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 quarterly period ended December 31, 2005
OR
o
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.
(Exact
name of registrant as specified in its charter)
|
DELAWARE
|
51-0407811
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification Number)
|
|
incorporation
or organization)
|
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. Yesx
No o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Exchange Act). Yes o
No x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
As
of
January 31, 2006 the number of shares outstanding of the issuer’s common stock,
$0.00000002 par value, was 56,938,000.
1
MARSHALL
EDWARDS, INC.
INDEX
|
PART
I
|
FINANCIAL
INFORMATION
|
Page
|
|
Item
1:
|
Financial
Statements (Unaudited)
|
|
|
Consolidated
Balance Sheets as of December 31, 2005 and June 30, 2005
|
3
|
|
|
Consolidated
Statements of Operations for the three months and six months ended
December 31, 2005 and 2004 and for the period from December 1, 2000
(inception) through December 31, 2005
|
4
|
|
|
Consolidated
Statements of Cash Flows for the six months ended December 31, 2005
and
2004 and for the period from December 1, 2000 (inception) through
December
31, 2005
|
5
|
|
|
Consolidated
Statement of Stockholders’ Equity
|
6
|
|
|
Notes
to Consolidated Financial Statements
|
7
|
|
|
Item
2:
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
17
|
|
Item
3:
|
Quantitative
and Qualitative Disclosures about Market Risk
|
25
|
|
Item
4:
|
Controls
and Procedures
|
26
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
Item
2:
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
|
Item
4:
|
Submission
of Matters to a Vote of Security Holders
|
28
|
|
Item
6:
|
Exhibits
and Reports on Form 8-K
|
30
|
|
SIGNATURES
|
31
|
|
2
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)
|
December
31,
|
June
30,
|
||||||
|
2005
|
2005
|
||||||
|
|
|
|
(unaudited)
|
||||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
17,735
|
$
|
9,238
|
|||
|
Short
term investments
|
-
|
10,000
|
|||||
|
Prepaid
expenses and other current assets
|
50
|
126
|
|||||
|
Total
current assets
|
17,785
|
19,364
|
|||||
|
Total
assets
|
$
|
17,785
|
$
|
19,364
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Accounts
payable
|
$
|
278
|
$
|
254
|
|||
|
Accrued
expenses
|
391
|
403
|
|||||
|
Amount
due to related company
|
4,176
|
2,186
|
|||||
|
Total
current liabilities
|
4,845
|
2,843
|
|||||
|
Stockholders'
equity:
|
|||||||
|
Preferred
stock, $0.01 par value, authorized 100,000 shares,
|
|||||||
|
none
outstanding
|
-
|
-
|
|||||
|
Common
stock, $ 0.00000002 par value, 113,000,000 authorized
|
|||||||
|
shares;
shares issued and outstanding: 56,938,000 at
|
|||||||
|
December
31, 2005 and 56,938,000 at June 30, 2005
|
-
|
-
|
|||||
|
Additional
paid-in capital
|
34,636
|
34,636
|
|||||
|
Deficit
accumulated during development stage
|
(21,696
|
)
|
(18,115
|
)
|
|||
|
Total
stockholders' equity
|
12,940
|
16,521
|
|||||
|
Total
liabilities and stockholders' equity
|
$
|
17,785
|
$
|
19,364
|
|||
See
accompanying notes to the consolidated financial
statements.
3
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except share and per share data)
(Unaudited)
|
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
Period
from December 1, 2000 (Inception) through
December 31,
|
||||||||||||||
|
2005
|
2004
|
2005
|
2004
|
2005
|
||||||||||||
|
Revenues:
|
||||||||||||||||
|
Interest
and other income
|
$
|
130
|
$
|
64
|
$
|
252
|
$
|
131
|
$
|
905
|
||||||
|
Total
revenues
|
130
|
64
|
252
|
131
|
905
|
|||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Research
and development
|
(469
|
)
|
(543
|
)
|
(1,055
|
)
|
(982
|
)
|
(7,808
|
)
|
||||||
|
License
fees
|
(1,000
|
)
|
(500
|
)
|
(2,000
|
)
|
(1,000
|
)
|
(11,000
|
)
|
||||||
|
Selling,
general and administrative
|
(439
|
)
|
(396
|
)
|
(778
|
)
|
(754
|
)
|
(3,792
|
)
|
||||||
|
Total
operating expenses
|
(1,908
|
)
|
(1,439
|
)
|
(3,833
|
)
|
(2,736
|
)
|
(22,600
|
)
|
||||||
|
Loss
from operations
|
(1,778
|
)
|
(1,375
|
)
|
(3,581
|
)
|
(2,605
|
)
|
(21,695
|
)
|
||||||
|
Income
tax expense
|
-
|
-
|
-
|
-
|
(1
|
)
|
||||||||||
|
Net
loss arising during development stage
|
$
|
(1,778
|
)
|
$
|
(1,375
|
)
|
$
|
(3,581
|
)
|
$
|
(2,605
|
)
|
$
|
(21,696
|
)
|
|
|
Net
loss per common share:
|
||||||||||||||||
|
Basic
and diluted
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
||||
|
Weighted
average common shares outstanding
|
56,938,000
|
56,938,000
|
56,938,000
|
56,938,000
|
||||||||||||
See
accompanying notes to the consolidated financial
statements.
4
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
Six
Months Ended
December
31,
|
Period
from December 1, 2000 (Inception) through
December 31,
|
|||||||||
|
2005
|
2004
|
2005
|
||||||||
|
Operating
activities
|
||||||||||
|
Net
loss arising during development stage
|
$
|
(3,581
|
)
|
$
|
(2,605
|
)
|
$
|
(21,696
|
)
|
|
|
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
|
76
|
10
|
(50
|
)
|
||||||
|
Accounts
payable
|
24
|
20
|
278
|
|||||||
|
Accrued
expenses
|
(12
|
)
|
8
|
391
|
||||||
|
Amounts
due to related company
|
1,990
|
854
|
4,176
|
|||||||
|
Net
cash used in operating activities
|
(1,503
|
)
|
(1,713
|
)
|
(16,901
|
)
|
||||
|
Financing
activities
|
||||||||||
|
Proceeds
from issuance of common stock
|
-
|
-
|
34,636
|
|||||||
|
Proceeds
from disposal of investments in short-term
deposits
|
10,000
|
-
|
-
|
|||||||
|
Net
cash provided by financing activities
|
10,000
|
-
|
34,636
|
|||||||
|
Net
increase (decrease) in cash and cash
|
||||||||||
|
equivalents
|
8,497
|
(1,713
|
)
|
17,735
|
||||||
|
Cash
and cash equivalents at beginning of period
|
9,238
|
24,819
|
-
|
|||||||
|
Cash
and cash equivalents at end of period
|
$
|
17,735
|
$
|
23,106
|
$
|
17,735
|
||||
See
accompanying notes to the consolidated financial statements.
5
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
(In
thousands, except share data)
(Unaudited)
|
Common
Stock
|
Additional
paid in capital
|
Deficit
accumulated during development
stage
|
Total
|
||||||||||
|
(shares)
|
|
|
|
||||||||||
|
Balance
at June 30, 2005
|
56,938,000
|
$
|
34,636
|
$
|
(18,115
|
)
|
$
|
16,521
|
|||||
|
Net
loss arising during development stage
|
(3,581
|
)
|
(3,581
|
)
|
|||||||||
|
Comprehensive
Loss
|
(3,581
|
)
|
|||||||||||
|
Balance
at December 31, 2005
|
56,938,000
|
$
|
34,636
|
$
|
(21,696
|
)
|
$
|
12,940
|
|||||
See
accompanying notes to the consolidated financial statements.
6
MARSHALL
EDWARDS, INC.
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December
31, 2005
1. The
Company and Summary of Significant Accounting Policies
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
six
months ended December 31, 2005 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2006 or any other period.
The
balance sheet at June 30, 2005 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 and notes thereto for the
year
ended June 30, 2005 which were included in the Company’s Annual Report on Form
10-K for the year ended June 30, 2005.
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
number 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 an exclusive worldwide, non transferable license under
their patents and patent applications and in their know-how to conduct clinical
trials and commercialize and distribute all forms of administering 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
in 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.
7
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 on
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.
Revenue
Recognition
Interest
The
only
revenue earned to date is interest on cash balances.
Cash
and Cash Equivalents and Short Term
Investments
Cash
on
hand and in banks and short-term deposits are stated at their nominal value.
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. Highly liquid investments with
stated maturities of greater than three months are classified as short-term
investments. The Company’s cash, held in the U.S., is deposited in financial
institutions that are FDIC insured. These deposits are in excess of the FDIC
insurance limits. The Company also holds cash with Australian financial
institutions.
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.
8
Translation
of MEPL’s Financial Statements into U.S dollars does not have a material impact
on the Company’s financial position.
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.
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. Since
the Company has a loss for all periods presented, diluted and basic earnings
per
share are the same.
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
2. Loss
Per Share
The
following table sets forth the computation of basic and diluted net loss
per
common share:
|
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
||||||||||||
|
2005
|
2004
|
2005
|
2004
|
||||||||||
|
(In
Thousands, except share and per share data)
|
|||||||||||||
|
Numerator
|
|||||||||||||
|
Net
loss arising during development stage
|
(1,778
|
)
|
(1,375
|
)
|
(3,581
|
)
|
(2,605
|
)
|
|||||
|
Effect
of dilutive securities
|
-
|
-
|
-
|
-
|
|||||||||
|
Numerator
for diluted earnings per share
|
$
|
(1,778
|
)
|
$
|
(1,375
|
)
|
$
|
(3,581
|
)
|
$
|
(2,605
|
)
|
|
|
Denominator
|
|||||||||||||
|
Denominator
for basic earnings per share - weighted-average
shares
|
56,938,000
|
56,938,000
|
56,938,000
|
56,938,000
|
|||||||||
|
Effect
of dilutive securities
|
-
|
-
|
-
|
-
|
|||||||||
|
Dilutive
potential common shares
|
56,938,000
|
56,938,000
|
56,938,000
|
56,938,000
|
|||||||||
|
Basic
and diluted earnings per share
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
|
During
the period 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. Since the Company has a loss for all periods presented, diluted
and basic earnings per share are the same. The outstanding warrants consist
of
the following potential common shares:
|
As
at December 31,
|
|||||||
|
2005
|
2004
|
||||||
|
Common
shares issuable upon exercise of outstanding warrants
|
2,392,000
|
2,392,000
|
|||||
The
warrants outstanding at December 31, 2005 have an exercise price of $9.00 per
share and are exercisable prior to December 18, 2006.
3. Expenditure
Commitments
At
December 31, 2005, the Company had contractual obligations for the conduct
of
research and development of approximately $2,264,000. 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
Obligations
|
Total
|
less
than 1 Year
|
1
- 3 Years
|
3
- 5 Years
|
More
than 5 Years
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Purchase
Obligations
|
$
|
2,264
|
$
|
1,819
|
$
|
445
|
$
|
-
|
$
|
-
|
||||||
|
Total
|
$
|
2,264
|
$
|
1,819
|
$
|
445
|
$
|
-
|
$
|
-
|
||||||
10
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 as future payments under the terms
of
the agreements are subject to termination provisions. Payments in connection
with these agreements are detailed in Note 5 “Related Party
Transactions”.
The
Company is not currently a party to any material legal proceedings.
The
Company’s certificate of incorporation provides 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.
The
Company has issued a letter of support to the Directors of Marshall Edwards
Pty
Limited guaranteeing financial support, for a period of twelve months ending
October 7, 2006, should it be unable to meet any of its financial
commitments.
4.
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.
|
Three
Months Ended December 31,
2005
|
Three
Months Ended December 31,
2004
|
||||||||||||
|
(In
Thousands)
|
|||||||||||||
|
USA
|
Australia
|
USA
|
Australia
|
||||||||||
|
Loss
from operations
|
$
|
(68
|
)
|
$
|
(1,710
|
)
|
$
|
(104
|
)
|
$
|
(1,271
|
)
|
|
|
Segment
assets
|
15,058
|
2,727
|
15,281
|
7,845
|
|||||||||
|
Six
Months Ended December 31,
2005
|
Six
Months Ended December 31, 2004
|
||||||||||||
|
(In
Thousands)
|
|||||||||||||
|
USA
|
Australia
|
USA
|
Australia
|
|
|||||||||
|
Loss
from operations
|
$
|
(98
|
)
|
$
|
(3,483
|
)
|
$
|
(178
|
)
|
$
|
(2,427
|
)
|
|
11
5. 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 patents 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 non-exclusive.
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. Also, MEPL paid
$2,000,000 to Novogen in January 2005 which was the annual milestone license
fee
payment due under the license agreement. MEPL paid $4,000,000 to Novogen in
January 2006 which was the annual milestone license fee payment due under 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 the later
of
November 1, 2003 or such 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.
The Company has not yet reached these preconditions for payment.
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.
In
addition to the amounts above, beginning in 2006, an $8 million annual milestone
license fee is payable under the license agreement for each calendar year ended
December 31 during the exclusivity period of the license.
Milestone
license fees of $4,000,000 have been accrued as at the end of December 31,
2005
in connection with the annual milestone payment due within 30 days following
the
end of the calendar year December 31, 2005. The Company paid the December 31,
2005 annual milestone license fee of $4,000,000 due to Novogen at the end of
January 2006.
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.
12
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.
Transactions
giving rise to expenditures amounting to $651,000 and $522,000 were made under
the services agreement with Novogen during the six months ended December 31,
2005 and 2004, respectively. Of these amounts, $296,000 and $187,000 related
to
service fees paid to Novogen for research and development services provided
in
the six months ended December 31, 2005 and 2004, respectively, reflecting
increased time spent by Novogen research staff on the development of
phenoxodiol. Additionally, $355,000 and $335,000 of the total expenditure during
the six months ended December 31, 2005 and 2004, respectively related to costs
incurred for administration and accounting services provided by Novogen.
At
December 31, 2005 and 2004, $116,000 and $102,000, respectively, were due and
owing to Novogen under the services agreement and are included in amounts due
to
parent company.
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
giving rise to expenditures amounting to $226,000 and $220,000 were made under
the manufacturing license and supply agreement with Novogen during the six
months ended December 31, 2005 and 2004, respectively.
At
December 31, 2005 and 2004, $31,000 and $30,000, respectively, were due and
owing to Novogen under the manufacturing license and supply agreement and are
included in amounts due to parent company.
6.
Equity
MEI
is a
development stage company incorporated in December 2000 that commenced
operations in May 2002 coinciding with its listing on the Alternative Investment
Market of the London Stock Exchange.
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
Alternative Investment Market of the London Stock Exchange. Following the
listing, Novogen Limited retained 95.1% of the Company’s common stock.
13
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 $15,522,000, 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.
14
Item
2:
Management’s Discussion and Analysis of Financial Condition and Results of
Operation
Special
Note Regarding Forward-Looking Statements
This
quarterly report on Form 10-Q 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 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:
|
· the
Company’s inability to obtain any additional required financing or
financing available to us on acceptable terms;
|
|
· the
Company’s failure to successfully commercialize its product
candidates;
|
|
· costs
and delays in the development and/or receipt of FDA or other required
governmental approvals, or the failure to obtain such approvals,
for the
Company’s product candidates;
|
|
· uncertainties
in clinical trial results;
|
|
· the
Company’s inability to maintain or enter into, and the risks resulting
from its dependence upon, collaboration or contractual arrangements
necessary for the development, manufacture, commercialization,
marketing,
sales and distribution of any products;
|
|
· continued
cooperation and support of Novogen, the Company’s parent
company;
|
|
· 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 generally and the receipt of the regulatory
approvals;
|
|
· changes
in industry practice; and
|
|
· one-time
events.
|
15
These
risks are not exhaustive. Other sections of this quarterly report may include
additional factors which could adversely impact business and financial
performance. In addition, the Company’s business and financial performance may
be affected by the factors that are discussed under “Risk Factors” in the Annual
Report on Form 10-K for the year ended June 30, 2005. 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 the 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 candidate called 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 ended June 30, 2005 and in the six
months ended December 31, 2005 was to undertake human clinical testing of
phenoxodiol. During the six months ended December 31, 2005, the Company
continued to recruit patients into the existing clinical trial programs. The
Company is also in the planning phase of its phase III multinational ovarian
cancer efficacy study.
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
December 31, 2005, the Company had accumulated losses of
$21,696,000.
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.
16
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.
Development
Expenses
Research
and development costs incurred since inception through December 31, 2005
aggregate to $7,808,000.
Research
and development costs include clinical trial expenses and are expensed as they
are incurred and are expected to increase in the future as the phenoxodiol
clinical program progresses.
Historical
research and development costs and clinical trial costs have not been documented
on a project by project basis. In addition, research and development resources
are supplied by Novogen across several projects. As a result, the costs incurred
for each clinical project cannot be stated precisely on a project by project
basis.
The
Company expects that a large percentage of research and development expenses
in
the future will be incurred in support of current and future clinical
development programs. These expenditures are subject to a number of
uncertainties in timing and cost to completion.
The
duration and cost of clinical trials may vary significantly over the life of
a
project as a result of:
• the
number of sites included in the trials;
• the
length of time required to enroll suitable patients;
• the
number of patients that participate in the trials;
• the
end points and analyses required for regulatory approval; 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.
17
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.
Clinical
Trial 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 $296,000 have been accrued at December 31, 2005. These
estimates are based on the number of patients in each trial and the patient
treatment cycles completed or milestones achieved.
Clinical
research contracts may vary depending on the clinical trial design and protocol.
Generally the costs, and therefore estimates, associated with clinical trial
contracts are based on the number of patients, patient treatment cycles, the
type of treatment and the outcome being measured. The length of time before
actual amounts can be determined will vary depending on length of the patient
cycles and the timing of the invoices by the clinical trial
partners.
Results
of Operations
Three
Months Ended December 2005 and 2004
The
Company recorded a consolidated loss of $1,778,000 and $1,375,000 for the three
months ended December 31, 2005 and 2004, respectively.
Revenues:
The Company received interest on cash assets and cash equivalents and short
term
investments of $130,000 for the three months ended December 31, 2005 versus
$64,000 for the three months ended December 31, 2004. The increase was due
to an
increase in interest rates combined with the Company investing some of its
cash
in short term investment deposits which yield a greater rate of return than
cash
accounts.
Research
and Development: Research and Development expenses decreased $74,000 to
$469,000 for the three months ended December 31, 2005 compared to $543,000
for
the three months ended December 31, 2004. The decrease was primarily due to
lower clinical trial expenses as the current trials are nearing completion.
The
Company expects research and development clinical trial expenses to increase
in
the future in accordance with the planned clinical trial program.
License
Fees: Milestone license fees of $1,000,000 have been accrued in the
three months ended December 31, 2005 in connection with the annual milestone
license fee of $4,000,000 that is payable to Novogen, within 30 days after
December 31, 2005 under the terms of the license agreement with Novogen.
Milestone license fees of $500,000 were accrued during the three months ended
December 31, 2004 in connection with the annual milestone license fee of
$2,000,000 due to Novogen December 31, 2004. Milestone license fees are expected
to increase to $8 million per year under the terms of the license agreement
with
Novogen.
18
Selling,
General and Administrative: Selling, administrative and general
expenses increased by $43,000 to $439,000 for the three months ended December
31, 2005 compared to $396,000 for the three months ended December 31, 2004.
The
increase was due primarily to additional spending on public relations, and
additional costs of filing fees and share registry costs. Foreign exchange
gains/(losses) are included in selling, general and administrative expenses
and
occur when revaluing cash denominated in foreign currencies and upon
consolidation of MEI’s wholly owned Australian subsidiary Marshall Edwards Pty
Ltd (“MEPL”). MEPL uses 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. Translation of MEPL’s
financial statements into U.S. dollars did not have a material impact on the
Company’s financial position. Net foreign exchange losses during the three
months ended December 31, 2005 were $16,000 compared with net foreign exchange
losses of $16,000 during the three months ended December 31, 2004.
Six
Months Ended December 2005 and 2004
The
Company recorded a consolidated loss of $3,581,000 and $2,605,000 for the six
months ended December 31, 2005 and 2004, respectively.
Revenues:
The Company received interest on cash assets and cash equivalents and short
term
investments of $252,000 for the six months ended December 31, 2005 versus
$131,000 for the six months ended December 31, 2004. The increase was due to
an
increase in interest rates combined with the Company investing some of its
cash
in short term investment deposits which yield a greater rate of return than
cash
accounts.
Research
and Development: Research and Development expenses increased $73,000 to
$1,055,000 for the six months ended December 31, 2005 compared to $982,000
for
the six months ended December 31, 2004. The increase was primarily due to the
additional costs charged under the Novogen Services Agreement, reflecting
increased time spent by Novogen research staff on the development of
phenoxodiol. This increase was partially offset by a reduction in the amount
spent on legal advice relating to the development of phenoxodiol and reduced
clinical trial expenses. The Company expects research and development clinical
trial expenses to increase in the future in accordance with the planned clinical
trial program.
License
Fees: Milestone license fees of $2,000,000 were accrued in the six
months ended December 31, 2005 in connection with the annual milestone license
fee of $4,000,000 that is payable to Novogen, within 30 days, after December
31,
2005 under the terms of the license agreement with Novogen. The December 31,
2005 milestone license fee of $4,000,000 was paid to Novogen in January 2006.
.Milestone license fees of $1,000,000 were accrued during the six months ended
December 31, 2004 in connection with the annual milestone license fee of
$2,000,000 due to Novogen December 31, 2004. The December 31, 2004 milestone
license fee of $2,000,000 was paid to Novogen in January 2005.
19
Selling,
General and Administrative: Selling, administrative and general
expenses increased by $24,000 to $778,000 for the six months ended December
31,
2005 compared to $754,000 for the six months ended December 31, 2004. The
increase was due to additional cost of compliance, additional share registry
costs and additional fees charged under the Services agreement with Novogen
partially offset by a reduction in foreign exchange losses. Foreign exchange
gains/(losses) are included in selling, general and administrative expenses
and
occur when revaluing cash denominated in foreign currencies and upon
consolidation of MEI’s wholly owned Australian subsidiary Marshall Edwards Pty
Ltd (“MEPL”). MEPL uses 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. Translation of MEPL’s
financial statements into U.S. dollars did not have a material impact on the
Company’s financial position. Net foreign exchange losses during the six months
ended December 31, 2005 were $19,000 compared with net foreign exchange losses
of $40,000 during the six months ended December 31, 2004.
Liquidity
and Capital Resources
At
December 31, 2005, the Company had cash resources of $17,735,000 compared to
$19,238,000 at June 30, 2005. 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 six months ended December 31, 2005 was
$1,503,000 compared to $1,713,000 for the same period in 2004. The decrease
in
cash outflow of $210,000 for the six months ended December 31, 2005 was due
primarily to the timing of clinical trial payments as the current clinical
trials are nearing completion.
Cash
Requirements
The
Company believes that it will have to raise additional cash resources during
the
calendar year to fund its planned operations, and the Company is currently
assessing the financing alternatives available to it.
The
Company is planning to conduct a phase III clinical study to support marketing
approval of phenoxodiol for ovarian cancer. The trial will use phenoxodiol
in
combination with an existing chemotherapeutic and will assess phenoxodiol’s
safety and efficacy for late stage ovarian cancer patients who are refractory
to
standard chemotherapies. The Company is discussing trial design with the FDA
to
develop a trial protocol, including the number of treatment arms needed to
be
completed and the number of patients required to be tested in each arm. The
Company has not completed the trial design and has not finally determined the
cash resources needed to complete the trial.
Novogen
has notified the Company that its new anti-cancer compound NV-196 (previously
referred to as NV-18) is now an “option compound” under the terms of the license
option deed and that Novogen has commenced phase I clinical trials. The Company
has commissioned an independent evaluation report on NV-196 and will review
initial clinical results before making a decision to commence license
negotiations with Novogen. Additional cash resources will be required to enable
the Company to confirm a license for NV-196 and to enable it to undertake the
clinical development program for that compound.
20
Ongoing
operations through the conduct of the clinical trial program will continue
to
consume cash resources without generating revenues and the Company will require
additional cash resources to expand the clinical trial program for phenoxodiol
in the treatment of prostate cancer.
The
Company is also required to make payments under the terms of the license
agreement with Novogen as follows:
1.
A
second lump sum license fee of $5,000,000 is payable to Novogen on the later
of
November 1, 2003 or such 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.
The Company has not yet reached these preconditions for payment.
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.
In
addition to the amounts above, beginning in 2006, an $8 million annual milestone
license fee is payable under the license agreement for each calendar year ended
December 31 during the exclusivity period of the license.
At
June
30, 2005 an amount of $2,000,000 was accrued and reflected in amounts due to
the
parent company, being 50% of the $4,000,000 milestone payment payable to Novogen
on December 31, 2005 under the terms of the license agreement with Novogen.
An
additional milestone license fee accrual of $2,000,000 was made at December
31,
2005 in connection with the $4,000,000 payment due within 30 days following
the
end of the calendar year, December 31, 2005. The Company paid the December
31,
2005 annual milestone license fee of $4,000,000 due to Novogen at the end of
January 2006.
The
Company will also be required to make payments to Novogen under the services
agreement and manufacturing license and supply agreement.
The
Company does not intend to incur any significant capital expenditures in the
foreseeable future.
Off-Balance
Sheet Arrangements
The
Company does not currently have any off-balance sheet arrangements.
21
Contractual
Obligations
The
following table summarizes the Company’s contractual obligations at December 31,
2005:
|
(In
thousands)
|
Payment
due by period
|
|||||||||||||||
|
Contractual
Obligations
|
Total
|
less
than 1 Year
|
1
- 3 Years
|
3
- 5 Years
|
More
than 5 Years
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Purchase
Obligations
|
$
|
2,264
|
$
|
1,819
|
$
|
445
|
$
|
-
|
$
|
-
|
||||||
|
Total
|
$
|
2,264
|
$
|
1,819
|
$
|
445
|
$
|
-
|
$
|
-
|
||||||
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 as future payments under the terms
of
the agreements are subject to termination provisions.
New
Accounting Pronouncements
Share-Based
Payments
In
December 2004, the FASB Issued Statement of Financial Accounting Standards
No.
123R (Statement 123R), "Share-Based Payments", the provisions of which are
effective for the Company in fiscal 2006. This Statement eliminates the
alternative to use APB No. 25's intrinsic value method of accounting that was
provided in Statement 123 as originally issued. Statement 123R requires
companies to recognize the cost of employee services received in exchange for
awards of equity instruments based on the grant-date fair value of those awards.
While the fair-value-based method prescribed by Statement 123R is similar to
the
fair-value-based method disclosed under the provisions of Statement 123 in
most
respects, there are some differences. The Company’s stock option plan provides
for the grant of options to the Company’s directors, employees, employees of the
Company’s affiliates and certain of the Company’s contractors and consultants.
To date no options have been issued under the plan.
22
Item
3: Quantitative and Qualitative Disclosures about Market Risk
Interest
Rate Risk
The
Company places cash in “on call” deposits and short term investments 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 December 31, 2005, the Company had not
established a foreign currency hedging program. Net foreign exchange losses
during the six months ended December 31, 2005 were $19,000 compared with net
foreign exchange losses of $40,000 during the six months ended December 31,
2004. Foreign exchange gains and losses occur upon consolidation of MEPL, which
uses U.S. dollars as its functional currency and also engages in transactions
in
foreign currencies. MEPL’s accounts are denominated in Australian dollars.
Translation of MEPL’s financial statements into U.S. dollars did not have a
material impact on the Company’s financial position.
The
Company does not consider the effects of foreign currency movements to be a
material risk to its financial condition.
23
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 this evaluation, the
Company’s principal executive officer and principal financial officer have
concluded that the Company’s disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports
that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms.
The
removal of the identified weakness in internal control over financial reporting
and in disclosure controls, which was identified and reported in prior filings,
is described below under the heading “Changes in Internal
Controls”.
Changes
in Internal Controls
In
2004,
the Company determined that the personnel and management of Novogen who perform
its accounting and financial reporting functions pursuant to the services
agreement were 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 represented a material weakness in the operation of the Company’s
internal control over financial reporting.
In
addition, the Company had concluded that its system of financial reporting
was
not designed to prepare financial statements in accordance with U.S. GAAP and
that its system of internal control, in particular the processes to review
and
analyze elements of the financial statement close process and prepare
consolidated financial statements in accordance with U.S. GAAP, had 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, the Company required 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.
|
Prior
to
the period covered by this report, Novogen had made significant progress in
implementing its plan to address the identified material weakness. However,
as
of the end of such reporting periods the Company was not satisfied that Novogen
had fully addressed the issues underlying the material weakness. During the
period covered by this report, Novogen finalized its procedures in addressing
the material weakness and the Company now believes that Novogen has adopted
processes that are designed to ensure that the preparation of the Company’s
consolidated financial statements, including the processes to review and analyze
elements of the Company’s financial statement close process, is in accordance
with U.S. GAAP and that relevant information about U.S. 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
the financial statements are prepared. As a result, the Company has re-assessed
the effectiveness of Novogen’s disclosure controls and procedures as they relate
to the Company and having allowed a period of time to determine the
effectiveness of additional controls and procedures, it now believes that the
weakness in internal accounting control as described above has been
eliminated.
24
The
changes that have been made to Novogen’s internal control procedures have
occurred gradually over time. Therefore, during the quarter ended December
31,
2005, there has been no change in internal control over reporting that has
materially affected or is reasonably likely to materially affect our internal
control over financial reporting.
25
PART
II OTHER INFORMATION
Item
2: Unregistered Sales of Equity Securities and Use of Proceeds
(b) 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 December
31,
2005, the Company had used $14,569,000 of the proceeds of the offering, of
which: $5,000,000 was used to make the first license fee payment due to Novogen
under the terms of the license agreement; $2,000,000 was used to make the
milestone license fee payment due to Novogen under the terms of the license
agreement; and $7,569,000 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 for general corporate expenses.
All remaining proceeds of the offering have been invested in short-term money
market accounts.
The
Company has used the remainder of the proceeds from the offering to partly
pay
the December 31, 2005 annual milestone license fee of $4,000,000 paid to Novogen
at the end of January 2006.
Item
4.
Submission of Matters to a Vote of Security Holders.
| (a) |
The
Company held its annual meeting of stockholders on November 30,
2005.
|
| (b) |
Mr.
Christopher Naughton and Professor Graham E. Kelly were elected at
the
annual meeting for a term of three years expiring at the 2008 annual
meeting of stockholders and until their respective successors have
been
duly elected and qualified.
|
The
following directors continued their term of office after the
meeting:
Professor
Paul Nestel
Mr.
Philip Johnston
Mr.
Stephen Breckenridge
Professor
David De Kretser
| (c) |
At
the 2005 annual meeting, holders of the Company’s common stock, voted for
the election of two members of the Company’s Board of Directors to serve
for terms expiring at the annual meeting in 2008 and until their
respective successors have been duly elected and qualified. Holders
of the
Company’s common stock also voted for the ratification of BDO as the
Company’s independent registered public accounting firm for the fiscal
year ending June 30, 2006 and for the voluntary cancellation of the
trading of the Company’s common stock on the Alternative Investment Market
of the London Stock Exchange.
|
26
At
the
meeting, the following votes for and against, as well as the number of
abstentions and broker non-votes were recorded for each matter as set forth
below:
|
Matter
|
For
|
Against
|
Abstain
|
Withhold
authority
|
Broker
non-votes
|
|||||||||||
|
1.Election
of Directors
|
||||||||||||||||
|
Christopher
Naughton
|
52,962,452
|
-
|
-
|
34,671
|
-
|
|||||||||||
|
Professor
Graham E. Kelly
|
52,966,852
|
-
|
-
|
30,271
|
-
|
|||||||||||
|
2.Ratification
of the appointment of BDO as independent auditors for the fiscal
year
ending June 30, 2006.
|
52,984,926
|
4,382
|
7,815
|
-
|
-
|
|||||||||||
|
3.Approval
of the voluntary cancellation of the trading of the Company's common
stock
on the Alternative Investment Market of the London Stock Exchange.
|
52,983,323
|
6,300
|
7,500
|
-
|
-
|
|||||||||||
27
Item
6: Exhibits and Reports on Form 8-K
a)
Exhibits
Exhibit
Index
Exhibits
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).
|
(b)
Reports on Form 8-K.
No
reports on Form 8-K were filed during the quarter.
28
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
SEATON
__________________________________________
David
R.
Seaton
Chief
Financial Offer
(Duly
Authorized Officer and Principal Financial Officer)
Date:
February 7, 2006
29
Exhibit
31.1
CERTIFICATION
I,
Christopher Naughton, certify that:
| 1. |
I
have reviewed this report on Form 10-Q of Marshall Edwards,
Inc.;
|
| 2. |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
| 4. |
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) ) for the registrant
and have:
|
| (a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared:
|
| (b) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
| (c) |
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting; and
|
| 5. |
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors:
|
| (a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
| (b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
February 7,
2006
/s/CHRISTOPHER NAUGHTON
_________________________
Christopher
Naughton
Chief
Executive Officer
30
Exhibit
31.2
CERTIFICATION
I,
David
Ross Seaton, certify that:
| 1. |
I
have reviewed this report on Form 10-Q of Marshall Edwards,
Inc.;
|
| 2. |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
| 3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
| 4. |
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) ) for the registrant
and have:
|
| (a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within these
entities, particularly during the period in which this report is
being
prepared:
|
| (b) |
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
| (c) |
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the Company’s internal control over financial
reporting; and
|
| 5. |
The
Company’s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of the registrant’s
board of directors:
|
| (a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
| (b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
February 7,
2006
/s/ DAVID SEATON
_______________________
David
R.
Seaton
Chief
Financial Officer
31
Exhibit
32
CERTIFICATION
Pursuant
to the requirement set forth in Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63
of
Title 18 of the United States Code (18 U.S.C. § 1350), Christopher Naughton, the
President and Chief Executive Officer of Marshall Edwards, Inc. (the
“registrant”), and David R. Seaton, the Chief Financial Officer of the
registrant, each hereby certifies that, to his or her knowledge:
| 1. |
The
registrant’s Quarterly Report on Form 10-Q for the period ended December
31, 2005, to which this Certification is attached as Exhibit 32 (the
“Periodic Report”), fully complies with the requirements of Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934, as amended;
and
|
| 2. |
The
information contained in the Periodic Report fairly presents, in
all
material respects, the financial condition of the registrant at the
end of
the period covered by the Periodic Report and results of operations
of the
registrant for the period covered by the Periodic
Report.
|
These
certifications accompany the Form 10-Q to which they relate, are not deemed
filed with the Securities and Exchange Commission and are not to be incorporated
by reference into any filing of the registrant under the Securities Act of
1933,
as amended, or the Securities Exchange Act of 1934, as amended (whether made
before or after the date of the Form 10-Q), irrespective of any general
incorporation language contained in such filing.
Dated:
February 7, 2006
/s/
CHRISTOPHER
NAUGHTON
/s/ DAVID SEATON
_________________________________
_____________________
Christopher Naughton David R. Seaton
Chief
Executive
Officer
Chief Financial Officer