ASX & MEDIA RELEASE 26 AUGUST 2005

NOVOGEN SALES UP, CLINICAL TRIAL RESULTS EMERGING

Pharmaceutical company Novogen Limited (ASX:NRT, NASDAQ:NVGN), has ended the 2004/5 financial year with a lift in sales by its consumer products business and encouraging preliminary data from its advanced pharmaceutical clinical trial program.

Revenue for the year was $17.7 million ($16.4 million) and included a five per cent increase in sales of consumer products from $12.7 million to $13.4 million.

The sales increase was the result of more targeted promotional programs emphasising Novogen’s product range as the most clinically trialled natural alternatives, and an extension of distribution channels in Australasia, the EU and the US.

Cash reserves at 30 June 2005 were $47.3 million, a decrease of $11.1 million over the year.

Cash was used primarily for research and development expenses of $10.2 million, an increase of $1.9 million from $8.3 million in the previous corresponding period.

Funds were expended on the Novogen Group’s human clinical trial program, including the anti-cancer drug, phenoxodiol, and cardiovascular and anti-inflammatory research and development.

Phenoxodiol is currently being evaluated by Novogen’s majority owned subsidiary, Marshall Edwards Inc. (MEI), in phase II clinical trials for the treatment of prostate cancer, ovarian cancer and squamous cell carcinomas (SCC) of the cervix, vagina and vulva.

According to Novogen managing director, Mr Christopher Naughton, the Group would continue to increase its commitment to research and development.

“Our strong cash position and Improved sales from our consumer products division ensure we will be able to maintain momentum with advanced research and development into isoflavones and pharmaceuticals based on our patented human phenolic hormone technology,” Mr Naughton said.

During the year the Group made significant progress in the clinical development of phenoxodiol including:

•		In November 2004, MEI was granted “fast track” status with the US Food and Drug Administration (FDA) for its intended use as a chemo-sensitising agent in combination with pacitaxil or cisplatin in patients with recurrent late stage ovarian cancer that is resistant or refractory to platins and taxanes
•		In January 2005, researchers from Yale University School of Medicine revealed that phenoxodiol considerably enhanced the ability of the drug docetaxel to kill human ovarian cancer cells in the laboratory. The researchers also found the effect of phenoxodiol enabled 1/100th of the amount of docetaxel to be used as docetaxel alone on cells previously found to be resistant to docetaxel
•		In January 2005, the US FDA granted “fast track” status for oral phenoxodiol for prostatic adenocarcinoma that is resistant to both hormonal and cytotoxic chemotherapy. Under the FDA Modernization Act (1997), designation as a “fast track” product means that phenoxodiol is eligible for certain accelerated marketing approval programs although it does not ensure future regulatory approval.
•		In May, 2005, preliminary results were received from the combination therapy trial for patients with late stage refractory ovarian cancer being conducted at Yale New Haven Hospital in the United States and

the Royal Women’s Hospital in Australia. These preliminary results revealed that 33 per cent (12/36) of patients who were on combination therapy that included phenoxodiol experienced a complete or partial response.

The Novogen Group was granted 10 patents during the 2004/5 financial year increasing to 45 the number of issued patents protecting its isoflavone technology and pharmaceutical drug pipeline.

In January 2005, Novogen settled its patent infringement suit against the US General Nutrition Corporation (GNC); Novogen received cash and the reinstatement of its consumer products in GNC’s retail outlets.

Novogen’s operating loss attributable to shareholders for the year ended 30 June 2005, was $11.1 million compared with $10.9 million for the previous corresponding period, with the net loss after tax for the Group decreasing from $12.6 million to $12.3 million for the same period.

Novogen is involved in drug discovery and product development for disorders that are commonly associated with aging and coordinates an international clinical research and development program with external collaborators, hospitals and universities.

Statements included in this press release that are not historical in nature are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You should be aware that our actual results could differ materially from those contained in the forward-looking statements, which are based on management’s current expectations and are subject to a number of risks and uncertainties, including, but not limited to, our failure to successfully commercialize our product candidates; costs and delays in the development and/or FDA approval, or the failure to obtain such approval, of our product candidates; uncertainties in clinical trial results; our inability to maintain or enter into, and the risks resulting from our dependence upon, collaboration or contractual arrangements necessary for the development, manufacture, commercialization, marketing, sales and distribution of any products; competitive factors; our inability to protect our patents or proprietary rights and obtain necessary rights to third party patents and intellectual property to operate our business; our inability to operate our business without infringing the patents and proprietary rights of others; general economic conditions; the failure of any products to gain market acceptance; our inability to obtain any additional required financing; technological changes; government regulation; changes in industry practice; and one-time events. We do not intend to update any of these factors or to publicly announce the results of any revisions to these forward-looking statements.

ISSUED FOR		:		NOVOGEN LIMITED
LISTINGS		:		ASX (CODE NRT) NASDAQ (CODE NVGN).
FOR FURTHER
INFORMATION		:		MR CHRISTOPHER NAUGHTON, CHIEF EXECUTIVE OFFICER OR
				MR DAVID SEATON, CHIEF FINANCIAL OFFICER.
				NOVOGEN LIMITED, TEL (02) 9878 0088 http://www.novogen.com
ISSUED BY		:		WESTBROOK COMMUNICATIONS
				CONTACT: DAVID REID TEL (02) 9231 0922 OR 0417 217 157
				This release can be downloaded from www.westbrookfin.com.au

NOVOGEN LIMITED
ABN 37-063-259-754
www.novogen.com

140 Wicks Road, NORTH RYDE, NSW, 2113

Telephone: 02 9878 0088

APPENDIX 4E

incorporating

ANNUAL REPORT

FOR THE YEAR

30 JUNE, 2005

Novogen Limited
Appendix 4E Specific Requirements
30 June, 2005

RESULTS FOR ANNOUNCEMENT TO THE MARKET

														$‘000
Revenues from ordinary activities		up					7.5	%		to					17,678
Loss from ordinary activities after tax attributable to members		up					1.8	%		to					(11,129	)
Profit (loss) from extraordinary items after tax attributable to members			N/A				—			to					—
Net profit (loss) for the period attributable to members		up					1.8	%		to					(11,129	)

The amounts included in this report are for the financial year ended 30 June, 2005. Comparative figures are for the previous corresponding period being the financial year ended 30 June, 2004 unless otherwise stated.

		$
Net tangible assets per share:
Year ended 30 June, 2005			0.62
Year ended 30 June, 2004			0.72

The Directors of Novogen Limited do not recommend the payment of a dividend. No dividends were declared or paid during the year ended 30 June, 2005.

Refer to Review and Results of Operations shown in the attached Directors’ Report for an explanation of the above disclosures.

CONTENTS

		Page No.
Directors’ Report			4–18
Auditors’ Independence Declaration			19
Corporate Governance Statement			20-22
Statements of Financial Performance			23
Statements of Financial Position			24
Statements of Cash Flows			25
Notes to and forming part of the financial statements			26-62
Directors’ Declaration			63
Independent audit report to the members			64-65
ASX additional information			66-67

DIRECTORS’ REPORT		4

Your Directors submit their report for the year ended 30 June, 2005.

This annual report has been based on accounts which have been audited.

DIRECTORS

The names and details of the Company’s Directors during the financial year and up to the date of this report are as follows. Directors were in office for the entire period unless otherwise stated.

Names, qualifications, experience and special responsibilities.

Philip A Johnston Non-Executive Chairman
Dip Eng (Production)

Non-Executive Director since 1997, Mr Johnston was elected chairman of the Novogen Group with effect from 1 January 2001. Mr Johnston has extensive experience in the pharmaceutical industry including 9 years as an Executive Director of Wellcome Australia Limited. He was previously a Director of two subsidiary Companies of GlaxoWellcome. He has had responsibility for production, distribution, quality assurance and consumer product development and has been directly involved in the establishment of strategic alliances and joint ventures. He has completed a number of executive development programs including the University of NSW and the London Business School. Mr Johnston is also a Director of Lipa Pharmaceuticals Limited.

During the last three years Mr Johnston has served as a director of the ASX listed company, Lipa Pharmaceuticals Limited and as a director for the NASDAQ listed, Novogen subsidiary, Marshall Edwards, Inc.

Christopher Naughton Managing Director
BEc, LLB

Managing Director since March 1997, Mr Naughton joined Novogen in 1996 as Commercial Director. Mr Naughton has degrees in Economics from the ANU and in Law from the UNSW. He has completed the Program for Management Development at the Harvard Business School, and is an Attorney in New South Wales. After working in merchant banking, he has spent the last 20 years in the pharmaceutical industry, including appointments as a Director of Wellcome Australia Limited and in worldwide business development with The Wellcome Foundation Limited in the UK.

During the last three years Mr Naughton has served as CEO and director for the NASDAQ listed, Novogen subsidiary, Marshall Edwards, Inc.

Professor Graham E Kelly Executive Director
BSc(Vet), BVSc, PhD

Executive Director since 1994, Professor Kelly is founder and was the first Managing Director of Novogen Limited. Professor Kelly was Chairman of the Novogen Group until 31 December 2000, a position he had held since March 1997. He has spent nearly 30 years in medical research involving drug development, immunology, surgery and cancer. Professor Kelly was Senior Research Fellow in Experimental Surgery in the Faculty of Medicine at the University of Sydney and was appointed an Adjunct Professor of the University in May 2004. He developed the ß-1, 3-Glucan and Isoflavone intellectual property now owned by the Novogen Group.

During the last three years Professor Kelly has served as Chairman and director for the NASDAQ listed, Novogen subsidiary, Marshall Edwards, Inc.

DIRECTORS’ REPORT		5

Professor Paul J Nestel Non-Executive Director
AO MD, FTSE, FRACP, FAHA, FCSANZ

Professor Nestel is currently a Senior Principal Research Fellow and Head of the Cardiovascular Nutrition Laboratory at the Baker Medical Research Institute, Victoria. Professor Nestel is also a Consultant Physician at the Alfred Hospital, Melbourne. He is president of the International Life Sciences Institute (Australasia) and is a member of the board of directors of ILSI South East Asia. He was formally Clinical Professor in Medicine, The Flinders University of South Australia. Professor Nestel has been and remains a member of many national and international committees for research and policy on cardiovascular disease. He has published over 400 scientific and medical papers and is a Fellow of the Australian Academy of Technological Sciences and Engineering, a Fellow of the American Heart Association and a Fellow of the Cardiac Society of Australia and New Zealand. Professor Nestel is an Officer of the Order of Australia.

During the last three years Professor Nestel has served as a director for the NASDAQ listed, Novogen subsidiary, Marshall Edwards, Inc.

Peter B Simpson Non-Executive Director
MPharm, PhC

Non-Executive Director since 1994, Mr Simpson has extensive experience in the development of pharmaceutical products for international markets. He was Research and Development Manager with David Bull Laboratories for 8 years prior to being appointed Chief Executive Officer of Biota Holdings Limited in 1987. At Biota he oversaw the research and development of an effective cure for influenza and the licensing of that discovery to Glaxo Limited. Mr Simpson is currently associated with a wide range of biotechnology and pharmaceutical interests, predominately associated with the conduct of late stage clinical studies and the commercialisation of Australian biomedical discoveries.

During the last three years Mr Simpson has served as a director for the ASX listed company Norwood Abbey Limited (October 1999 to November 2002).

Dr Leanna C Read Non-Executive Director
BAgSc (Hons), PhD, FTSE

Dr Read was appointed Non-Executive Director in September 2003. Dr Read is founder and Managing Director of TGR BioSciences Pty Ltd, an early-stage biotech company that discovers novel bioactives by high-throughput screening. She has 15 years of experience in leading and managing commercially-related research organisations, including the CRC for Tissue Growth and Repair, and the Child Health Research Institute. Dr Read holds a professorial appointment at Flinders University and has published over 90 scientific papers. Board appointments currently include the Prime Minister’s Science and Engineering Council and the Australian Proteome Analysis Facility Inc. Dr Read was a member of the Industry Research and Development Board for six years until 2002 and chaired its Biological Committee. She is a Fellow of the Australian Academy of Technological Sciences and Engineering and has been awarded the inaugural Biotechnology Industry Service Award.

Mr Geoffrey M Leppinus Non-Executive Director
BEc FCA

Non-executive Director since February 2005, Mr Leppinus was, until July 2002, a Senior Audit and Advisory partner of KPMG with over 30 years experience in professional accounting and auditing. At KPMG he was responsible for the audit of a number of large public companies and the Australian

DIRECTORS’ REPORT		6

subsidiaries of US listed public corporations. Mr Leppinus has experience in the assessment of systems of internal control over financial reporting and the financial reporting requirements applicable to listed public companies. He has also had a wide range of experience in conducting due diligence for business acquisitions. Mr Leppinus has served as a member of the Australian Auditing Standards Board and member of the State Council of the Institute of Chartered Accountants in Australia.

COMPANY SECRETARY

Ronald L Erratt
FINA

Mr Erratt has been the Company Secretary of Novogen Limited since it floated on the Australian Stock Exchange in 1994. He is also the Company Secretary for all the wholly owned subsidiaries of Novogen. Mr Erratt has over 30 years experience in accounting and commercial roles. Prior to joining Novogen he was the Director of Superannuation Fund Administration at Towers Perrin, an international firm of Actuaries and Management Consultants.

Directors’ interests in the shares and options of the Company

At the date of this report the interests of the Directors, and their related parties, in the shares and options of Novogen Limited were:

		Ordinary shares				Options
		fully paid				Number outstanding				Exercise price				Expiry date
P A Johnston			48,594				3,128				4.01			27-Oct-05
C Naughton			633,511				—				—				—
G E Kelly			8,334,152				—				—				—
P J Nestel AO			32,000				—				—				—
P B Simpson			500				3,128				4.01			27-Oct-05
L C Read			2,000				—				—				—
			9,050,757				6,256

DIRECTORS’ REPORT		7

KEY FINANCIAL DATA

		2005				2004				Percentage
		$'000				$'000				change
Revenue from ordinary activities			17,678				16,446				7.5	%
Loss from ordinary activities after tax attributable to members			(11,129	)			(10,935	)			1.8	%
Loss for the period attributable to members			(11,129	)			(10,935	)			1.8	%
Net tangible assets per share (dollars)			0.62				0.72

Earnings per share

		2005				2004
		Cents				Cents
Basic and diluted earnings/(loss) per share			(13.9	)			(14.8	)

Dividends paid or recommended

The Directors of Novogen Limited do not recommend the payment of a dividend. No dividends were declared or paid during the year.

CORPORATE INFORMATION

Corporate structure

Novogen Limited is a company limited by shares and is incorporated and domiciled in Australia. Novogen Limited and its controlled entities “Novogen” or “Group” has prepared a consolidated financial report incorporating the entities that it controlled during the financial year, which included the following controlled entities:

Name of entity		Country of incorporation		Ownership %
Novogen Laboratories Pty Ltd		Australia			100
Novogen Research Pty Ltd		Australia			100
Central Coast Properties Pty Ltd		Australia			100
Phytosearch Pty Ltd		Australia			100
Phytogen Pty Ltd		Australia			100
Glycotex Pty Ltd		Australia			100
Norvogen Pty Ltd		Australia			100
Novogen Inc		USA			100
Glycotex, Inc.		USA			84.3
Novogen Limited(UK)		UK			100
Promensil Limited		UK			100
Novogen BV		Netherlands			100
Novogen New Zealand Limited		New Zealand			100
Novogen Canada Limited		Canada			100
Marshall Edwards, Inc.		USA			86.9
Marshall Edwards Pty Limited		Australia			86.9

DIRECTORS’ REPORT		8

Nature of operations and principal activities

The principal activities of the entities within the Group during the year were:

•		pharmaceutical research and development; and
•		manufacturing and marketing of health supplements.

There have been no significant changes in the nature of those activities during the year.

Employees

The Group employed 75 people as at 30 June, 2005 (2004: 67 people)

OPERATING AND FINANCIAL REVIEW

Operating results for the year

Cash resources

The Group finished the year in a strong cash position. At 30 June, 2005, the group had cash balances of $47.3 million, a decrease of $11.1 million from the previous year’s balance of $58.4 million. Cash was used to fund the companies operations including the clinical trail program for the anti-cancer drug phenoxodiol, being undertaken by Novogen’s 86.9% owned subsidiary Marshall Edwards, Inc. Cash resources were also used to fund the ongoing efforts in the areas of cardiovascular and anti-inflammatory research and development. Cash was also used to supplement the cash flows from the consumer products business and general corporate purposes.

During November 2004, Glycotex Inc, the Company’s US subsidiary received a total of $0.9 million following the exercise of 90,000 warrants at an exercise price of $10.00 per share. The warrants were issued as part of the initial private placement made by Glycotex to fund a clinical trial of its experimental wound healing compound glucoprime. Also, Novogen issued 10,000 of its shares following the conversion of 5,000 Glycotex shares under the terms of the Novogen convertible security. Glycotex Inc holds a licence from Novogen Limited for the development of its Glucan technology.

In April 2005 Glycotex issued a further 237,778 shares of common stock in a private placement. The proceeds of the placement amounted to $5.183 million. As a result of the above transactions, Novogen retains 84.3% of Glycotex Inc.

Net loss

The operating loss attributable to Novogen shareholders for the financial year, after allowing for losses attributable to minority interests of $1.2 million, increased by $0.2 million to $11.1 million from a loss of $10.9 million for the previous year.

The net loss from ordinary activities after income tax for the consolidated group for the year ended 30 June, 2005 decreased by $0.3 million to $12.3 million from $12.6 million for the previous year. The decrease in the Company’s net loss for the year ended 30 June, 2005 was due to an increase in sales revenues, other revenues and savings in selling and promotional expenses, these were partially offset by an increase in research and development expenditure.

Revenue

The Group earned gross revenues for the year ended 30 June, 2005 of $17.7 million versus $16.4 million in the previous corresponding period, an increase of $1.3 million. The increase in revenue was due to increased sales of the Company’s consumer products which were $13.4 million for the year ended 30

DIRECTORS’ REPORT		9

June, 2005 compared with $12.7 million for the previous year, an increase of $0.7 million or 5%. This increase compares with a 35% decrease in sales revenue in the fiscal year ended June 30, 2004. The other major impact on revenue was due to royalty receipts in line with the Company’s licence agreement with “The Solae Company” (licence transferred to Archer Daniels Midland Company (ADM)) and Licence fees received from Melbrosin International GmbH & Co under the terms of a licence agreement resulting from the recent granting to Novogen of certain patents relating to our consumer business. These receipts were partially off set by a reduction in START Grant income coinciding with the completion of the START Grant agreements.

Sales in Australasia for the year ended 30 June, 2005 were up $0.6 million or 15% to $4.6 million from $4 million for the previous year. Sales in North America reduced by $0.2 million to $6.2 million for the year down from $6.4 million for the previous year. Sales in Europe of $2.5 million for the year were up slightly by $0.2 million. Sales levels of our consumer products have started to benefit from our targeted promotional programs with sales increasing in Australasia and Europe. We have also made a significant impact on sales levels in the North American market with sales declining by 3%, slowing the rate of the prior year. We expect the market for menopause products to continue to be affected by the safety and efficacy of HRT and natural alternatives debate. Also it will take some time for confidence to return to the global market. The Company will continue to position its products as the most clinically trialled natural alternatives in the menopause market. Sales revenues are starting to increase in response to focused marketing initiatives, increased sales representation to pharmacies, and extended distribution.

Expenses

Total expenses before interest and tax increased by $1.0 million to $29.9 million for the year ended 30 June, 2005 from $28.9 million for the previous year. Cost of Goods Sold reduced by $0.1 million. Other savings were achieved in selling and promotional expenses which were $1.4 million lower than for the same period last year, in line with the Company’s strategy to further target its promotional efforts and to conserve cash. Research and development expenses were $10.2 million, an increase of $1.9 million from $8.3 million for the same period last year, reflecting the costs associated with progressing the pre-clinical and clinical development program.

Clinical development

Major advances were made during the year on the Group’s clinical development program.

Phenoxodiol

The Group’s lead anti-cancer drug, phenoxodiol, continued its clinical development program through its 86.9% owned subsidiary company Marshall Edwards, Inc. Phenoxodiol is currently being evaluated in phase II clinical trials for the treatment of prostate cancer, ovarian cancer and squamous cell carcinomas (SCC) of the cervix, vagina and vulva.

During 2005 the Group made significant progress in the clinical development of phenoxodiol including:

	•	In November 2004, Marshall Edwards, Inc. announced that the Food and Drug Administration (FDA) had granted intravenous phenoxodiol “fast track” status for its intended use as a chemo-sensitising agent in combination with pacitaxil or cisplatin in patients with recurrent late stage ovarian cancer that is resistant or refractory to platins and taxanes.
	•	In January 2005, Marshall Edwards, Inc. announced that researchers from Yale University School of Medicine found that phenoxodiol considerably enhances the ability of the drug docetaxel to kill human ovarian cancer cells in the laboratory. The researchers also found that the synergistic effect of phenoxodiol allowed 1/100th of the amount of docetaxel to be used as docetaxel alone on cells previously found to be resistant to docetaxel.
	•	In January 2005, Marshall Edwards, Inc. announced that the Company had received “fast track”

DIRECTORS’ REPORT		10

		designation from the FDA for oral phenoxodiol for prostatic adenocarcinoma that is refractory to both hormonal and cytotoxic chemotherapy. Under the FDA Modernization Act of 1997, designation as a “fast track” product means that phenoxodiol is eligible for certain accelerated marketing approval programs. We cannot be sure however that phenoxodiol will receive any future regulatory approval.
	•	In May, 2005 Marshall Edwards, Inc announced preliminary results from the combination therapy trial for patients with late stage refractory ovarian cancer being conducted at Yale New Haven Hospital in the United States and the Royal Women’s Hospital in Australia. These preliminary results revealed that 33% (12/36) of patients who were on combination therapy that included phenoxodiol experienced a complete or partial response.

Corporate developments

The Company has been notified by the Therapeutic Goods Administration (TGA) that it is reviewing the current listing status of the Company’s dietary supplements products in Australia. These products are currently listed as “AUSTL” listed complementary medicine. The Company believes that its products qualify for their current listing status as “AUSTL” listed complementary medicines and it has submitted supporting data to the TGA. In the event of a determination by the TGA that the products are not correctly listed the Company will consider what further appropriate actions are available.

In February 2005 the Company announced that the licence covering Novogen patent rights to soy isoflavones which was with the DuPont joint venture company Solae LLC, had been transferred to Archer Daniels Midland (ADM). Under the terms of the transfer, ADM assumes the rights and obligations formally held by Solae, including the obligation for royalty and milestone payments under the terms of the licence.

Intellectual property development

During the year 10 patents were granted over the Company’s intellectual property. The areas with expanding patent cover include isoflavone formulation and uses, synthetic drug compounds and their use, and a novel food product.

Europe
Patent # 0656786		Use of isoflavone phyto-oestrogen extracts of soy or clover
Australia
Patent # 776131		Food product and process
Patent # 776894		Therapeutic methods and compositions involving isoflavones
Patent # 777632		Health supplements containing isoflavones
Patent # 777561		Health supplements containing phyto-oestrogen, analogues or metabolites thereof
Patent # 777653		Health supplements containing phyto-oestrogen, analogues or metabolites thereof
Patent # 779210		Treatment or prevention of menopausal symptoms and osteoporosis
Singapore
Patent # 90371		Food product and process
Patent # 81773		Production of isoflavone derivatives
New Zealand
Patent # 506063		Therapeutic methods and compositions involving isoflavones

These grants bring the number of Company patents granted to 45.

In January 2005 Novogen announced that it had settled with General Nutrition Corporation (GNC) a legal action it had taken for the alleged infringement by GNC of one of Novogen’s US patents. In addition to an undisclosed monetary settlement, GNC has agreed to reinstate the sale of Promensil through its retail outlets.

DIRECTORS’ REPORT		11

Management of risk

The Group has established controls at Board level designed to safeguard the interests of the Group and ensure integrity in the reporting to shareholders. Group policies are in place to minimise risk that arise through the Group’s activities. These include policies that:

•		ensure Board approval of a strategic plan, which encompasses the group’s vision, mission and strategy statements, designed to meet stakeholders needs and manage business risk;
•		ensure that capital expenditure above a set level is approved by the Board;
•		ensure business risks are appropriately managed through an insurance and risk management program;
•		ensure that safety, health, environmental standards and management’s systems are monitored and reviewed to achieve high standards of compliance and performance;
•		ensure that cash resources are invested in high quality, secure, financial institutions; and
•		ensure implementation of Board approved operating plans and budgets and Board monitoring of progress against these budgets, including the establishment and monitoring of key performance indicators.

Significant events after balance date

There have been no significant events occurring after balance date which have had a material impact on the business.

Likely developments and expected results of operations

The directors foresee that during the 2005/2006 financial year, the Group will continue to advance the research and development into isoflavone applications and more advanced pharmaceuticals in the area of human phenolic compound technology.

The Group expects to continue to commit cash resources in the clinical development program that is underway, particularly the clinical program for phexoxodiol and the cardiovascular and anti-inflammatory drug programs.

The marketing and sales of the consumer isoflavone products are expected to continue in both existing markets and to develop into new regions, particularly into Europe.

Environmental regulation and performance

The Group holds licences issued by the Environmental Protection Authority which specify the manner of waste disposal for the Entity’s pilot manufacturing operations in North Ryde. The Entity also holds Dangerous Goods licenses for its manufacturing operations in Australia.

There have been no significant known breaches of the Group’s licence conditions.

Share options

As at the date of this report there were 1,298,408 unissued ordinary shares under options (1,351,938 at balance date). Refer to Note 15(b) of the Financial Statements for further details of the options outstanding.

Shares issued as a result of the exercise of options

DIRECTORS’ REPORT		12

During the year, employees and consultants have exercised options to acquire 312,119 fully paid ordinary shares in Novogen Limited at a weighted average price of $2.84.

During the year 276,844 options have been issued under the Novogen Limited Employee Share Option Plan to a total of 47 eligible employees:

Number		Exercise price		Exercisable on or after		Expiry
69,211		$4.90		16 March 2006		16 March 2010
69,211		$4.90		16 March 2007		16 March 2010
69,211		$4.90		16 March 2008		16 March 2010
69,211		$4.90		16 March 2009		16 March 2010

During the year 14,244 options were issued to two Novogen consultants as follows:

Number		Exercise price		Exercisable on or after		Expiry
3,561		$4.90		16 March 2006		16 March 2010
3,561		$4.90		16 March 2007		16 March 2010
3,561		$4.90		16 March 2008		16 March 2010
3,561		$4.90		16 March 2009		16 March 2010

Indemnification and insurance of Directors and Officers

The Group has not, during or since the financial year, in respect of any person who is or has been a Director or Officer of the Company or related body corporate:

a)		indemnified or made any relevant agreement for indemnifying against a liability incurred as a Director or Officer, including costs and expenses in successfully defending legal proceedings; or
b)		paid or agreed to pay a premium in respect of a contract insuring against liability incurred as a Director or Officer for the costs or expenses to defend legal proceedings, with the exception of the following matter:
		the Group has paid premiums to insure each Director or Officer against the liabilities for costs and expenses incurred by them in defending legal proceedings arising out of their conduct involving a breach of duty in relation to the Company. The total annual premium of the insurance paid by the Company was $184,000.

DIRECTORS’ REPORT		13

REMUNERATION REPORT

This report outlines the remuneration arrangements in place for directors and executives of Novogen Limited (the Company).

Remuneration Philosophy

Remuneration is assessed for Directors and senior executives with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality executive team. The appropriateness and nature of emoluments is assessed by reference to employment market conditions. The performance criteria against which Directors and Executives are assessed is aligned with the financial and non-financial objectives of Novogen Limited, however, directors and senior executive annual remuneration have no variable performance elements that are directly linked to company performance.

Employee share option plan.

The employee share option plan provides for the issue of options to eligible employees being an employee or Director of the Company or related company. Each option entitles its holder to acquire one fully paid ordinary share and is exercisable at a price equal to the weighted average price of such shares at the close of trading on the Australian Stock Exchange Limited for the five days prior to the date of issue. Options are not transferable. The option lapses if the employee ceases to be an employee during the vesting period. Options vest equally over a four year period from date of grant and expire five years after grant date.

All Executive Directors and Executives have the opportunity to qualify for participation in the Employee Share Option Plan after achieving a qualifying service period.

Remuneration committee

The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors, the Managing Director, Executive Director and senior Executives.

The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality executive team.

Remuneration structure

In accordance with best practice corporate governance, the structure of non-executive directors and executive director and senior management are separate and distinct.

Non-executive director remuneration

The Constitution of the Company and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The latest determination was at the Annual general Meeting held on the 24^th September 1998 when the shareholders approved an aggregate remuneration of $280,000.

The amount of aggregate remuneration sought to be approved by shareholders and the manner in which it is apportioned amongst directors is reviewed periodically.

Each non-executive director receives a fee for being a director of the company. An additional fee is also

DIRECTORS’ REPORT		14

paid for each board committee on which a director sits. The payment of additional fees for serving on a committee recognises the additional time commitment required by non-executive directors who serve on one or more sub committees.

The remuneration of non-executive directors for the period ending June 30, 2005 is detailed in the table below.

Executive and senior manager remuneration

The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the Managing Director, Executive Director and senior Executives. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality executive team. Such officers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits such as the use of motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Group.

All Executive Directors and Executives have the opportunity to qualify for participation in the Employee Share Option Plan after achieving a qualifying service period.

The performance criteria against which Directors and Executives are assessed is aligned with the financial and non-financial objectives of Novogen Limited.

Employment contracts

It is the Remuneration Committee policy that employment agreements are entered into with the Chief Executive Officer, the Executive Director, and each of the specified Executives except for the VP Commercial and Corporate Development. The contract term for the CEO is five years with a six months notice period. The contracts for service between the Company and Executive Director and the specified Executives are for terms of three years with a notice period of six months. In the event of the Company terminating the employment under the terms of the contract the Company shall pay the pro-rata balance of the unexpired contract term plus an additional amount of one and one half times the then current annual remuneration of the employee.

Director remuneration for the year ended June 30, 2005

		Annual emoluments												Long term emoluments																				Total
		Base fee				Committee fee				Other				Termination &				Options granted												Super-annuation
														similar payments
																						Amortised cost				Remuneration
		$				$				$				$				Number				$				%				$				$
PA Johnston			90,588				14,000				—				—				—				136				0.12	%			9,412				114,136
C Naughton			507,724				—				53,643				—				—				—				—				45,696				607,063
GE Kelly			334,314				—				29,981				—				—				—				—				30,088				394,383
PJ Nestel AO			70,000				12,000				—				—				—				—				—				—				82,000
LC Read			36,368				4,000				—				—				—				—				—				3,632				44,000
PB Simpson			35,376				16,000				—				—				—				136				0.24	%			4,624				56,136
G Leppinus *			15,160				1,660				—				—				—								—				1,513				18,333
			1,089,530				47,660				83,624				—				—				272				—				94,965				1,316,051

* appointed 24 February, 2005

DIRECTORS’ REPORT		15

Remuneration of the named executives (including the Company Secretary) who receive the highest remuneration for the year ended June 30, 2005

		Annual emoluments												Long term emoluments																Total
		Base fee				Other				Termination &				Options granted												Super-annuation
										similar payments
																		Amortised cost				Remuneration
		$				$				$				Number				$				%				$				$
AJ Husband			286,818				51,155				—				22,592				40,940				10.12	%			25,814				404,727
DR Seaton			298,526				20,085				—				22,592				41,031				10.62	%			26,867				386,509
WJ Lancaster (USA)			186,822				6,197				—				10,224				21,595				9.21	%			19,915				234,529
BM Palmer			142,942				33,594				—				12,392				23,366				10.98	%			12,865				212,767
CD Kearney			164,376				22,951				—				12,088				21,417				9.58	%			14,794				223,538
RL Erratt			152,026				20,157				—				12,264				23,774				11.34	%			13,682				209,639
			1,231,510				154,139				—				92,152				172,123								113,937				1,671,709

Value of options for executives granted, exercised or lapsed during the year ended June 30, 2005.

														Total value of
		Options Granted				Options Exercised				Options Lapsed				options granted,
						Value at exercise				Value at time of				exercised and
		Value at grant date				date				Lapse				lapsed
AJ Husband			66,800				24,943				—				91,743
DR Seaton			66,800				—				—				66,800
WJ Lancaster (USA)			30,230				118,877				—				149,107
BM Palmer			36,641				12,059				—				48,700
CD Kearney			35,742				—				—				35,742
RL Erratt			36,262				8,366				—				44,628
			272,475				164,246				—				436,721

During the year no options were granted, exercised or lapsed for any of the directors.

Executive Directors have been disclosed under Directors’ remuneration only and have been excluded from the executive remuneration.

Executives are those directly accountable and responsible for the operational management and strategic direction of the Company and its consolidated entities and include the company secretary.

PA Johnston and PJ Nestel are also directors of Marshall Edwards, Inc. and receive remuneration in the form of director’s fees of $30,000 per annum. These amounts have been included in the table above.

The elements of emoluments have been determined on the basis of the cost to the Company and the consolidated entity.

The Company has adopted the fair value measurement provisions of AASB 1046 “Director and Executive Disclosures for Disclosing Entities” prospectively for all options granted to Directors and relevant Executives, which have not vested as at 1 July, 2003. The fair value of such grants being amortised and disclosed as part of Director and Executive emoluments on a straight-line basis over the vesting period. No adjustments have been made or will be made to reverse amounts in relation to options that never vest (i.e. forfeitures).

DIRECTORS’ REPORT		16

Options granted as part of Director and Executive emoluments have been valued using the Binomial option pricing model, which takes account of factors including the option exercise price, the volatility of the underlying share price, the risk free interest rate, expected dividends, the current market price of the underlying share and the expected life of the option.

Fair values of options:

The fair value of each option is estimated on the date of grant using a Binomial option-pricing model with the following assumptions used for grants made on:

		16 March,				27 February,				29 November,				30 July,				1 December,				27 October,				20 July,				13 March,
		2005				2004				2002				2001				2000				2000				2000				2000
Dividend yield			0	%			0	%			0	%			0	%			0	%			0	%			0	%			0	%
Expected volatility			69	%			69	%			68	%			61	%			62	%			62	%			62	%			61	%
Historical volatility			69	%			69	%			68	%			61	%			62	%			62	%			62	%			61	%
Risk-free interest rate			5.67	%			5.52	%			5.27	%			5.84	%			5.68	%			6.06	%			6.15	%			6.61	%
Expected life of option		5 years				5 years				5 years				5 years				5 years				5 years				5 years				5 years
Option fair value			2.96				2.82				1.26				0.72				1.96				2.13				2.88				2.38

The dividend yield reflects the assumption that the current dividend payout, which is zero, will continue with no anticipated increases. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

Currently, these fair values are not recognised as expenses in the financial statements. However, should these grants be expensed, they would be amortised over the vesting periods resulting in an increase in employee benefits expense of $172,123 for the 2005 financial year (2004: $143,885). Note that no adjustments to these amounts have been made to reflect estimated or actual forfeitures (i.e., options that do not vest).

Further detail on the remuneration of Directors and Executives are also provided in Note 19 to the financial statements.

Directors’ meetings

During the financial year ended 30 June, 2005, the number of meetings held and attended by each Director were:

						Meetings of Committees
		Directors'
		meetings				Audit				Remuneration				Capital Works
Number of meetings held:			11				6				2				1
Number of meetings attended:
P A Johnston			11				6				2				1
C Naughton			11				—				—				1
G E Kelly			10				—				—				—
P J Nestel AO			11				6				2				1
P B Simpson			9				5				1				—
L C Read			11				6				—				—
G M Leppinus *			5				2				—				—

* appointed 24 February, 2005 – attended all meetings held since appointed

DIRECTORS’ REPORT		17

Committee membership

At the date of this report, the Company had an Audit Committee, a Remuneration Committee and a Capital Works Committee of the Board of Directors.

Directors acting as members on the committees during the year were

Audit		Remuneration		Capital Works
G M Leppinus (Chairman*)		P B Simpson (Chairman)		P A Johnston (Chairman)
P J Nestel AO		P J Nestel AO		C Naughton
P A Johnston		P A Johnston		P J Nestel AO
L C Read				P B Simpson
P B Simpson

* effective 1 July,2005.

Nomination Committee

The duties and responsibilities typically delegated to such a committee are included in the responsibilities of the entire Board. Accordingly, during the year ended June 30, 2005, Novogen Limited did not have a separately established Nomination Committee. The Board does not believe that any marked efficiencies or enhancements would be achieved by the creation of a separate Nomination Committee.

Tax consolidation

Novogen Limited and its 100% owned Australian subsidiaries elected to form a tax consolidation group for income tax purposes with effect from 1 July 2003. The Australian Tax Office has been formally notified of this decision. Novogen Limited as the head entity discloses all of the deferred tax assets and liabilities of the tax consolidated group (after elimination of inter-group transactions).

As the tax consolidation group continues to generate tax losses there has been no reason for the company to enter a tax funding agreement with members of the tax consolidation group.

There has been no material effect on the deferred tax balances as a result of the revised tax legislation.

AUDITORS INDEPENDENCE AND NON-AUDIT SERVICES

A copy of the auditors’ independence declaration required under section 307C of the Corporations Act 2001 is set out on page 19.

Non-audit services

The following non-audit services were provided by the entities’ auditor BDO. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service means that auditor independence was not compromised.

BDO received or are due to receive the following amounts for the provision of non-audit services during the year.

Tax compliance services		$	9,500
Sarbanes Oxley Section 404 services		$	5,000

DIRECTORS’ REPORT		18

Rounding of amounts

The amounts contained in this Report and in the Financial Statements have been rounded off under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. Amounts have been rounded off to the nearest thousand dollars unless otherwise stated.

Signed in accordance with a Resolution of the Board of Directors.

Christopher Naughton
Managing Director

Sydney, 24 August, 2005

19

AUDITORS’ INDEPENDENCE DECLARATION

AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the audit of Novogen Limited for the year ended 30 June 2005, I declare that, to the best of my knowledge and belief, there have been no contraventions of:

a)		the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b)		any applicable code of professional conduct in relation to the audit.

BDO
Chartered Accountants

K R REID
Partner

Dated in Sydney this 24^th day of August, 2005

20

CORPORATE GOVERNANCE STATEMENT

The Board of Directors of Novogen Limited is responsible for the corporate governance of the consolidated entity. The Board guides and monitors the business and affairs of Novogen Limited on behalf of the shareholders by whom they are elected and to whom they are accountable.

In accordance with the Australian Stock Exchange Corporate Governance Council’s (the “Council’s”) “Principles of Good Corporate Governance and Best Practice Recommendations” (the “Recommendations”) the Council’s Recommendations, the Corporate Governance Statement must contain certain specific information and must disclose the extent to which the Company has followed the guidelines during the period. Where a recommendation has not been followed, that fact must be disclosed, together with the reasons for the departure. Novogen’s Corporate Governance Statement is structured with reference to the Council’s principles and recommendations, which are as follows:

Principle 1.		Lay solid foundation for management and oversight;
Principle 2.		Structure the Board to add value;
Principle 3.		Promote ethical and responsible decision making;
Principle 4.		Safeguard integrity of financial reporting;
Principle 5.		Make timely and balanced disclosure;
Principle 6.		Respect the rights of shareholders;
Principle 7.		Recognise and manage risk;
Principle 8.		Encourage enhanced performance;
Principle 9.		Remunerate fairly and responsibly;
Principle 10.		Recognise the legitimate interests of stakeholders.

With the exception of the Nomination Committee (see below), during the year end June 30, 2005, the corporate governance practices of Novogen Limited were compliant in all material respects with the Council’s Recommendations.

For further information on Corporate Governance policies adopted by Novogen Limited refer to the Company’s website: www.novogen.com

Nomination Committee

Recommendation 2.4 requires listed entities to establish a Nomination Committee. The duties and responsibility typically delegated to such a committee are included in the responsibilities of the entire Board. Accordingly, during the year ended June 30, 2005, Novogen Limited did not have a separately established Nomination Committee. The Board does not believe that any marked efficiencies or enhancements would be achieved by the creation of a separate Nomination Committee.

Structure of the Board of Directors

The skills, expertise and experience relevant to the position of director held by each director in office at the date of this annual report is included in the Directors’ Report on page 4. Directors are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement.

In the context of director independence, “materiality” is considered from both the Company and individual director perspective. In determining whether a non-executive director is independent, they must not hold more than 5% of the Company’s outstanding shares. Also, qualitative factors are considered, including not having been employed as an Executive within the last 3 years, not been a Principal of a material professional advisor or consultant, not have a material contractual relationship with the Company, not

21

served on the Board for a period which could be perceived to interfere with their ability to act in the best interests of the Company or engaged in any business interests which could be perceived to interfere with their ability to act in the best interests of the Company.

In accordance with the definition of independence above, and the materiality thresholds set, the following Directors of Novogen Limited are considered to be independent:

Name		Position
P A Johnston		Non-executive Chairman
Professor P J Nestel AO		Non-executive Director
P B Simpson		Non-executive Director
Dr L C Read		Non-executive Director
G M Leppinus		Non-executive Director

There are procedures in place, agreed by the Board, to enable Directors in the furtherance of their duties, to seek independent professional advice at the Company’s expense.

The term in office held by each Director in office at the date of this report is as follows:

Name		Term in Office
P A Johnston		8 years
C Naughton		8 years
Professor G E Kelly		11 years
P B Simpson		10 years
Professor P J Nestel AO		4 years
Dr L C Read		2 years
G Leppinus		4 months

For additional details regarding Board appointments please refer to the Company’s web site.

Audit Committee

The Board has an Audit Committee, which operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the Group. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information as well as non-financial considerations such as bench marking of operational key performance indicators. The Board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the consolidated entity to the Audit Committee.

The Committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial reports. All members of the Audit Committee are independent Non-executive Directors. The members of the Audit Committee during the year were Geoffrey Leppinus (Chairman), Paul Nestel, Philip Johnston, Leanna Read and Peter Simpson.

Qualifications of Audit Committee members

Qualifications of the members of the Audit Committee are contained in the Directors’ Report.

For details on the number of Audit Committee meetings held during the year and the attendees at those meetings refer to page 16 of the Directors’ Report.

22

Performance

The performance of the Board and the key Executives is reviewed regularly against both measurable and qualitative indicators. During the reporting period the Board conducted a performance evaluation which involved the assessment of each Board member’s and key Executive’s performance. The performance criteria against which Directors and Executives are assessed is aligned with the financial and non-financial objectives of Novogen Limited.

Remuneration Committee

The Remuneration Committee was formed in order to review the remuneration of the Executive Directors and key Executives by reference to independent data, external professional advice and the requirements to retain high quality management.

Refer to the Directors’ Report for details on the amount of remuneration and all monetary and non-monetary components for each Director and for each of the highest paid Executives (Non-director) during the year.

Details on the number of meetings held and number of meetings attended by each Committee member are contained on page 16 in the Directors’ Report.

The Committee comprises Non-Executive Directors, being Peter Simpson (Chairman), Paul Nestel AO and Philip Johnston.

Capital Works Committee

The Capital Works Committee reviews capital investment proposals, assesses the project tenders and reviews progress against timetables and cost estimates. The Committee comprises Philip Johnston (Chairman), Peter Simpson, Paul Nestel AO and Christopher Naughton.

Details on the number of meetings held and number of meetings attended by each Committee member are contained on page 16 in the Directors’ Report.

23

STATEMENTS OF FINANCIAL PERFORMANCE
for the year ended 30 June, 2005

		Notes				Consolidated								Novogen Limited
						2005				2004				2005				2004
						$'000				$'000				$'000				$'000
Revenue
Sales revenue							13,404				12,720				—				—
Other revenue from ordinary activities			2				4,274				3,726				878				952
Total Revenue from ordinary activities							17,678				16,446				878				952
Costs and Expenses
Cost of goods sold							(4,666	)			(4,753	)			—				—
Research & development							(10,217	)			(8,261	)			—				—
Selling & promotion							(8,411	)			(9,762	)			—				—
Shipping and handling							(444	)			(382	)			—				—
General and administrative							(6,163	)			(5,747	)			(14,628	)			747
Total Costs and Expenses before interest and tax							(29,901	)			(28,905	)			(14,628	)			747
Interest expense							(56	)			(120	)			—				(20	)
(LOSS)/PROFIT FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE			2				(12,279	)			(12,579	)			(13,750	)			1,679
INCOME TAX (EXPENSE) RELATING TO ORDINARY ACTIVITIES			3				(2	)			—				(2	)			—
(LOSS)/PROFIT FROM ORDINARY ACTIVITIES AFTER INCOME TAX EXPENSE							(12,281	)			(12,579	)			(13,752	)			1,679
NET (LOSS)/PROFIT							(12,281	)			(12,579	)			(13,752	)			1,679
NET (LOSS) ATTRIBUTABLE TO OUTSIDE EQUITY INTERESTS							1,152				1,644				—				—
NET (LOSS)/PROFIT ATTRIBUTABLE TO MEMBERS OF NOVOGEN LIMITED							(11,129	)			(10,935	)			(13,752	)			1,679
Net exchange difference on translation of financial statements of foreign controlled entity			16	(b)			(2,964	)			1,507				—				—
TOTAL REVENUES, EXPENSES AND VALUATION ADJUSTMENTS ATTRIBUTABLE TO MEMBERS OF NOVOGEN LIMITED AND RECOGNISED DIRECTLY IN EQUITY							(2,964	)			1,507				—				—
TOTAL CHANGES IN EQUITY OTHER THAN THOSE RESULTING FROM TRANSACTIONS WITH OWNERS AS OWNERS ATTRIBUTABLE TO MEMBERS OF NOVOGEN LIMITED							(14,093	)			(9,428	)			(13,752	)			1,679
Basic and Diluted Earnings per share (cents)			23				(13.9	)			(14.8	)

NOVOGEN LIMITED AND CONTROLLED ENTITIES
STATEMENTS OF FINANCIAL POSITION
As at 30 June, 2005

		Notes				Consolidated								Novogen Limited
						2005				2004				2005				2004
						$'000				$'000				$'000				$'000
CURRENT ASSETS
Cash			4				47,260				58,431				15,559				20,915
Receivables			5				3,477				2,936				56				38
Inventories			6				5,488				5,589				—				—
Other			7				821				865				620				693
Total current assets							57,046				67,821				16,235				21,646
NON-CURRENT ASSETS
Inventories			6				4,580				2,864				—				—
Property, plant and equipment			8				5,859				6,728				—				—
Other financial assets			9				—				—				54				7,420
Total non-current assets							10,439				9,592				54				7,420
TOTAL ASSETS							67,485				77,413				16,289				29,066
CURRENT LIABILITIES
Payables			11				5,501				5,963				142				109
Interest bearing liabilities			12				750				843				—				—
Provisions			13				474				361				—				—
Total current liabilities							6,725				7,167				142				109
NON-CURRENT LIABILITIES
Interest bearing liabilities			12				15				765				—				—
Provisions			13				253				270				—				—
Total non-current liabilities							268				1,035				—				—
TOTAL LIABILITIES							6,993				8,202				142				109
NET ASSETS							60,492				69,211				16,147				28,957
EQUITY
Parent equity interest
Contributed equity			15				176,235				170,276				126,306				125,364
Reserves			16				(3,413	)			(449	)			—				—
Accumulated losses			16				(116,069	)			(104,972	)			(110,159	)			(96,407	)
Total parent equity interest in equity							56,753				64,855				16,147				28,957
Total outside equity interest			17				3,739				4,356				—				—
TOTAL EQUITY							60,492				69,211				16,147				28,957

25

NOVOGEN LIMITED AND CONTROLLED ENTITIES
STATEMENTS OF CASH FLOWS
for the year ended 30 June, 2005

		Notes				Consolidated								Novogen Limited
						2005				2004				2005				2004
						$'000				$'000				$'000				$'000
Cash flows from operating activities
Receipts from customers							13,254				14,051				—				—
Payments to suppliers and employees							(29,085	)			(27,566	)			(1,221	)			(1,803	)
Interest received							1,263				1,186				822				898
Interest paid							(55	)			(120	)			—				—
Grants received							289				1,011				—				—
Income tax paid							(2	)			—				(2	)			—
Royalty received							1,434				978				—				—
Goods and services tax refunded/(paid) by/(to) tax authorities							94				(79	)			—				—
Net cash flows used in operating activities			22				(12,808	)			(10,539	)			(401	)			(905	)
Cash flows from investing activities
Acquisition of property, plant and equipment							(757	)			(714	)			—				—
Proceeds from sale of plant and equipment							—				80				—				—
Loans to controlled entities							—				—				(4,194	)			(200	)
Net cash flows used in investing activities							(757	)			(634	)			(4,194	)			(200	)
Cash flows from financing activities
Proceeds from the issue of ordinary shares							888				3,104				888				3,105
Proceeds from the issue of subsidiary shares							6,083				38,197				—				—
Payment of share issue costs							—				(3,347	)			—				—
Repayment of borrowings							(843	)			(679	)			—				—
Net cash flows from financing activities							6,128				37,275				888				3,105
Net (decrease)/increase in cash held							(7,437	)			26,102				(3,707	)			2,000
Add opening cash brought forward							55,431				28,526				17,915				16,399
Effect of exchange rate changes on opening cash							(3,734	)			1,303				(1,649	)			16
Movements in secured facility							(150	)			(500	)			(150	)			(500	)
Closing cash carried forward			4				44,110				55,431				12,409				17,915

26

NOVOGEN LIMITED AND CONTROLLED ENTITIES
NOTES TO THE FINANCIAL STATEMENTS

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies which have been adopted in the preparation of the financial report are:

Basis of accounting

The financial report has been prepared in accordance with the historical cost convention on an accruals basis. This general purpose financial report has been prepared in accordance with the requirements of the Corporations Act 2001 which includes applicable Accounting Standards. Other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) have also been complied with.

Changes in accounting policy

The accounting policies adopted are consistent with those of the previous year.

Principles of consolidation

The consolidated financial statements are those of the consolidated entity, comprising Novogen Limited and all entities controlled by Novogen Limited from time to time during the year and at balance date. Novogen Limited and its controlled entities together are referred to in this financial report as the economic entity or Group. The effects of all transactions between entities in the economic entity are eliminated in full.

Outside interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report.

The financial statements of controlled entities are prepared for the same reporting period as the parent entity, using consistent accounting policies.

Where a subsidiary makes a new issue of capital subscribed by outside equity interests the benefit accruing to the parent entity due to dilution of outside equity interests on subscription is reflected as capital in the Group.

Foreign currency

Translation of foreign currency transactions
Foreign currency transactions are converted into Australian currency at the rate of exchange at the date of the transaction. At balance date amounts payable and receivable in foreign currencies are translated to Australian currency at rates of exchange current at balance date. Resulting exchange differences are brought to account in determining the profit or loss for the financial year.

Translation of financial reports of overseas operations
All foreign controlled entities, with the exception of Marshall Edwards, Inc. and Glycotex Inc., are deemed to be fully integrated with the Company as they are not financially or operationally independent of Novogen Limited. The financial reports of overseas operations are, therefore, translated using the temporal method, with resulting losses or gains taken to the statement of financial performance.

Marshall Edwards, Inc. and Glycotex Inc., are deemed to be self sustaining as they are financially and operationally independent of Novogen Limited. The financial reports of Marshall Edwards, Inc. and Glycotex Inc., are translated using the current rate method, and any exchange differences are taken directly to the foreign currency translation reserve.

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Cash and cash equivalents

Cash on hand and in banks and short term deposits are stated at the nominal amount. For the purposes of the statement of cash flows, cash includes deposits at call readily convertible into cash within two working days and which are used in the cash management function on a day-to-day basis, net of outstanding bank overdrafts.

Receivables

Receivables are recognised and carried at original invoice value less a provision for any uncollectible debts. Debts, which are known to be uncollectible, are written off. A provision for doubtful debts is recognised when collection of the full nominal amount is no longer probable.

Receivables from related parties are recognised and carried at the nominal amount due.

Investments

All non-current investments are carried at the lower of cost and recoverable amount.

Inventories

Inventories are measured at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

• Raw materials — purchase cost on a first-in-first-out basis; and

• Finished goods and work-in-progress — cost of direct material, direct labour and a proportion of manufacturing overheads based on normal operating capacity.

Recoverable amount of non-current assets

Non-current assets are measured at cost, provided that their carrying value does not exceed their recoverable amount. Where the carrying amount of an individual non-current asset is greater than its recoverable amount, the asset is written down to its recoverable amount. In determining recoverable amounts of non-current assets the expected net cash flows have been discounted to their present values.

Property, plant & equipment

Cost and valuation
All property, plant and equipment are brought to account at cost.

Depreciation
Depreciation is calculated on a straight-line basis to write off the depreciable amount of each item of property, plant and equipment (excluding land) over its expected useful life to the economic entity.

Major depreciation periods are:

		Buildings		8-20 years
		Plant and equipment		2.5-10 years
		Leasehold improvements		the lease term

Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.

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Operating leases
The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight line basis.

Contingent rentals are recognised as an expense in the financial year in which they are incurred.

Finance leases
Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to the group are capitalised at the present value of the minimum lease payments and disclosed as property, plant and equipment under lease. A lease liability of equal value is also recognised.

Capitalised lease assets are depreciated over the estimated useful life of the assets.

Minimum lease payments are allocated between interest expense and reduction of the lease liability with the interest expense, calculated using the interest rate implicit in the lease, charged directly to the Statement of Financial Performance.

The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter.

Intangible assets

Patents and Trademarks
Costs incurred in respect of patents and trademarks are expensed as incurred unless future recoverability is assured beyond reasonable doubt, to exceed these costs.

Research and development

Costs incurred on research and development projects are expensed as incurred, unless future recoverability is assured beyond reasonable doubt, to exceed those costs. Where research and development costs are deferred such costs are amortised over future periods on a basis related to expected benefits. Unamortised costs are reviewed at each reporting date to determine the amount (if any) that is no longer recoverable and any amount identified is written off.

Payables

Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity.

Payables to related parties are carried at the principal amount.

Borrowings

Finance lease liability is determined in accordance with requirements of AASB 1008 — “Leases”.

Provisions

Provisions are recognised when the economic entity has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events, it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation.

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Contributed equity

Ordinary share capital is recognised at the fair value of consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction in the share proceeds received.

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. In determining the economic benefits, provisions are made for certain trade discounts and returned goods. The following specific recognition criteria must also be met:

Sale of goods
Revenue from sale of goods is recognised when goods have been dispatched to a customer pursuant to a sales order and invoice and the associated risks have passed to the carrier or customer.

Interest
Interest revenue is recognised when control of a right to receive consideration for the investment in assets has been attained.

Grant income
Grant income is recognised when the control of a right to receive grant funds has been attained, evidenced by confirmation from the relevant government or other body.

Royalties
Royalty revenue is recognised in accordance with the substance of the relevant agreement.

Taxes

Income Tax

Tax effect accounting is applied using the liability method whereby income tax is regarded as an expense and is calculated on the accounting result, after allowing for permanent differences. To the extent timing differences occur between the time items are recognised in the financial statements and when items are taken into account in determining taxable income, the net related tax benefit or liability, calculated at current rates, is disclosed as a future income tax benefit or a provision for deferred income tax.

The future income tax benefit relating to tax losses and timing differences is not carried forward as an asset unless the benefit is virtually certain of being realised.

Goods and Services Tax (GST) and overseas equivalents

Revenues, expenses and assets are recognised net of the amount of GST except:

	•		where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
	•		receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position.

Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities which is recoverable from or payable to the taxation authority is classified as operating cash flows.

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Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to the taxation authority.

Employee benefits

Wages and salaries, annual leave
Liabilities for wages, salaries and annual leave are recognised, and are measured as the amount unpaid at the reporting date at expected future pay rates in respect of employees’ services up to that date.

Long service leave
The amounts expected to be paid to employees for their pro rata entitlement to long service leave, including ‘on-costs’, are accrued annually at expected future pay rates having regard to experience of employee departures and period of service. These entitlements are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash out flows, the interest rates attaching to Government guaranteed securities, which have terms to maturity approximating the terms of the related liability, are used.

Share option plans
The value of share option plans described in Note 15 is not charged as an employee entitlement expense.

Earnings per share (EPS)

Basic EPS is calculated as net profit/(loss) attributable to members adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, if any, divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted EPS is calculated as net profit/(loss) attributable to members, adjusted for:

	•		costs of servicing equity (other than dividends) and preference share dividends (if any);
	•		the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
	•		other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares,

divided by the weighted average number of ordinary shares and dilutive potential ordinary             shares adjusted for any bonus element.

Comparatives

Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.

Adoption of Australian equivalents to International Financial Reporting Standards

Australia is currently preparing for the introduction of International Financial Reporting Standards (IFRS) effective for the Company’s financial year commencing 1 July, 2005. This requires the production of accounting data for future comparative purposes at the beginning of the next financial year.

The economic entity’s management has assessed the significance of these changes and is preparing for their implementation. The following paragraphs set out the accounting standards

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considered by the Company and its assessment of potential impact on the Group’s future financial results and position.

Research and development expenditure

AASB 138: Intangible Assets requires that costs associated with research be expensed in the period in which they are incurred. In terms of current policy, research costs (which include patent costs) are expensed as incurred, unless future recoverability is assured beyond reasonable doubt to exceed those costs. AASB 138 would not allow any research costs to be capitalised. No profit impact is expected as all research costs are expensed under current accounting policies.

Income tax

Currently, the economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the accounting profit adjusted for any permanent differences. Timing differences are currently brought to account as either a provision for deferred income tax or future income tax benefit. Under AASB 112: Income Taxes the economic entity will be required to adopt a balance sheet approach under which temporary differences are identified for each asset and liability rather than the effects of the timing and permanent differences between taxable income and accounting profit. No impact is expected as the group is currently generating tax losses and tax benefits are not brought to account.

Share-based payments

Under AASB 2: Share-based Payments, the Company will be required to determine the fair value of options issued to employees as remuneration and recognise an expense in the Statement of Financial Performance, over the vesting period. It applies to all share-based payments issued after 7 November, 2002 which have not vested as at 1 January, 2005. The recognition of the expense will decrease the opening retained earnings on initial adoption of AASB 2 and increase share capital by the same amount. Reliable estimation of the future financial effects of this change in accounting policy is impractical as the details of the future equity based remuneration plans are not known. In addition, the inputs required to calculate the expense cannot be predicted. However, any expense will result in reduced profits/(increased losses) going forward.

Government grants

AASB 120: Accounting for Government Grants and Disclosure of Government Assistance requires grants received to be recognised as income on a systematic basis over the periods necessary to match them with the related costs which they are intended to compensate, but only where there is reasonable assurance that the consolidated entity will comply with the conditions attaching to them and the grants will be received. No material grants are currently anticipated and, therefore, no impact on the Group’s financial results or position is expected.

Effect of changes in foreign exchange rates

AASB 121 Effect of Changes in Foreign Exchange Rates prescribes the basis for selecting and entities functional currency and the accounting treatment for the recognition of, and subsequent measurement of, transactions denominated in foreign currency and the process of translating financial statements denominated in a foreign currency. The directors have established that the entities functional currency is Australian dollars for all 100% owned international subsidiaries. It is, therefore, unlikely that there will be a profit impact applying AASB 121.

As required by AASB 1047, the impact on this financial report had it been prepared using Australian equivalents to IFRS has been set out in Note 28.

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     Note 2. (LOSS)/PROFIT FROM ORDINARY ACTIVITIES

		Consolidated								Novogen Limited
		2005				2004				2005				2004
		$'000				$'000				$'000				$'000
(a) Revenues from operating activities Revenue from the sale of goods			13,404				12,720				—				—
			13,404				12,720				—				—
(b) Revenues from non-operating activities Interest — other persons/corporations			1,319				1,232				878				936
Grants received			289				1,011				—				—
Royalties received			1,711				978				—				—
Licence fees received			207				—				—				—
Revenue from the sale of assets			—				80				—				—
Other revenue			748				425				—				16
			4,274				3,726				878				952
Total revenues from ordinary activities			17,678				16,446				878				952
(c) Expenses
Depreciation of non-current assets
Plant and equipment			966				965				—				—
Buildings			291				291				—				—
Leasehold improvements			39				51				—				—
Amortisation of non-current assets Plant and equipment under lease			330				414				—				—
Total depreciation and amortisation expenses			1,626				1,721				—				—
Bad and doubtful debts — trade			(78	)			99				—				—
— related parties			—				—				4,194				(2,386	)
Inventory write offs			276				979				—				—
Provision for employee entitlements			98				154				—				—
Rental expense relating to operating leases			668				683				—				—
Borrowing costs expensed Interest expense on finance leases			56				120				—				—
Total borrowing costs expensed			56				120				—				—