##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 
 FORM 10-Q
 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the period ended March 31, 2004 OR [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to ________. Commission File Number: 000-50484   Marshall Edwards, Inc.  DELAWARE
    
    51-0407811(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 140 Wicks Road, North Ryde, NSW, 2113 Australia
(Address of principal executive offices) (Zip Code) (011) 61 2 8877- 6196
Registrants telephone number, including area code:   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]    No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [   ]    No [X] As of April 30, 2004, the number of shares outstanding of the issuers common
stock, $0.00000002 par value, was 56,938,000.




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##### 



MARSHALL EDWARDS, INC.
INDEX PagePART I FINANCIAL INFORMATIONItem 1: Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets as of March 31, 2004 and June 30, 2003
    
    
    3Consolidated Statements of Operations for the three months and nine months
ended March 31, 2004 and 2003 and for the period from December 1, 2000
(inception) through March 31, 2004
    
    
    4Consolidated
Statements of Cash Flows for the nine months ended March 31, 2004 and 2003 and for the period from December 1, 2000
(inception) through March 31, 2004
    
    
    5Consolidated Statement of Stockholders Equity
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2: Managements discussion and Analysis of Financial Condition and
Results of Operation
    
    
    13Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4: Controls and Procedures
    
    
    21PART II OTHER INFORMATIONItem 2: Changes in Securities and Use of Proceeds
    
    
    22Item 6: Exhibits and Reports on Form 8-K
    
    
    23SIGNATURES
    
    
    24
 2




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##### 



PART I FINANCIAL
INFORMATION

Item 1: Financial Statements MARSHALL EDWARDS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(unaudited) March 31,
    
    June 30,2004
    
    2003(unaudited)
    
    (Note 1)ASSETSCurrent assetsCash and cash equivalents
    
    $
    25,546
    
    
    $
    7,244Prepaid expenses and other current assets
    
    
    14
    
    
    
    42Total current assets
    
    
    25,560
    
    
    
    7,286Total assets
    
    $
    25,560
    
    
    $
    7,286LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    140
    
    
    $
    433Accrued expenses
    
    
    440
    
    
    
    278Amount due to parent company
    
    
    837
    
    
    
    642Total current liabilities
    
    
    1,417
    
    
    
    1,353Stockholders 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
March 31, 2004 and 52,032,000 at June 30, 2003
    
    
    
    
    
    
    Additional paid-in capital
    
    
    34,636
    
    
    
    9,058Deficit accumulated during development stage
    
    
    (10,493
    )
    
    
    (3,156
    )Accumulated other comprehensive income
    
    
    
    
    
    
    31Total stockholders equity
    
    
    24,143
    
    
    
    5,933Total liabilities and stockholders equity
    
    $
    25,560
    
    
    $
    7,286
 See accompanying notes. 3




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##### 



MARSHALL EDWARDS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited) Period fromDecember 1,2000 (Inception)Three Months Ended
    
    Nine Months Ended
    
    throughMarch 31,
    
    March 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003
    
    2004Revenues:Interest and other income
    
    $
    75
    
    
    $
    36
    
    
    $
    121
    
    
    $
    115
    
    
    $
    273Total revenues
    
    
    75
    
    
    
    36
    
    
    
    121
    
    
    
    115
    
    
    
    273Operating expenses:Research and devolpment
    
    
    (690
    )
    
    
    (532
    )
    
    
    (1,819
    )
    
    
    (1,527
    )
    
    
    (3,912
    )License fees
    
    
    (500
    )
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,500
    )Selling, general and administrative
    
    
    (405
    )
    
    
    (140
    )
    
    
    (686
    )
    
    
    (446
    )
    
    
    (1,373
    )Foreign exchange gains(losses)
    
    
    (21
    )
    
    
    39
    
    
    
    47
    
    
    
    12
    
    
    
    20Total operating expenses
    
    
    (1,616
    )
    
    
    (633
    )
    
    
    (7,458
    )
    
    
    (1,961
    )
    
    
    (10,765
    )Loss from operations
    
    
    (1,541
    )
    
    
    (597
    )
    
    
    (7,337
    )
    
    
    (1,846
    )
    
    
    (10,492
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Net loss arising during development stage
    
    $
    (1,541
    )
    
    $
    (597
    )
    
    $
    (7,337
    )
    
    $
    (1,846
    )
    
    $
    (10,493
    )Net loss per common share:Basic and diluted
    
    $
    (0.027
    )
    
    $
    (0.011
    )
    
    $
    (0.136
    )
    
    $
    (0.035
    )Weighted average common shares outstanding
    
    
    56,938,000
    
    
    
    52,023,000
    
    
    
    54,098,411
    
    
    
    52,023,000
 See accompanying notes. 4




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##### 



MARSHALL EDWARDS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) Period fromDecember 1, 2000(Inception)Nine Months Ended
    
    throughMarch 31,
    
    March 31,2004
    
    2003
    
    2004Operating activitiesNet loss arising during development stage
    
    
    (7,337
    )
    
    
    (1,846
    )
    
    
    (10,493
    )Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:Changes in operating assets and liabilities:Prepaid expenses and other current assets
    
    
    28
    
    
    
    (3
    )
    
    
    (14
    )Accounts payable
    
    
    (292
    )
    
    
    433
    
    
    
    144Accrued expenses
    
    
    162
    
    
    
    
    
    
    
    578Amounts due to parent company
    
    
    195
    
    
    
    
    
    
    
    695Net cash used in operating activities
    
    
    (7,244
    )
    
    
    (1,416
    )
    
    
    (9,090
    )Financing activitiesNet proceeds from issuance of Common Stock
    
    
    25,577
    
    
    
    
    
    
    
    34,636Net cash provided by financing activities
    
    
    25,577
    
    
    
    
    
    
    
    34,636Effect of exchange rate changes on cash and cash
equivalents
    
    
    (31
    )
    
    
    
    
    
    
    Net increase (decrease) in cash and cash
equivalents
    
    
    18,302
    
    
    
    (1,416
    )
    
    
    25,546Cash and cash equivalents at beginning of period
    
    
    7,244
    
    
    
    9,164
    
    
    
    Cash and cash equivalents at end of period
    
    
    25,546
    
    
    
    7,748
    
    
    
    25,546Income taxes paid
    
    
    
    
    
    
    1
    
    
    
    1
 See accompanying notes. 5




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MARSHALL EDWARDS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(In thousands, except share data)
(Unaudited) Deficitaccumulated
    
    Accumulatedduring
    
    otherAdditional paid
    
    development
    
    comprehensiveCommon Stock
    
    in capital
    
    stage
    
    income/(loss)
    
    Total(shares)Balance at June 30, 2003
    
    
    52,032,000
    
    
    $
    9,058
    
    
    $
    (3,156
    )
    
    $
    31
    
    
    $
    5,933Net loss from operations for the nine months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    to March 31, 2004
    
    
    
    
    
    
    
    
    
    
    (7,337
    )
    
    
    
    
    
    
    (7,337
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    (31
    )Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,368
    )Common Stock issued November 30, 2003
    
    
    2,514,000
    
    
    
    10,056
    
    
    
    
    
    
    
    
    
    
    
    10,056Common Stock
issued December 18, 2003

(including 2,392,000 warrants)
    
    
    2,392,000
    
    
    
    15,522
    
    
    
    
    
    
    
    
    
    
    
    15,522Balance at March 31, 2004
    
    
    56,938,000
    
    
    $
    34,636
    
    
    $
    (10,493
    )
    
    $
    
    
    
    $
    24,143
 See accompanying notes. 6




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##### 



MARSHALL EDWARDS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2004 1. Organization and Basis of Preparation of Financial Statements The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. Marshall Edwards, Inc. (MEI) believes all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months and
nine months ended March 31, 2004 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2004 or any other period. The
balance sheet at June 30, 2003 has been derived from the audited financial
statements at that date. The financial statements and notes should be read in
conjunction with the audited financial statements for the year ended June 30,
2003 which were included in the MEIs Amendment No. 3 to Form S-1 filed
December 10, 2003. 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 initial business focus is to continue the clinical program
currently under way for the development and commercialization of phenoxodiol. In May 2002, the Company sold 2,523,000 shares of its common stock and
2,523,000 warrants, raising proceeds of $9,022,000, net of $1,070,000 of
transaction costs. The warrants were exercisable prior to November 30, 2003 at
an exercise price of $4.00 per share. The common stock was listed for trading
on the London Stock Exchanges Alternative Investment Market (AIM).
Following the listing, Novogen Limited retained 95.1% of the Companys common
stock. 7




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##### 



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 resulting in 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 $15,522,000, net of $2,418,000 transaction costs
in the December 2003 offering. Following the offering, Novogen Limited
retained 86.9% of the Companys common stock. 2. Accounting Policies Revenue Recognition Interest The only revenue earned to date is interest on cash balances. Principles of Consolidation The consolidated financial statements include the accounts of Marshall Edwards,
Inc. and its wholly-owned subsidiary, Marshall Edwards Pty. Limited.
Significant intercompany accounts and transactions have been eliminated in
consolidation. Estimates The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and the accompanying notes. Actual results could
differ from those estimates. Cash and cash equivalents Cash on hand and in banks and short-term deposits are stated at the nominal
value. The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. 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. 8




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Income Taxes Income taxes have been provided for using the liability method in accordance
with FASB Statement No. 109, Accounting for Income Taxes. Under this method,
deferred tax assets and liabilities are recognized and measured using enacted
tax rates in effect for the year in which the differences are expected to be
recognized. Valuation allowances are established against the recorded deferred
income tax assets to the extent that management believes that it is more likely
than not that a portion of the deferred income tax assets are not realizable. Fair Value of Financial Instruments The carrying amounts of the Companys financial instruments, including cash and
cash equivalents and accounts payable approximate fair value. Foreign Currency Translation The financial statements of MEPL have been translated into U.S. dollars in
accordance with FASB Statement No. 52, Foreign Currency Translation. Assets
and liabilities are translated into U.S. dollars using the exchange rates in
effect at the balance sheet date. Income statement amounts have been translated
using the average exchange rate for the periods. Realized gains and losses from
foreign currency transactions are reflected in the consolidated statements of
operations. Research and Development Expenses Research and development expenses relate primarily to the cost of conducting
human clinical trials of phenoxodiol. Research and development costs are
charged to expense as incurred. Stock-Based Compensation The Companys stock option plan provides for the grant of options to 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. 9




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3. Loss Per Share The following table sets forth the computation of basic and diluted net loss
per common share: Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2004
    
    2003
    
    2004
    
    2003(In Thousands, except share data)NumeratorNet loss arising during development stage
    
    
    (1,541
    )
    
    
    (597
    )
    
    
    (7,337
    )
    
    
    (1,846
    )Effect of dilutive securities
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    Numerator for diluted earnings per share
    
    
    (1,541
    )
    
    
    (597
    )
    
    
    (7,337
    )
    
    
    (1,846
    )DenominatorDenominator for basic earnings per share -
weighted-average shares
    
    
    56,938,000
    
    
    
    52,023,000
    
    
    
    54,098,411
    
    
    
    52,023,000Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive potential common shares
    
    
    56,938,000
    
    
    
    52,023,000
    
    
    
    54,098,411
    
    
    
    52,023,000
 4. Financial Instruments The fair value of financial assets and liabilities approximates their carrying
value in the Consolidated Balance Sheets because they are short term and at
market rates of interest. 5. Expenditure Commitments At March, 31, 2004, the Company had contracted to conduct research and
development expenditures of approximately $2,460,000. 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: $340,000 in the fiscal year
ended June 30, 2004, $1,698,000 in the fiscal year ended June 30, 2005 and
$422,000 in the fiscal year ended June 30, 2006. 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 10




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##### 



6. Segment Information The Companys focus is to continue the clinical program currently underway for
the development and commercialization of phenoxodiol. Three Months Ended
    
    Three Months EndedMarch 31, 2004
    
    March 31, 2003USA
    
    Australia
    
    USA
    
    AustraliaLoss from operations
    
    $
    (223
    )
    
    $
    (1,318

    )
    
    $
    (28
    )
    
    $
    (569
    )Segment assets at March 31
    
    
    24,149
    
    
    
    1,411
    
    
    
    6,920
    
    
    
    133
 Nine Months Ended
    
    Nine Months EndedMarch 31, 2004
    
    March 31, 2003USA
    
    Australia
    
    USA
    
    AustraliaLoss from operations
    
    $
    (274
    )
    
    $
    (7,063
    )
    
    $
    (99
    )
    
    $
    (1,747
    )
 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. 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. This amount was accrued at December 31, 2003. 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 Year2004
    
    $
    2,000,0002005
    
    $
    4,000,000Each calendar year thereafter
    
    $
    8,000,000
 11




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##### 



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. 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. 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. 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 sub
license 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 $468,654 and $1,375,110 were made under the services
agreement and the manufacturing license and supply agreement with Novogen
during the three months and nine months ended March 31, 2004, respectively. At
March 31, 2004, $188,364 owed to Novogen is included in accounts payable. 12




---



##### 



Item 2: Managements Discussion and Analysis of Financial Condition and
Results of Operation Special Note Regarding Forward-Looking Statements This quarterly report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Security Exchange Act of 1934, as amended. All statements other than
statements of historical facts contained in this quarterly report, including
statements regarding the future financial position, business strategy and plans
and objectives of management for future operations, are forward-looking
statements. The words believe, may, will, estimate, continue,
anticipate, intend, should, plan, expect, and similar expressions, as
they relate to the Company, are intended to identify forward-looking
statements. The Companys has based these forward-looking statements largely
on current expectations and projections about future events and financial
trends that it believes may affect financial condition, results of operations,
business strategy and financial needs. These forward-looking statements are
subject to a number of risks, uncertainties and assumptions, including, among
other things:  
    
    Companys inability to obtain any additional required
financing or financing available to the Company on acceptable
terms;
    
    the Companys failure to successfully commercialize our product
candidates;
    
    costs and delays in the development and/or FDA approval,
of the failure to obtain such approval, of the Companys product
candidates;
    
    uncertainties in clinical trial results;
    
    the Companys inability to maintain or enter into, and
the risks resulting from our dependence upon, collaboration or
contractual arrangements necessary for the development,
manufacture, commercialization, marketing, sales and distribution
of any products;
    
    competition and competitive factors;
    
    the companys inability to protect its patents or
proprietary rights and obtain necessary rights to third party
patents and intellectual property to operate its business;
    
    the Companys inability to operate its business without
infringing the patents and proprietary rights of others;
    
    general economic conditions;
    
    the failure of any products to gain market acceptance;
    
    technological changes;
    
    government regulation and the receipt of the regulatory approvals;
    
    changes in industry practice ; and
    
    one time events. 13




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##### 



These risks are not exhaustive. Other sections of this quarterly report may
include additional factors which could adversely impact business and financial
performance. Moreover, the Company operates in a very competitive and rapidly
changing environment. You should not rely upon forward-looking statements as
predictions of future events. The Company cannot assure you that the events
and circumstances reflected in the forward-looking statements will be achieved
or occur. Although it believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. The following discussion is qualified in its entirety by, and should be read in
conjunction with, the more detailed information set forth in financial
statements and the notes thereto appearing elsewhere in this report. Overview MEI is a development stage company incorporated on December 1, 2000 as a
wholly-owned subsidiary of Novogen. The Company commenced operations in May
2002 and 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 during fiscal year 2003 and in the nine months to
March 31, 2004 was 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 March
31, 2004, the Company had accumulated losses of $10,493,000. 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. 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 14




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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 $637,000 have been included in the financial
statements for the nine months ended March 31, 2004, of which $430,000 has been
accrued at March 31, 2004. These estimates are based on the number of patients
in each trial and the patient treatment cycle. Clinical research contracts may vary depending on the clinical trial design and
protocol. Generally the costs, and therefore estimates, associated with
clinical trial contracts are based on the number of patients, patient treatment
cycles, the type of treatment and the outcome being measured. The length of
time before actual amounts can be determined will vary depending on length of
the patient cycles and the timing of the invoices by the clinical trial
partners. Development Expenses Research and development costs incurred since inception through March 31, 2004
amount to $3,912,000. 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 15




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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 Three Months Ended March 2004 and 2003 The Company recorded a consolidated loss of $1,541,000 and $597,000 for the
three months ended March 2004 and 2003, respectively. Revenues: The Company received interest on cash assets and cash equivalents of
$75,000 for the three months ended March 31, 2004 versus $36,000 for the three
months ended March 31, 2003. The 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 $158,000
to $690,000 for the three months ended March 31, 2004 compared to $532,000 of
the three months ended March 31, 2003. The increase was due primarily to the
increase in cost of phenoxodiol supplied for use in the clinical trial program.
Research and development expenses for the three months ended March 31, 2004
also include an initial payment of $20,000 due on commencement of the cervical
cancer clinical trial being conducted at Yale University New Haven Hospital. License Fees:Milestone license fees of $500,000 have been accrued in the three
months ended March 31, 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 $265,000 to $405,000 for the three months ended March 31,
2004 compared to $140,000 for the three months ended March 31, 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 public relations also increased. Foreign Exchange Gains/(Losses):Foreign exchange gains/losses occur when
revaluing cash denominated in foreign currencies and upon consolidation of
MEIs wholly owned Australian subsidiary Marshall Edwards Pty Ltd (MEPL),
which has U.S. dollars as its functional currency and also engages in
transactions in foreign currencies. Further, MEPLs accounts and financial
statements are denominated in Australian dollars. Foreign exchange losses were
$21,000 for the three months ended March 31, 2004 compared to gains of $39,000
for the three months ended March 31, 2003. Nine Months Ended March 2004 and 2003 The Company recorded a consolidated loss of $7,337,000 and $1,846,000 for the
nine months ended March 31, 2004 and 2003 respectively. Revenues:The Company received interest of $121,000 on cash assets and
cash equivalents for the nine months ended March 31, 2004 versus $115,000 for
the nine months ended March 31, 2003 The increase was due to the higher cash
balances following the exercise of the 16




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Companys outstanding Warrants in November 2003 and the Companys December 2003
public offering. Research and Development:Research and Development expenses increased $292,000
to $1,819,000 for the nine months ended March 31, 2004 compared to $1,527,000
of the nine months ended March 31, 2003. The increase was due primarily to the
cost of phenoxodiol supplied for use in the clinical trial program which
increased due to Novogens higher production costs and increased dosages. 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, $4,500,000 of license fee expense was included in the Consolidated
Statement of Operations for the nine months ended March 2004. The remaining
$500,000 had been expensed in the fiscal year ended June 30, 2003. Milestone license fees of $500,000 have been accrued in the three months ended
March 31, 2004 in connection with the 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 $240,000 to $686,000 for the nine months ended March 31,
2004 compared to $446,000 for the nine months ended March 31, 2003. The
increase occurred in the three months ended March 31, 2004 and was due
primarily to the increase in the costs associated with professional and other
fees relating to compliance with United States reporting requirements. Other
expenses including public relations also increased. Foreign Exchange Gains/(Losses):Foreign exchange gains/losses occur when
revaluing cash denominated in foreign currencies and upon consolidation of
MEPL, which uses US dollars as its functional currency and also engages
transactions in foreign currency. Further, MEPLs accounts and financial
statements are denominated in Australian dollars. For the nine months ended
March 31, 2004 exchange gains were $47,000 compared to exchange gains of
$12,000 for the nine months ended March 31, 2003. Liquidity and Capital Resources At March 31, 2004, the Company had cash resources of $25,546,000 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 market 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 nine months ended March 31, 2004 was
$7,244,000 compared to $1,416,000 for the same period in 2003. The increase in
cash outflow of $5,828,000 for the nine months ended March 31, 2004 included
the payment of $5,000,000 to Novogen under the terms of the license agreement.
The remaining cash outflow of $828,000 resulted from increased payments of
operating expenses including clinical trial costs and drug supplies. 17




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Cash Provided from Financing Activities Cash provided from financing activities for the nine months ended March 31,
2004 was $25,577,000. 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 Company intends to use the proceeds of the December 2003 public offering as
follows:  
    
    Approximately $1.1 million to commence Phase II clinical trials of
phenoxodiol as a monotherapy in earlier stage cancers;  
    
    Approximately $4.2 million to commence Phase II clinical trials of
phenoxodiol in combinational therapy with other anti-cancer drugs for
late stage chemo-resistant tumors; and  
    
    The balance for other corporate purposes, including potential payments
to Novogen under the terms of the license agreement, potential
licensing of other cancer compounds developed by Novogen and potential
expansion of the clinical trial program for phenoxodiol to include
other forms of cancer. 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 December 2004 and to
complete the current Phase lb/IIa and Phase II clinical trial program, commence
Phase II clinical trials of phenoxodiol as a monotherapy in early stage cancer,
and to commence Phase II clinical trials of phenoxodiol in combinational
therapy with other anti-cancer drugs for late stage chemo resistant tumors.
Ongoing operations through the conduct of the clinical trial program will
continue to consume cash resources without generating revenues. If the Phase III clinical program, which is a multi-center study measuring
efficacy in a large number of patients is undertaken, additional funds will be
required to complete the program. The Company is not able to reasonably
estimate at this time either the amount required or when that amount will need
to be raised. This will to a large extent be influenced by the number of
patients enrolled in the trial, which can only be determined accurately upon
completion of Phase II trials. If the Phase II trials are successful the
Company will seek to raise the funds required to complete Phase III trials or
enter into a collaborative arrangement with a major pharmaceutical company. The Company must pay amounts to Novogen under the license agreement with
Novogen when certain milestones are met. For details of the amounts payable see
note 7 to the Financial Statements Related Party Transactions, included under
Item 1. The Company does not intend to incur any significant capital expenditures in
the foreseeable future. 18




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Contractual obligations The following table summarizes our future payment obligations and commitments
as of March 31, 2004: (In thousands)
    
    Payment due by periodless than
    
    1 - 3
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    Years
    
    3 - 5 Years
    
    5 YearsLong Term Debt Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations
    
    $
    3,468
    
    
    $
    2,666
    
    
    $
    802
    
    
    $
    
    
    
    $
    Other Long-term Lease
Liabilities Reflected on
the Balance Sheet under
GAAP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,468
    
    
    $
    2,666
    
    
    $
    802
    
    
    $
    
    
    
    $
    
 Off-Balance Sheet Arrangements The Company does not currently have any off-balance sheet arrangements. 19




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Item 3: 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 various currencies, primarily
in U.S. and Australian dollars. At March 31, 2004, the Company had not
established a foreign currency hedging program. Net foreign exchange gains
during the nine months ended March 31, 2004 were $47,000 compared with net
exchange gains of $12,000 during the nine months ended March 31, 2003. Foreign
exchange gains and losses occur upon consolidation of MEPL which uses U.S.
dollars as its functional currency and also engages in transactions in foreign
currencies. MEPLs accounts are denominated in Australian dollars. The Company does not consider the effects of foreign currency movements to be a
material risk to its financial condition. 20




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Item 4: Controls and Procedures Evaluation of Disclosure Controls and Procedures At the end of the period covered by this report, the Companys management, with
the participation of the Companys principal executive officer and principal
financial officer, evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended). Based on that evaluation, the
Companys principal executive officer and principal financial officer have
concluded that the Companys disclosure controls and procedures were designed
and 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 was recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. Changes in Internal Controls There were no changes in the Companys internal controls over financial
reporting during the three months ended March 31, 2004 that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting. Limitations on the Effectiveness of Controls The Company believes that a control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues, if any, within a company have been detected. 21




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PART II OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds (d) The effective date of the registration statement (Registration No.
333-109129) filed on Form S-1 and registration statement (Registration No.
333-111291) filed on Form S-1 pursuant to Rule 462(b), both relating to the
initial public offering in the United States of common stock units (each unit
consisting of one share of the Companys common stock and one warrant to
purchase a share of the Companys common stock at an exercise price of $9.00
per share), was December 17, 2003. Proceeds to the Company from the offering,
after deduction of underwriting discounts and commissions of approximately
$806,000 and offering costs of approximately $1,612,000, totalled approximately
$15,522,000. As of March 31, 2004, the Company had used $6,758,000 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
$1,758,000 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. 22




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Item 6: Exhibits and Reports on Form 8-K a) Exhibits Exhibit Index Exhibits3.1
    
    Amended and Restated Certificates of Incorporation. (1)3.2
    
    Amended and Restated Bylaws. (1)4.2
    
    Specimen Stock Certificate. (1)31.1
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a)31.2
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a)32
    
    Certification required by Rule 13a-14(b) or Rule 15d-14(b) and
section 1350 of Chapter 63 of Title 18 of the United States Code (18
U.S.C 1350).
  (1)
    
    Incorporated by reference to exhibits to the Registration
Statement on Form S-1 filed on December 18, 2003, as amended (Reg. No.
333-109129).(b)
    
    The Company did not file any reports on Form 8-K during the three
months ended March 31, 2004. 23




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized. MARSHALL EDWARDS, INC./s/ DAVID SEATONDavid R. SeatonChief Financial Offer(Duly Authorized Officer and PrincipalFinancial Officer)
 Date: May 12, 2004 24