three months
written notice to Novogen.



Termination



The Company may terminate its rights and obligations under the services
agreement on three months' written notice to Novogen. Either the Company or
Novogen may terminate the agreement immediately at any time if the other party
becomes the subject of certain bankruptcy proceedings, becomes unable to carry
out the transactions contemplated by the agreement, breaches its obligations and
does not cure such breach within 21 days notice or if a change of control in the
other party occurs. Novogen may also terminate the agreement immediately if a
change of control, as defined in the services agreement, occurs without the
consent of Novogen.



Manufacturing License and Supply Agreement



Under the terms of the manufacturing license and supply agreement, MEPL has
granted to one of  Novogen's subsidiaries an exclusive, non-transferable
sublicense to manufacture and supply phenoxodiol in its primary manufactured
form. Novogen's subsidiary has agreed to supply phenoxodiol to MEPL for the
clinical trial development program and phenoxodiol's ultimate commercial use.
Novogen will supply phenoxodiol at cost plus a 50% markup.



Transactions amounting to $1,874,000, $1,239,000 and $79,000 were made under the
services agreement and the manufacturing license and supply agreement with
Novogen during the years ended June 30, 2004, June 30, 2003 and June 30, 2002
respectively. These amounts are recorded in research and development expenses
and in selling general and administration. At June 30, 2004, $278,000 owed to
Novogen under these agreements is included in amounts due to parent company. At
June 30, 2003, $142,000 was included in amounts due to parent company.



Termination



Either party may terminate the agreement immediately at any time if the other
party becomes the subject of certain bankruptcy proceedings, becomes unable to
carry out the transactions contemplated by the agreement or breaches its
obligations and does not cure such breach within 21 days notice. The Company may
also terminate the agreement immediately if the license agreement expires or is
terminated. Novogen may also terminate the agreement immediately if a change of
control, as defined in the manufacturing license and supply agreement, occurs
without the consent of Novogen.





Guarantee and Indemnity Agreement



The Company has guaranteed the payment and performance of the obligations of its
subsidiary, Marshall Edwards Pty Limited, to Novogen and its subsidiaries,
Novogen Laboratories Pty Limited and Novogen Research Pty Limited, under the
license agreement, the manufacturing license and supply agreement and the
services agreement. Novogen has guaranteed the performance of the obligations of
Novogen Research Pty Limited under the license agreement and the obligations of
Novogen Laboratories Pty Limited under the manufacturing license and supply
agreement to Marshall Edwards Pty Limited. Each of the Company's and Novogen's
obligations in the guarantee and indemnity agreement are absolute, unconditional
and irrevocable.





Indemnification



The Company and Novogen have each agreed to indemnity the other if either of our
respective subsidiaries default in the performance of any obligation under the
license agreement, the manufacturing license and supply agreement or the
services agreement. The defaulting party must indemnify the other against all
losses, liabilities and expenses, including legal expenses on a full indemnity
basis, incurred, directly or indirectly, as a result of that default. The party
in default must pay the amount of those losses, liabilities and expenses on
demand to the non-defaulting party. Furthermore, if Marshall Edwards Pty Limited
defaults on its payment obligations, the Company must pay that money as directed
by Novogen.



Termination



This agreement is a continuing obligation, and remains in full force until all
the guaranteed obligations have been irrevocably paid and performed in full.



8. Equity



Marshall Edwards, Inc. (the 'Company') is a development stage company
incorporated in December 2000 that commenced operations in May 2002 coinciding
with its listing on the London Stock Exchange's Alternative Investment Market
(AIM).



 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.





9. Quarterly Financial Data (Unaudited)


2004 for the quarter ended                       Jun-30        Mar-31        Dec-31         Sep-30            Year
                                              (in thousands except per share data)

Revenue                                              72            75            25             21             193
Net Loss                                        (1,201)       (1,541)       (4,682)        (1,114)         (8,538)
Net Loss arising during development stage       (1,201)       (1,541)       (4,682)        (1,114)         (8,538)
Basic and diluted loss per share                 (0.02)        (0.03)        (0.09)         (0.02)          (0.16)

2003 for the quarter ended                       Jun-30        Mar-31        Dec-31         Sep-30            Year
                                              (in thousands except per share data)

Revenue                                              29            36            37             43             145
Net Loss                                        (1,187)         (597)         (723)          (526)         (3,033)
Net Loss arising during development stage       (1,187)         (597)         (723)          (526)         (3,033)
Basic and diluted loss per share                 (0.02)        (0.01)        (0.01)         (0.01)          (0.06)






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



None.



Item 9a.

Controls and Procedures



Evaluation of Disclosure Controls and Procedures



The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the Company's disclosure controls and procedures as of the end of the period
covered by this report.  Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures as of the end of the period covered by this report were not designed
nor were functioning effectively to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms.  This conclusion
is based on the identified weakness in internal control over financial reporting
and in the disclosure controls that is described below under the heading Change
in Internal Control over Financial Reporting.





Change in Internal Control over Financial Reporting



In connection with the audit of the fiscal year ended June 30, 2004, Ernst &
Young, the Company's independent auditors, informed our Board of Directors that
they believe that the personnel and management of Novogen who perform our
accounting and financial reporting functions pursuant to the Services Agreement
are not sufficiently expert in U.S. GAAP and the requirements of the SEC and the
Public Company Accounting Oversight Board and that this lack of expertise
represents a material weakness in the operation of our internal control over
financial reporting.



Ernst & Young also noted 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 US 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.



In this regard, Ernst & Young have recommended that Novogen engage personnel
with expertise or train existing personnel in the following areas:

•         U.S. GAAP;

•         financial reporting in accordance with the SEC regulations;

•         requirements of the Public Company Accounting Oversight Board; and

•         application of technical accounting pronouncements.



We have sought assurances from Novogen that it will promptly remedy the concerns
raised by Ernst & Young and Novogen has presented to us a plan for addressing
these concerns.  We believe that Novogen's plan is designed to ensure that the
preparation of our consolidated financial statements, including the processes to
review and analyze elements of our financial statement close process, is in
accordance with US GAAP and that relevant information about US GAAP, SEC
financial reporting requirements, and the requirements of the Public Company
Accounting Oversight Board is available to those persons involved in the process
by which our financial statements are prepared.  Specifically Novogen's plan
provides for additional resources and further training of the Novogen accounting
team including:



1)      the employment of additional accounting staff on the Novogen accounting
team which will enable senior finance staff responsible for the preparation of
US GAAP financial reports to spend more time dealing with US GAAP reporting
issues;



2)      increasing the level of  attendance at targeted US GAAP and SEC
reporting courses by senior Novogen finance staff responsible for the
preparation of US GAAP financial reports and SEC disclosure; and



3)      subscribing to additional information networks that provide publications
and updates of SEC and US GAAP releases and rule changes and of information
about the requirements of the Public Company Accounting Oversight Board..



Novogen is already actively recruiting additional accounting staff and we expect
that they will have completed their hiring process during the second fiscal
quarter.  Additionally, Novogen's senior finance staff has already committed to
taking a number of training courses during the next six months, including the
SEC Institute's SEC Reporting Conference and the SEC Institute's SEC Reporting
Skills Workshop, and will continue to evaluate the merits of additional courses
as they become available.  Novogen has already begun to receive additional
publications and updates of SEC, US GAAP and Public Company Accounting Oversight
Board requirements and will review the adequacy of this additional information
within the next four months to determine whether additional resources are
required.



Until we are satisfied that we have addressed our need for sufficient expertise
in preparing financial statements required in our filings under the securities
law we will seek to mitigate this weakness by conferring with our outside
accounting advisors with respect to the technical requirements applicable to our
financial statements.



The implementation of the initiatives described above are among our highest
priorities.  Our Board of Directors, in coordination with our Audit Committee,
will continually assess the progress and sufficiency of these initiatives and
make adjustments as and when necessary.  As of the date of this report, we
believe that the plans outlined above, when completed, will eliminate the
weakness in internal accounting control as described above.  Nonetheless, a
control system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are met, and no
evaluation of controls can provide absolute assurance that all control issues
have been detected.



Item 9b.



Not applicable




PART III



Item 10. Directors and Executive Officers of the Registrant



Code of Ethics



 We have adopted a Code of Business and Ethics policy that applies to our
Directors and employees (including our principal executive officer and our
principal financial officer), and have posted the text of our policy on our
website (www.marshalledwardsinc.com). In addition, we intend to promptly
disclose (i) the nature of any amendment to the policy that applies to our
principal executive officer and principal financial officer and (ii) the nature
of any waiver, including an implicit waiver, from a provision of the policy that
is granted to one of these specified individuals, the name of such person who is
granted the waiver and the date of the waiver on our website in the future.



The other information required by this item is incorporated by reference from
the information under the caption 'Election of Directors' and the caption 
'Compensation and Other Information Concerning Officers, Directors and Certain
Stockholders' and the caption '16(a) Beneficial Ownership reporting Compliance'
contained in our proxy statement for the fiscal year ended June 30, 2004 (the 
'Proxy Statement').



Item 11. Executive Compensation



The information required by this item is incorporated herein by reference from
the information under the caption 'Compensation and Other Information Concerning
Officers, Directors and Certain stockholders' under the caption 'Compensation
Committee Interlocks and Insider Participation' contained in the Proxy
Statement.



Item 12. Security Ownership of Certain Beneficial Owners and Management



The information required by this item is incorporated by reference from the
Information under the caption 'Security Ownership of Certain Beneficial Owners
and Management' contained in the proxy statement.


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