##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2006
 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.
  DELAWARE
    
    51-0407811(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 140 Wicks Road, North Ryde, NSW, 2113 Australia
 (011) 61 2 8877- 6196
Registrants telephone number, including area code:
 þ o
  o o þ
 o þ




---



##### 



MARSHALL EDWARDS, INC.
INDEX
 PagePART I            FINANCIAL INFORMATIONItem 1: Financial Statements (Unaudited)Consolidated Balance Sheets as of December 31, 2006 and June
30, 2006
    
    
    3Consolidated Statements of Operations for the three months
and six months ended December 31, 2006 and 2005 and for the
period from December 1, 2000 (inception) through December
31, 2006
    
    
    4Consolidated Statements of Cash Flows for the six months
ended December 31, 2006 and 2005 and for the period from
December 1, 2000 (inception) through December 31, 2006
    
    
    5Consolidated Statement of Stockholders Equity
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2: Managements Discussion and Analysis of Financial Condition
and Results of Operation
    
    
    19Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4: Controls and Procedures
    
    
    32PART II OTHER INFORMATIONItem 4 Submission of Matters to a Vote of Security Holders
    
    
    33Item 6: Exhibits
    
    
    35SIGNATURES
    
    
    36
 2




---



##### 



PART I FINANCIAL INFORMATION
 MARSHALL EDWARDS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
 December 31,
    
    June 30,2006
    
    2006(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    20,226
    
    
    $
    10,054Deferred offering costs
    
    
    
    
    
    
    95Prepaid expenses and other current assets
    
    
    73
    
    
    
    246Total current assets
    
    
    20,299
    
    
    
    10,395Total assets
    
    $
    20,299
    
    
    $
    10,395LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    805
    
    
    $
    420Accrued expenses
    
    
    1,386
    
    
    
    638Amount due to related company
    
    
    523
    
    
    
    202Total current liabilities
    
    
    2,714
    
    
    
    1,260Stockholders 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: 63,390,937 at
December 31, 2006 and 56,938,000 at June 30, 2006
    
    
    
    
    
    
    Additional paid-in capital
    
    
    53,141
    
    
    
    34,636Deficit accumulated during development stage
    
    
    (35,556
    )
    
    
    (25,501
    )Total stockholders equity
    
    
    17,585
    
    
    
    9,135Total liabilities and stockholders equity
    
    $
    20,299
    
    
    $
    10,395
 See accompanying notes to the consolidated financial statements.
 3




---



##### 



MARSHALL EDWARDS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
 Period fromDecember 1,2000 (Inception)Three Months Ended
    
    Six Months Ended
    
    throughDecember 31,
    
    December 31,
    
    December 31,2006
    
    2005
    
    2006
    
    2005
    
    2006Revenues:Interest and other income
    
    $
    183
    
    
    $
    130
    
    
    $
    318
    
    
    $
    252
    
    
    $
    1,417Total revenues
    
    
    183
    
    
    
    130
    
    
    
    318
    
    
    
    252
    
    
    
    1,417Operating expenses:Research and development
    
    
    (1,806
    )
    
    
    (469
    )
    
    
    (2,733
    )
    
    
    (1,055
    )
    
    
    (12,913
    )License fees
    
    
    
    
    
    
    (1,000
    )
    
    
    (5,000
    )
    
    
    (2,000
    )
    
    
    (17,000
    )Selling, general and administrative
    
    
    (552
    )
    
    
    (439
    )
    
    
    (2,640
    )
    
    
    (778
    )
    
    
    (7,058
    )Total operating expenses
    
    
    (2,358
    )
    
    
    (1,908
    )
    
    
    (10,373
    )
    
    
    (3,833
    )
    
    
    (36,971
    )Loss from operations
    
    
    (2,175
    )
    
    
    (1,778
    )
    
    
    (10,055
    )
    
    
    (3,581
    )
    
    
    (35,554
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Net loss arising during development stage
    
    $
    (2,175
    )
    
    $
    (1,778
    )
    
    $
    (10,055
    )
    
    $
    (3,581
    )
    
    $
    (35,556
    )Net loss per common share:Basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.16
    )
    
    $
    (0.06
    )Weighted average common shares outstanding
    
    
    63,390,937
    
    
    
    56,938,000
    
    
    
    63,005,163
    
    
    
    56,938,000
 See accompanying notes to the consolidated financial statements.
 4




---



##### 



MARSHALL EDWARDS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Period fromDecember 1, 2000(Inception)Six Months Ended
    
    throughDecember 31,
    
    December 31,2006
    
    2005
    
    2006Operating activitiesNet loss arising during development stage
    
    $
    (10,055
    )
    
    $
    (3,581
    )
    
    $
    (35,556
    )Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:Share based payments
    
    
    1,642
    
    
    
    
    
    
    
    1,642Changes in operating assets and liabilities:Prepaid expenses and other current assets
    
    
    173
    
    
    
    76
    
    
    
    (73
    )Accounts payable
    
    
    385
    
    
    
    24
    
    
    
    805Accrued expenses
    
    
    748
    
    
    
    (12
    )
    
    
    1,386Amounts due to related company
    
    
    321
    
    
    
    1,990
    
    
    
    523Net cash used in operating activities
    
    
    (6,786
    )
    
    
    (1,503
    )
    
    
    (31,273
    )Financing activitiesNet proceeds from issuance of common stock *
    
    
    16,958
    
    
    
    
    
    
    
    51,499Proceeds from disposal of investments in short-term deposits
    
    
    
    
    
    
    10,000
    
    
    
    Net cash provided by financing activities
    
    
    16,958
    
    
    
    10,000
    
    
    
    51,499Net increase (decrease) in cash and cash
equivalents
    
    
    10,172
    
    
    
    8,497
    
    
    
    20,226Cash and cash equivalents at beginning of period
    
    
    10,054
    
    
    
    9,238
    
    
    
    Cash and cash equivalents at end of period
    
    $
    20,226
    
    
    $
    17,735
    
    
    $
    20,226
 
 *
    
    Deferred offering costs of $95,000 from the year ended June 30, 2006 have been offset
against net proceeds from the issuance of common stock in the six months to December 31, 2006. See accompanying notes to the consolidated financial statements.
 5




---



##### 



MARSHALL EDWARDS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 DeficitaccumulatedduringAdditional paid
    
    
    developmentCommon Stock
    
    
    in capital
    
    
    stage
    
    
    Total(shares)Balance at June 30, 2006
    
    
    56,938,000
    
    
    $
    34,636
    
    
    $
    (25,501
    )
    
    $
    9,135Net loss arising during development stage
    
    
    
    
    
    
    
    
    
    
    (10,055
    )
    
    
    (10,055
    )Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,055
    )Common Stock issued July 11, 2006
    
    
    6,329,311
    
    
    
    16,863
    
    
    
    
    
    
    
    16,863Shares issued as share-based payment (refer Note 6)
    
    
    123,626
    
    
    
    443
    
    
    
    
    
    
    $
    443Warrants issued as share-based payment (refer Note 6)
    
    
    
    
    
    
    1,199
    
    
    
    
    
    
    $
    1,199Balance at December 31, 2006
    
    
    63,390,937
    
    
    $
    53,141
    
    
    $
    (35,556
    )
    
    $
    17,585
 See accompanying notes to the consolidated financial statements.
 6




---



##### 



MARSHALL EDWARDS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2006
 1. The Company and Summary of Significant Accounting Policies
    Principles of Consolidation
  Estimates
  7




---



##### 



Revenue Recognition
 Interest
  Cash and Cash Equivalents and Short Term Investments
  Income Taxes
  Fair Value of Financial Instruments
  Foreign Currency Translation
   Research and Development Expenses
  8




---



##### 



License Fees
  Stock-Based Compensation
   Basic and Diluted Loss Per Share
  Comprehensive Loss
  Stockholders Equity
  Deferred Offering Costs
  9




---



##### 



2. Loss Per Share
  Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2006
    
    2005
    
    2006
    
    2005(In Thousands, except share and per share data)NumeratorNet loss arising during development stage
    
    
    (2,175
    )
    
    
    (1,778
    )
    
    
    (10,055
    )
    
    
    (3,581
    )Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Numerator for diluted earnings per share
    
    $
    (2,175
    )
    
    $
    (1,778
    )
    
    $
    (10,055
    )
    
    $
    (3,581
    )DenominatorDenominator for basic earnings per share -
Weighted average number of shares used in computing net loss per share, basic and diluted
    
    
    63,390,937
    
    
    
    56,938,000
    
    
    
    63,005,163
    
    
    
    56,938,000Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive potential common shares
    
    
    63,390,937
    
    
    
    56,938,000
    
    
    
    63,005,163
    
    
    
    56,938,000Basic and diluted earnings per share
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.16
    )
    
    $
    (0.06
    )
  As at December 31,2006
    
    2005Warrants exercisable prior to December 18, 2006 at an exercise price of $9.00
    
    
    
    
    
    
    2,392,000Warrants exercisable prior to July 11, 2010 at an exercise price of $4.35
    
    
    2,815,258
    
    
    
    Common shares issuable upon exercise of outstanding warrants
    
    
    2,815,258
    
    
    
    2,392,000
   3. Expenditure Commitments
  10




---



##### 



Payment due by period(In thousands)
    
    
    
    
    
    less than 1
    
    1 - 3
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    Year
    
    Years
    
    3 - 5 Years
    
    5 YearsPurchase Obligations
    
    $
    8,077
    
    
    $
    4,715
    
    
    $
    3,000
    
    
    $
    362
    
    
    $
    Total
    
    $
    8,077
    
    
    $
    4,715
    
    
    $
    3,000
    
    
    $
    362
    
    
    $
    
      11




---



##### 



4. Segment Information
  Three Months Ended
    
    Three Months EndedDecember 31, 2006
    
    December 31, 2005(In Thousands)USA
    
    Australia
    
    USA
    
    AustraliaLoss from operations
    
    $
    (82
    )
    
    $
    (2,093
    )
    
    $
    (68
    )
    
    $
    (1,710
    )Segment assets
    
    
    15,123
    
    
    
    5,176
    
    
    
    15,058
    
    
    
    2,727
 Six Months Ended
    
    Six Months EndedDecember 31, 2006
    
    December 31, 2005(In Thousands)USA
    
    Australia
    
    USA
    
    AustraliaLoss from operations
    
    $
    (1,854
    )
    
    $
    (8,201
    )
    
    $
    (98
    )
    
    $
    (3,483
    )
 5. Related Party Transactions
 License Agreement for Phenoxodiol
   12




---



##### 



(a)
    
    the date of expiration or lapsing of the last patent right in the patents and patent
applications set out in the license agreement with Novogen; or
 (b)
    
    the date of expiration or lapsing of the last licensed patent right which MEPL would, but for
the license granted in the license agreement, infringe in any country in the geographical
territory covered by the license agreement by doing in that country any of the things set out
in the license agreement.
  License Amendment Deed for Phenoxodiol
  (i)
    
    approval by the FDA of a New Drug Application (NDA) for phenoxodiol;(ii)
    
    approval or authorization of any kind to market phenoxodiol in the United States; or(iii)
    
    approval or authorization of any kind by a government agency in any other country to market
phenoxodiol.
   License Agreement for NV-196 and NV-143
  13




---



##### 



i)
    
    $1,000,000 on the date an investigational new drug application (IND) for
the licensed product goes into effect or the equivalent approval of a government
agency is obtained in another country. If this event does not occur before March 31,
2008 then this amount will be due on this date;ii)
    
    $2,000,000 on the date of enrollment of the first clinical trial subject
in a Phase II clinical trial of the licensed product. If this event does not occur
before June 30, 2009, then this amount will be due on this date;iii)
    
    $3,000,000 on the date of enrollment of the first clinical trial subject
in a Phase III clinical trial of the licensed product. If this event does not occur
before December 31, 2011, then this amount will be due on this date; andiv)
    
    $8,000,000 on the date of first receipt of a NDA for the licensed product
from the FDA or equivalent approval from a government agency in another country. If
this event does not occur before December 31, 2013, then this amount will be due on
this date.
   License Option Deed
  14




---



##### 



Services Agreement
    Manufacturing License and Supply Agreement
     15




---



##### 



6. Equity
     
    
    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.
     16




---



##### 



7. Contingent Liability
  17




---



##### 



18




---



##### 



Special Note Regarding Forward-Looking Statements
  
    
    our limited operating history;
    
    our inability to obtain any additional required financing or financing
available to us on acceptable terms;
    
    our failure to successfully commercialize our 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 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;
    
    our inability to control the costs of manufacturing our products;
    
    continued cooperation and support of Novogen Limited (Novogen), our
parent company;
    
    competition and 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;
    
    costs stemming from our defence against third party intellectual property
infringement claims;
    
    difficulties in enforcement of civil liabilities against our officers and
directors who are residents of jurisdictions outside the United States;
 19




---



##### 




    
    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.
    Overview
    20




---



##### 



Critical Accounting Estimates
  Development Expenses
     21




---



##### 




    
    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 indication being studied; and
    
    the efficacy and safety profile of the product.
    Clinical Trial Expenses
    Manufacturing Scale-up Expenses
  22




---



##### 



Stock Based Compensation
  Dividend yield
    
    
    0
    %Expected volatility
    
    
    76
    %Historical volatility
    
    
    76
    %Risk-free interest rate
    
    
    5.45
    %Expected life of warrant
    
    4 yearsWarrant fair value
    
    $
    1.998
   23




---



##### 



Results of Operations
 Three Months Ended December 31, 2006 and 2005
  Revenues:
 Research and Development:
 License Fees:
 Selling, General and Administrative:
  24




---



##### 



Six Months Ended December 31, 2006 and 2005
  Revenues:
 Research and Development:
 License Fees:
 Selling, General and Administrative:
  25




---



##### 



Liquidity and Capital Resources
      26




---



##### 



Source and Uses of Cash
 Cash Used in Operating Activities
  Cash Requirements
      License Agreement for Phenoxodiol
  27




---



##### 



(a)
    
    the date of expiration or lapsing of the last patent right in the patents and patent
applications set out in the license agreement with Novogen; or
 (b)
    
    the date of expiration or lapsing of the last licensed patent right which MEPL would, but for
the license granted in the license agreement, infringe in any country in the geographical
territory covered by the license agreement by doing in that country any of the things set out
in the license agreement.
  License Amendment Deed for Phenoxodiol
  (i)
    
    approval by the FDA of a New Drug Application (NDA) for phenoxodiol;(ii)
    
    approval or authorization of any kind to market phenoxodiol in the United States; or(iii)
    
    approval or authorization of any kind by a government agency in any other country to market
phenoxodiol.
   28




---



##### 



License Agreement for NV-196 and NV-143
    
  i)
    
    $1,000,000 on the date an IND for the licensed product goes into effect
or the equivalent approval of a government agency is obtained in another country. If
this event does not occur before March 31, 2008, then this amount will be due on
this date;ii)
    
    $2,000,000 on the date of enrollment of the first clinical trial subject
in a Phase II clinical trial of the licensed product. If this event does not occur
before June 30, 2009, then this amount will be due on this date;iii)
    
    $3,000,000 on the date of enrollment of the first clinical trial subject
in a Phase III clinical trial of the licensed product. If this event does not occur
before December 31, 2011 then this amount will be due on this date; andiv)
    
    $8,000,000 on the date of first receipt of a NDA for the licensed product
from the FDA or equivalent approval from a government agency in another country. If
this event does not occur before December 31, 2013, then this amount will be due on
this date.
  29




---



##### 



Off-Balance Sheet Arrangements
  Contractual Obligations
  Payment due by period(In thousands)
    
    
    
    
    
    less than 1
    
    1 - 3
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    Year
    
    Years
    
    3 - 5 Years
    
    5 YearsPurchase Obligations
    
    $
    8,077
    
    
    $
    4,715
    
    
    $
    3,000
    
    
    $
    362
    
    
    $
    Total
    
    $
    8,077
    
    
    $
    4,715
    
    
    $
    3,000
    
    
    $
    362
    
    
    $
    
  30




---



##### 



Interest Rate Risk
   Foreign Currency Risk
   31




---



##### 



Evaluation of Disclosure Controls and Procedures
   32




---



##### 



PART II            OTHER INFORMATION
  (a)
    
    The Company held its Annual Meeting of Stockholders on December
12, 2006.(b)
    
    Mr. Stephen Breckenridge and Professor
Bryan Williams were elected at the annual meeting for a term of three
years expiring at the 2009 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
Professor Graham Kelly
Mr. Christopher Naughton(c)
    
    At the 2006 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 2009 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 year
ending June 30, 2007 and for the approval of the issuance of the Companys
common stock to Cornell Capital Partners, LP pursuant to the Standby
Equity Distribution Agreement entered into by the Company and Cornell
Capital Partners LP on July 11, 2006.
 33




---



##### 



Withhold
    
    
    Broker non-Matter
    
    For
    
    
    Against
    
    
    Abstain
    
    
    authority
    
    
    votes1. Election of DirectorsStephen Breckenridge
    
    
    57,074,607
    
    
    
    
    
    
    
    
    
    
    
    293,525
    
    
    
    Professor Bryan Williams
    
    
    57,074,907
    
    
    
    
    
    
    
    
    
    
    
    293,225
    
    
    
    2. Ratification of the appointment of BDO as independent auditors for the fiscal year ending June 30, 2007.
    
    
    57,308,996
    
    
    
    46,025
    
    
    
    13,111
    
    
    
    
    
    
    
    3. Approval of the issuance of the Companys common stock to Cornell Capital Partners, LP pursuant to the
Standby Equity Distribution Agreement entered into by the Company and Cornell Capital Partners LP on July
11, 2006.
    
    
    52,861,474
    
    
    
    323,726
    
    
    
    12,400
    
    
    
    
    
    
    
    4,170,532
 34




---



##### 



Exhibit Index
 Exhibits31.1
    
    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).
 35




---



##### 



SIGNATURES
  MARSHALL EDWARDS, INC./s/ DAVID SEATON

David R. SeatonChief Financial Offer(Duly Authorized Officer and
Principal Financial Officer)
  36