UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934





For
the quarterly period ended December 31, 2008





OR





[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934





For
the transition period from ________ to ________.





Commission
File Number: 000-50484





Marshall
Edwards, Inc.


(Exact
name of registrant as specified in its charter)





DELAWARE
            51-0407811(State
      or other jurisdiction of
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)





140
Wicks Road, North Ryde, NSW, 2113 Australia


(Address
of principal executive offices) (Zip Code)





(011)
61 2 8877- 6196


Registrant’s
telephone number, including area code:








Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer,  a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer   o
            Non-accelerated
      filer          xAccelerated
      filer   o
            Smaller
      reporting entity   o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes o No x





As of
January 31, 2009 the number of shares outstanding of the issuer’s common stock,
$0.00000002 par value, was 73,463,233.











MARSHALL
EDWARDS, INC.





INDEX


PART
      I
            FINANCIAL
      INFORMATION
            PageItem
      1:
            Financial
      Statements (Unaudited)Consolidated
      Balance Sheets as of December 31, 2008 and June 30, 2008
            3Consolidated
      Statements of Operations for the three months and six months ended
      December 31, 2008 and 2007 and for the period from December 1, 2000
      (inception) through December 31, 2008
            4Consolidated
      Statements of Cash Flows for the six months ended December 31, 2008 and
      2007 and for the period from December 1, 2000 (inception) through December
      31, 2008
            5Consolidated
      Statement of Stockholders’ Equity
            6Notes
      to Consolidated Financial Statements
            7Item
      2:
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            18Item
      3:
            Quantitative
      and Qualitative Disclosures about Market Risk
            28Item
      4T:
            Controls
      and Procedures
            29PART
      II
            OTHER
      INFORMATIONItem
      4:
            Submission
      of Matters to a Vote of Security Holders
            30Item
      6:
            Exhibits
            31SIGNATURES
            32









2


PART
I  FINANCIAL INFORMATION


Item 1:
Financial Statements





MARSHALL
EDWARDS, INC.


(A
Development Stage Company)


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share and per share data)





December
      31
                                
                                
                                June
      30,2008
                                
                                
                                2008(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                                
                                $
                                24,989
                                
                                
                                $
                                19,743Deferred
      offering costs
                                
                                
                                -
                                
                                
                                
                                110Prepaid
      expenses and other current assets
                                
                                
                                65
                                
                                
                                
                                125Total
      current assets
                                
                                
                                25,054
                                
                                
                                
                                19,978Total
      assets
                                
                                $
                                25,054
                                
                                
                                $
                                19,978LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
                                
                                $
                                690
                                
                                
                                $
                                1,130Accrued
      expenses
                                
                                
                                1,592
                                
                                
                                
                                1,884Amount
      due to related company
                                
                                
                                255
                                
                                
                                
                                429Total
      current liabilities
                                
                                
                                2,537
                                
                                
                                
                                3,443Stockholders'
      equity:Preferred
      stock, $0.01 par value, authorized 100,000 shares,none
      outstanding
                                
                                
                                -
                                
                                
                                
                                -Common
      stock, $ 0.00000002 par value, 113,000,000 authorizedshares;
      shares issued and outstanding: 73,463,233 atDecember 31,
      2008 and 68,854,938 at June 30, 2008
                                
                                
                                -
                                
                                
                                
                                -Additional
      paid-in capital
                                
                                
                                78,099
                                
                                
                                
                                68,266Deficit
      accumulated during development stage
                                
                                
                                (55,582
                                )
                                
                                
                                (51,731
                                )Total
      stockholders' equity
                                
                                
                                22,517
                                
                                
                                
                                16,535Total
      liabilities and stockholders' equity
                                
                                $
                                25,054
                                
                                
                                $
                                19,978





See
accompanying notes to the consolidated financial statements.





3


MARSHALL
EDWARDS, INC.


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands, except share and per share data)


(Unaudited)


Three
      Months Ended
                                      December
      31,
                                    
                                    
                                    Six
      Months Ended
                                      December
      31,
                                    
                                    
                                    Period
      from December 1, 2000 (Inception) through
                                      December
      31,2008
                                    
                                    
                                    2007
                                    
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2008Revenues:Interest and
      other income
                                    
                                    $
                                    76
                                    
                                    
                                    $
                                    215
                                    
                                    
                                    $
                                    172
                                    
                                    
                                    $
                                    433
                                    
                                    
                                    $
                                    2,590Total
      revenues
                                    
                                    
                                    76
                                    
                                    
                                    
                                    215
                                    
                                    
                                    
                                    172
                                    
                                    
                                    
                                    433
                                    
                                    
                                    
                                    2,590Operating
      expenses:Research and
      development
                                    
                                    
                                    (1,365
                                    )
                                    
                                    
                                    (1,865
                                    )
                                    
                                    
                                    (3,443
                                    )
                                    
                                    
                                    (4,771
                                    )
                                    
                                    
                                    (28,709
                                    )License
      fees
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (18,000
                                    )Selling,
      general and administrative
                                    
                                    
                                    (310
                                    )
                                    
                                    
                                    (660
                                    )
                                    
                                    
                                    (579
                                    )
                                    
                                    
                                    (1,337
                                    )
                                    
                                    
                                    (11,456
                                    )Total
      operating expenses
                                    
                                    
                                    (1,675
                                    )
                                    
                                    
                                    (2,525
                                    )
                                    
                                    
                                    (4,022
                                    )
                                    
                                    
                                    (6,108
                                    )
                                    
                                    
                                    (58,165
                                    )Loss
      from operations
                                    
                                    
                                    (1,599
                                    )
                                    
                                    
                                    (2,310
                                    )
                                    
                                    
                                    (3,850
                                    )
                                    
                                    
                                    (5,675
                                    )
                                    
                                    
                                    (55,575
                                    )Income
      tax expense
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1
                                    )
                                    
                                    
                                    (1
                                    )
                                    
                                    
                                    (2
                                    )
                                    
                                    
                                    (7
                                    )Net
      loss arising during development stage
                                    
                                    $
                                    (1,599
                                    )
                                    
                                    $
                                    (2,311
                                    )
                                    
                                    $
                                    (3,851
                                    )
                                    
                                    $
                                    (5,677
                                    )
                                    
                                    $
                                    (55,582
                                    )Net
      loss per common share:Basic
      and diluted
                                    
                                    $
                                    (0.02
                                    )
                                    
                                    $
                                    (0.03
                                    )
                                    
                                    $
                                    (0.05
                                    )
                                    
                                    $
                                    (0.08
                                    )Weighted
      average number of common shares outstanding
                                    
                                    
                                    73,463,233
                                    
                                    
                                    
                                    68,854,938
                                    
                                    
                                    
                                    72,686,835
                                    
                                    
                                    
                                    67,756,199











See
accompanying notes to the consolidated financial statements.





4


MARSHALL
EDWARDS, INC.


(A
Development Stage Company)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)








Six
      Months Ended
              December
      31,
            
            
            Period
      from December 1, 2000 (Inception) through
              December
      31,2008
            
            
            2007
            
            
            2008Operating
      activitiesNet
      loss arising during development stage
            
            $
            (3,851
            )
            
            $
            (5,677
            )
            
            $
            (55,582
            )Adjustments to
      reconcile net loss to net cash(used
      in) provided by operating activities:Share
      based payments
            
            
            65
            
            
            
            -
            
            
            
            1,707Changes
      in operating assets and liabilities:Prepaid
      expenses and other current assets
            
            
            60
            
            
            
            45
            
            
            
            (65
            )Accounts
      payable
            
            
            (440
            )
            
            
            (327
            )
            
            
            690Accrued
      expenses
            
            
            (292
            )
            
            
            885
            
            
            
            1,592Amounts
      due to related company
            
            
            (174
            )
            
            
            294
            
            
            
            255Net
      cash used in operating activities
            
            
            (4,632
            )
            
            
            (4,780
            )
            
            
            (51,403
            )Financing
      activitiesNet
      proceeds from issuance of  common stock *
            
            
            9,878
            
            
            
            15,193
            
            
            
            76,392Net
      cash provided by financing activities
            
            
            9,878
            
            
            
            15,193
            
            
            
            76,392Net
      increase in cash and cash equivalents
            
            
            5,246
            
            
            
            10,413
            
            
            
            24,989Cash
      and cash equivalents at beginning of period
            
            
            19,743
            
            
            
            16,158
            
            
            
            -Cash
      and cash equivalents at end of period
            
            $
            24,989
            
            
            $
            26,571
            
            
            $
            24,989




*
Deferred offering costs of $110,000 from the year ended June 30, 2008 have been
offset against net proceeds from the issuance of common stock in the six months
to December 31, 2008.























See
accompanying notes to the consolidated financial statements.





5


MARSHALL
EDWARDS, INC.


(A
Development Stage Company)


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


(In
thousands, except share data)


(Unaudited)





Common
      Stock
                      
                      
                      Additional
      paid in capital
                      
                      
                      Deficit
      accumulated during development stage
                      
                      
                      Total(shares)Balance
      at June 30, 2008
                      
                      
                      68,854,938
                      
                      
                      $
                      68,266
                      
                      
                      $
                      (51,731
                      )
                      
                      $
                      16,535Net
      loss arising during development stage
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (3,851
                      )
                      
                      
                      (3,851
                      )Comprehensive
      Loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (3,851
                      )Common
      Stock issued July 31, 2008
                      
                      
                      4,608,295
                      
                      
                      
                      9,768
                      
                      
                      
                      -
                      
                      
                      
                      9,768Warrants
      issued as share-based payment (refer Note 6)
                      
                      
                      -
                      
                      
                      
                      65
                      
                      
                      
                      -
                      
                      
                      
                      65Balance
      at December 31, 2008
                      
                      
                      73,463,233
                      
                      
                      $
                      78,099
                      
                      
                      $
                      (55,582
                      )
                      
                      $
                      22,517














See
accompanying notes to the consolidated financial statements.




6


MARSHALL
EDWARDS, INC.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)








1.      The
Company and Summary of Significant Accounting Policies





Marshall
Edwards, Inc. (“MEI”) including its subsidiary Marshall Edwards Pty Ltd (“MEPL”)
(together the “Group or the “Company”) is a development stage company
incorporated in December 2000 as a wholly-owned subsidiary of Novogen Limited
(“Novogen”). The Company commenced operations in May 2002 and its business
purpose is the development and commercialization of drugs for the treatment of
cancer. The Company has been engaged in the clinical and pre-clinical
development of the anti-cancer drugs phenoxodiol, triphendiol (formally NV-196)
and NV-143. Novogen’s subsidiary has granted to MEPL, worldwide non-transferable
licenses under its patent right and patent applications and its relevant
know-how to conduct clinical trials and commercialize and distribute all forms
of phenoxodiol, triphendiol and NV-143 for uses in the field of prevention,
treatment, and cure of cancer in humans, except topical applications. At the
date of this Quarterly Report, Novogen owns approximately 71.3% of the
outstanding shares of the Company’s common stock.





The
Company’s main focus since commencing operations has been to undertake human
clinical testing of phenoxodiol. Operations were expanded to include the
additional licensed drug candidates triphendiol and NV-143. During fiscal year
2007, the Company commenced the OVATURE Phase III clinical trial for phenoxodiol
(known as “OVATURE”). The Company has reached agreement under the Special
Protocol Assessment process with the United States Food and Drug Administration
(the “FDA”) on the design of its OVATURE pivotal study protocol for phenoxodiol.
The trial is designed to test the ability of phenoxodiol to restore sensitivity
of late-stage ovarian cancers to carboplatin, a standard form of therapy for
ovarian cancer. During fiscal year 2008 and the period to December 31, 2008, the
Company has continued to recruit patients into the OVATURE trial. Due to the
global financial crisis the Company has decided to preserve cash and progress
the development of triphendiol to an Investigational New Drug Application
(“IND”), which was approved by the FDA in December 2008. The Company has put on
hold, pending additional funding, further development of triphendiol and the
development of NV-143, focusing its resources on OVATURE.





Principles
of Consolidation





The
consolidated financial statements include the accounts of MEI and its
wholly-owned subsidiary, MEPL. Significant intercompany accounts and
transactions have been eliminated on consolidation.





7


Estimates





The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from those estimates.





Revenue
Recognition





Interest





The only
revenue earned to date is interest on cash balances, which is recognized on an
accruals basis.





Cash
and Cash Equivalents





Cash on
hand and in banks and short-term deposits is stated at its nominal value. The
Company considers all highly liquid investments, with a maturity of three months
or less when purchased, to be cash equivalents. Highly liquid investments with
stated maturities of greater than three months are classified as short-term
investments. The Company’s cash, held in the United States, is deposited in
financial institutions that are FDIC insured. These deposits are in excess of
the FDIC insurance limits. The Company also holds cash with Australian financial
institutions. Cash deposits held in Australian banks are guaranteed by the
Australian Government up to a maximum amount of A$1 million per
account.





Income
Taxes





Income
taxes have been provided for using the liability method in accordance with FASB
Statement No. 109, “Accounting for Income Taxes.” Under this method, deferred
tax assets and liabilities are recognized and measured using enacted tax rates
in effect for the year in which the differences are expected to be recognized.
Valuation allowances are established against the recorded deferred income tax
assets to the extent that management believes that it is more likely than not
that a portion of the deferred income tax assets are not realizable. There is a
full valuation allowance against net operating losses.





The
Company adopted Financial Accounting Standards Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes – an interpretation of FASB No 109”
(“FIN 48”) effective July 1, 2007. The implementation of FIN 48 did not result
in any increase or decrease in the liability for unrecognized tax benefits
related to tax positions taken in prior periods, therefore there was no
corresponding adjustment in accumulated deficit. The Company’s total amount of
unrecognized tax benefits as of June 30, 2008 was $64 million.





The
Company’s major tax jurisdictions are the United States and Australia and its
tax years since inception remain subject to examination by the appropriate
governmental agencies in those jurisdictions due to its tax loss
position.





Fair
Value of Financial Instruments





The
carrying amounts of the Company’s financial instruments, including cash and cash
equivalents and accounts payable, approximate fair value. Fair value has been
determined based on the fair value of identical investments in active markets.
All cash and cash equivalents are classified as level 1 as defined by SFAS No.
157. The Company has partially adopted SFAS No. 157 as allowed.





8


Foreign
Currency Translation





The
financial statements of MEPL have been translated into U.S. dollars in
accordance with FASB Statement No. 52, “Foreign Currency Translation.” Assets
and liabilities are translated into U.S. dollars using the exchange rates in
effect at the balance sheet date. Income statement amounts have been translated
using the average exchange rate for the periods. Realized gains and losses from
foreign currency transactions are reflected in the consolidated statements of
operations.





Translation
of MEPL’s financial statements into U.S. dollars does not have a material impact
on the Company’s financial position.





Research
and Development Expenses





Research
and development expenses relate primarily to the cost of conducting human
clinical and pre-clinical trials of phenoxodiol, triphendiol and NV-143.
Research and development costs are charged to earnings in the period
incurred.





License
Fees





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





Stock-Based
Compensation





On
December 9, 2008, the Company adopted the Marshall Edwards, Inc. 2008 Stock
Omnibus Equity Compensation Plan (the “Equity Compensation Plan”) and cancelled
the Marshall Edwards, Inc. Share Option Plan (the “Share Option Plan”). No
options were issued under the Share Option Plan. The Equity Compensation Plan
provides for the issuance of a maximum of 7,000,000 shares of common stock in
connection with the grant of options and/or other stock-based or
stock-denominated awards to the Company’s non-employee directors, officers,
employees and advisors. To date, the Company has issued options exercisable for
50,000 shares of common stock under the Equity Compensation Plan. For further
details, see Note 8 “Significant Events after Balance Sheet Date”.





Other
stock-based payments have been accounted for in accordance with SFAS No. 123R
“Share-Based Payments”. The Company therefore recognizes the cost of goods
acquired or the expense for services received in a share-based payment
transaction when it obtains the goods or as services are received. The Company
recognizes a corresponding increase in equity or a liability depending on the
classification of the share-based instrument granted.





Basic
and Diluted Loss Per Share





Basic and
diluted earnings or loss per share is calculated in accordance with FASB
Statement No. 128, “Earnings Per Share.” In computing basic earnings or loss per
share, the dilutive effect of stock options and warrants are excluded, whereas
for diluted earnings per share they are included unless the effect is
anti-dilutive.





9


Stockholders’
Equity





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





Deferred
Offering Costs





Where
costs associated with a capital raising have been incurred at balance date and
it is probable that the capital raising will be successfully completed after
balance date, such costs are deferred and offset against the proceeds
subsequently received from the capital raising.





2.           Loss
Per Share





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




Three
      Months Ended
                        December
      31,
                      
                      
                      Six
      Months Ended
                        December
      31,2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007(In
      Thousands, except share and per share data)
                      
                      
                      (In
      Thousands, except share and per share data)NumeratorNet
      loss arising during development stage
                      
                      
                      (1,599
                      )
                      
                      
                      (2,311
                      )
                      
                      
                      (3,851
                      )
                      
                      
                      (5,677
                      )Effect
      of dilutive securities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Numerator
      for diluted earnings per share
                      
                      $
                      (1,599
                      )
                      
                      $
                      (2,311
                      )
                      
                      $
                      (3,851
                      )
                      
                      $
                      (5,677
                      )DenominatorDenominator
      for basic earnings per share:Weighted
      average number of shares used in computing net loss per share, basic and
      diluted
                      
                      
                      73,463,233
                      
                      
                      
                      68,854,938
                      
                      
                      
                      72,686,835
                      
                      
                      
                      67,756,199Effect
      of dilutive securities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Dilutive
      potential common shares
                      
                      
                      73,463,233
                      
                      
                      
                      68,854,938
                      
                      
                      
                      72,686,835
                      
                      
                      
                      67,756,199Basic
      and diluted earnings per share
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.03
                      )
                      
                      $
                      (0.05
                      )
                      
                      $
                      (0.08
                      )







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





10




As
      at December 31,2008
                2007(Number
      of warrant shares)Warrants
      exercisable prior to July 11, 2010 at an exercise price of
      $4.35
                2,815,258
                2,815,258Warrants
      exercisable prior to August 6, 2012 at an exercise price of
      $3.60
                2,185,598
                2,185,598Warrants
      exercisable prior to August 6, 2012 at an exercise price of
      $3.00
                248,364
                248,364Warrants
      exercisable prior to July 30, 2013 at an exercise price of
      $2.17
                46,083
                -Common
      shares issuable upon exercise of outstanding warrants
                5,295,303
                5,249,220




During
August 2007, the Company issued 5,464,001 shares of common stock and warrants
exercisable for 2,433,962 shares of common stock in connection with a private
placement or PIPE capital raising. For further details see Note 6
“Equity”.





During
July 2008, the Company issued 4,608,295 shares of common stock and warrants
exercisable for 46,083 shares of common stock. For further details see Note 6
“Equity”.





3.      Expenditure
Commitments





At
December 31, 2008, the Company had contractual obligations for the conduct of
clinical trials, pre-clinical research and development and manufacturing process
development of approximately $13,813,000. Of the expenditure commitments,
clinical trial amounts are based on the assumption that all patients enrolled in
clinical trials will complete the maximum number of allowed treatment cycles.
The amounts, assuming all treatment cycles are completed, are expected to be
incurred as follows:





(In
      thousands)
                      
                      
                      
                      
                      Payment
      due by periodContractual
      Obligations
                      
                      Total
                      
                      
                      less
      than 1 Year
                      
                      
                      1 -
      3 Years
                      
                      
                      3 -
      5 Years
                      
                      
                      More
      than 5 YearsPurchase
      Obligations
                      
                      $
                      13,813
                      
                      
                      $
                      8,041
                      
                      
                      $
                      4,867
                      
                      
                      $
                      905
                      
                      
                      $
                      -Total
                      
                      $
                      13,813
                      
                      
                      $
                      8,041
                      
                      
                      $
                      4,867
                      
                      
                      $
                      905
                      
                      
                      $
                      -




No
amounts have been included for future payments to Novogen which may arise in
connection with the Phenoxodiol License Agreement, the License Agreement for
Triphendiol and NV-143, the Services Agreement or the Manufacturing License and
Supply Agreement, as future payments under the terms of the agreements are
subject to termination provisions. The terms of the agreements, including future
payments, are detailed in Note 5 “Related Party Transactions.”





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





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





Pursuant
to the terms of a Guarantee and Indemnity Agreement, the Company has guaranteed
the payment and performance of the obligations of MEPL to Novogen and its
subsidiaries, Novogen Laboratories Pty Limited and Novogen Research Pty Limited,
under the Phenoxodiol License Agreement, the Manufacturing License and Supply
Agreement




11


and the
Services Agreement. Novogen has guaranteed the performance of the obligations of
Novogen Research Pty Limited under the Phenoxodiol License Agreement and the
obligations of Novogen Laboratories Pty Limited under the Manufacturing License
and Supply Agreement to MEPL. Each of the Company and Novogen’s obligations in
the Guarantee and Indemnity Agreement are absolute, unconditional and
irrevocable.





4.           Segment
Information





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





Three
      Months Ended
                                                December
      31, 2008
                                              
                                              
                                              Three
      Months Ended
                                                December
      31, 2007(In
      Thousands)USA
                                              
                                              
                                              Australia
                                              
                                              
                                              USA
                                              
                                              
                                              AustraliaLoss
      from operations
                                              
                                              $
                                              (109
                                              )
                                              
                                              $
                                              (1,490
                                              )
                                              
                                              $
                                              (96
                                              )
                                              
                                              $
                                              (2,215
                                              )Segment
      assets
                                              
                                              
                                              16,369
                                              
                                              
                                              
                                              8,685
                                              
                                              
                                              
                                              22,557
                                              
                                              
                                              
                                              4,076Six
      Months Ended
                                                December
      31, 2008
                                              
                                              
                                              Six
      Months Ended
                                                December
      31, 2007(In
      Thousands)USA
                                              
                                              
                                              Australia
                                              
                                              
                                              USA
                                              
                                              
                                              AustraliaLoss
      from operations
                                              
                                              $
                                              (362
                                              )
                                              
                                              $
                                              (3,489
                                              )
                                              
                                              $
                                              (175
                                              )
                                              
                                              $
                                              (5,502
                                              )





5.           Related
Party Transactions





License
Agreement for Phenoxodiol





In
September 2003, the Company entered into a license agreement pursuant to which
Novogen’s subsidiary, Novogen Research Pty Limited, granted to MEPL a worldwide
non-transferable license under its patents and patent applications and in its
know-how to conduct clinical trials and commercialize and distribute phenoxodiol
products (the “Phenoxodiol License Agreement”). The Phenoxodiol License
Agreement covers uses of phenoxodiol in the field of prevention, treatment or
cure of cancer in humans delivered in all forms except topical applications. The
license is exclusive until the expiration or lapsing of the last relevant
Novogen patents or patent applications in the world and thereafter is
non-exclusive. MEPL may terminate the Phenoxodiol License Agreement by giving
three months notice to Novogen. MEPL paid $5,000,000 to Novogen in February 2004
which was the first lump sum license fee payment due under the terms of the
Phenoxodiol License Agreement. Also, MEPL paid $2,000,000 to Novogen in January
2005 and $4,000,000 in January 2006 which were the annual milestone license fee
payments due under the Phenoxodiol License Agreement. The Company paid a second
lump sum license fee of $5,000,000 to Novogen in July 2006 following the raising
of funds in a private placement or PIPE. This license fee was due on the later
of November 1, 2003 or such later date when the cumulative total of all funds
received from debt or equity issuances and revenue received from
commercialization (income other than sales) and sales of phenoxodiol products
exceeded $50,000,000. Following the PIPE capital raising which closed on July
11, 2006, the funds received from equity issuances exceeded $50,000,000 which
triggered this license fee payment. Future amounts payable to Novogen under
terms of the Phenoxodiol License Agreement are as follows:





12


1. Until
the expiration of the exclusivity period of the license, MEPL must pay Novogen
2.5% of all net sales and 25% of commercialization income. After the exclusivity
period of the license, 1.5% of net sales must be paid to Novogen. The
preconditions to such payments have not yet occurred.





The
“Exclusivity Period” ends on the later of:





(a)
            the
      date of expiration or lapsing of the last patent right in the patents and
      patent applications set out in the Phenoxodiol 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 Phenoxodiol License Agreement,
      infringe in any country in the geographical territory covered by the
      Phenoxodiol License Agreement by doing in that country any of the things
      set out in the Phenoxodiol License
Agreement.





2. In addition to the amounts above,
the Licence Agreement for Phenoxodiol was amended in June 2006 and April 2007 to
provide that upon the earliest receipt (the “approval Date”) by MEPL of the
first:





(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;





MEPL will
be required to pay Novogen Research Pty Limited $8,000,000, together with
interest on such amount from (and including) December 31, 2006 to (but
excluding) the Approval Date. Thereafter, MEPL will be required to make license
milestone fee payments of $8,000,000 to Novogen Research Pty Limited on
December 31 of the year of the Approval Date and on December 31 of
each year thereafter during the exclusivity period under the Phenoxodiol License
Agreement.





No
license fees have been accrued in respect of phenoxodiol at December 31,
2008.





License
Agreement for Triphendiol and NV-143





In May
2006, the Company entered into a second license agreement with Novogen for two
oncology compounds, triphendiol and NV-143 (the “License Agreement for
Triphendiol and NV-143”). Triphendiol is being developed initially in oral form
for the treatment of pancreatic and bile duct cancer and is currently in Phase I
human testing. NV-143 is targeted for the treatment of melanoma, also in oral
dose form, and is in the pre-clinical testing stage. The License Agreement for
Triphendiol and NV-143 is an agreement under which Novogen’s subsidiary, Novogen
Research Pty Limited, grants to MEPL a worldwide non-transferable license under
its patents and patent applications and in its know-how to conduct clinical
trials and commercialize and distribute triphendiol and NV-143 products. The
License Agreement for Triphendiol and NV-143 covers uses of triphendiol and
NV-143 in the field of prevention, treatment or cure of cancer in humans
delivered in all forms except topical applications. The license is exclusive
until the expiration or lapsing of the last relevant Novogen patents




13


or patent
applications in the world and thereafter is non-exclusive. MEPL may terminate
the agreement by giving three months notice to Novogen. The Company is required
to make payments under the terms of the License Agreement for Triphendiol and
NV-143 with Novogen as follows:





1.   A
lump sum license fee of $1,000,000 is payable to Novogen on the commencement
date of the license in consideration of the license granted. This initial lump
sum license fee was paid to Novogen in May 2006.





2.   In
further consideration of the license granted, MEPL must pay to Novogen the
following milestone license fees upon the occurrence of the corresponding
milestone as set forth below;





a)   the
first license product containing triphendiol to reach a milestone as set forth
below; and


b)   the
first licensed product containing NV-143 to reach a milestone as set forth
below.


The milestone
license fees are:


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. The amount of $1,000,000 was paid to Novogen on March
      31, 2008 under the terms of this
agreement;


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;
      and


iv)
            $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.





3.   MEPL
must pay Novogen royalties of 5.0% of all net sales and 25% of commercialization
income for the term of the license. The royalty rate is reduced by 50% if the
licensed patent rights in any country or territory expire, lapse, are revoked,
do not exist or are assigned to MEPL and the product is entirely manufactured
and supplied in such country.





4.   Minimum
royalties of $3,000,000 per year are payable following the date of first receipt
of an NDA for a licensed product from the FDA (or equivalent approval from a
government agency in any other country) until the expiration of the
term.





No
license fees have been accrued in respect of triphendiol or NV-143 at December
31, 2008.





Amended
and Restated License Option Deed





On
September 24, 2003, MEPL and Novogen Research Pty Limited entered into an
Amended and Restated License Option Deed (the “License Option Deed”). The
License Option deed grants MEPL an exclusive right to accept and an exclusive
right to match any proposed dealing by Novogen of its intellectual property
rights with a third party relating to synthetic compounds (other than
phenoxodiol) that have known or potential applications in the field of
prevention, treatment or cure of cancer in humans in all forms other than
topical applications.





14


Amended
and Restated Services Agreement





On
September 24, 2003, the Company, Novogen and MEPL entered into an Amended and
Restated Services Agreement (the “Services Agreement”). The Company does not
currently intend to directly employ any staff. Under the terms of the Services
Agreement, Novogen or its subsidiaries have agreed to provide services
reasonably required by the Company relating to the development and
commercialization of phenoxodiol and other licensed products, including
triphendiol and NV-143. Novogen has agreed to provide these services at cost
plus a 10% mark-up. The Company may terminate the agreement on three months
written notice to Novogen.





Transactions
giving rise to expenditures amounting to $1,208,000 and $1,217,000 were made
under the Services Agreement with Novogen during the six months ended December
31, 2008 and 2007, respectively. Of these amounts, $786,000 and $738,000 related
to service fees paid to Novogen for research and development services provided
in the six months ended December 31, 2008 and 2007, respectively, reflecting the
time spent by Novogen research staff on the development of phenoxodiol,
triphendiol and NV-143. Additionally, $422,000 and $479,000 of the total
expenditures during the six months ended December 31, 2008 and 2007,
respectively, related to costs incurred for administration and accounting
services provided by Novogen.





At
December 31, 2008 and 2007, $255,000 and $453,000, respectively, were due and
owing to Novogen under the services agreement and are included in amounts due to
related company in the balance sheet.





Manufacturing
License and Supply Agreement





On
September 24, 2003, MEPL and Novogen Laboratories Pty Limited, a subsidiary of
Novogen, entered into an amended and restated manufacturing license and supply
agreement (the “Manufacturing License and Supply Agreement”). Under the terms of
the Manufacturing License and Supply Agreement, MEPL has granted to Novogen
Laboratories Pty Limited an exclusive, non-transferable sub license to
manufacture and supply phenoxodiol in its primary manufactured form. Novogen
Laboratories Pty Limited has agreed to supply phenoxodiol to MEPL for the
clinical trial development program and phenoxodiol’s ultimate commercial use.
Phenoxodiol supplied by Novogen under the terms of this agreement will be
charged at cost plus a 50% markup.





There
were no transactions under the Manufacturing License and Supply Agreement with
Novogen during the six months ended December 31, 2008. Transactions giving rise
to expenditures amounting to $25,000 were made under the Manufacturing License
and Supply Agreement with Novogen during the six months ended December 31,
2007.





At
December 31, 2008 and 2007 there was no amounts owning to Novogen under the
Manufacturing License and Supply Agreement.





15


Novogen
has taken the strategic decision not to manufacture large scale Active
Pharmaceutical Ingredients (“API”) for cancer drugs, including phenoxodiol, as
these can be more economically supplied by third parties with particular
expertise in this area. The Company has entered into contracts with third
parties to ensure that sufficient quantities of phenoxodiol can be manufactured
in compliance with cGMP (Current Good Manufacturing Practices), to supply the
necessary quantities of API for the OVATURE trial and to complete the analytical
and stability work necessary for an NDA submission.








6.
Equity





On August
1, 2007, the Company entered into a securities subscription agreement with
certain accredited investors providing for the placement of 5,464,001 shares of
its common stock at a purchase price of $3.00 per share. The investors in the
transaction also received a warrant to purchase an additional 4 shares of common
stock for every block of 10 shares of common stock purchased. All of the
warrants have an exercise price of $3.60 per share. The warrants may be
exercised beginning February 6, 2008 and will expire five years from the date of
issuance, or August 6, 2012. The Company also issued 62,091 warrants to Blue
Trading, LLC, which acted as the placement agent in the private placement, as
part of the placement fee. The warrants issued to Blue Trading, LLC have an
exercise price of $3.00 per share and each warrant is convertible for 4 shares
of common stock. These warrants may be exercised immediately and will expire
five years from the date of issuance, on August 6, 2012. The Company closed the
private placement, or PIPE, on August 6, 2007. In connection with the PIPE, the
Company received proceeds of $15.2 million net of $1.2 million in commissions
and other costs.





The
Company entered into a registration rights agreement with the investors party to
the securities subscription agreement and Blue Trading, LLC, and agreed to file
a resale registration statement with the SEC registering the common stock and
the common stock issuable upon exercise of the warrants sold pursuant to the
securities subscription agreement for resale thereunder. The Company filed the
registration statement on October 2, 2007. The resale registration statement was
declared effective October 19, 2007.





Following
the closing of the PIPE in August 2007, Novogen retained approximately 71.9% of
the Company’s common stock.





The
Company filed a shelf registration statement on Form S-3 (File No. 333-149807)
(the “Shelf Registration Statement”) with the SEC in March 2008. The Shelf
Registration Statement was declared effective by the SEC on April 3, 2008. The
Shelf Registration Statement permits the Company to sell, from time to time, up
to $75,000,000 of common stock, preferred stock and warrants or any combination
of the foregoing. Pursuant to SEC regulations, however, the Company cannot sell
securities from the Shelf Registration Statement which represent more than one
third of the Company’s public float during any 12-month period.





The
Company entered into a Securities Subscription Agreement dated as of July 28,
2008 with Novogen and OppenheimerFunds, Inc. (“Oppenheimer”) pursuant to which
the Company sold 2,908,295 and 1,700,000 shares of common stock to Novogen and
Oppenheimer, respectively, with Oppenheimer acting as adviser to each of the
following parties severally and not jointly: (i) Oppenheimer International
Growth Fund;




16


(ii) Mass
Mutual International Equity Fund; (iii) Oppenheimer International Growth
Fund/VA; (iv) AZL Oppenheimer International Growth Fund; (v) OFITC International
Growth Fund; and (vi) OFI International Equity Fund, at a purchase price of
$2.17 per share, the consolidated closing bid price of the Company’s Common
Stock as quoted by the Nasdaq Market Intelligence Desk at 4:00 PM EST on July
28, 2008.  The shares were registered under the Securities Act of
1933, as amended (the “Securities Act”), under the Shelf Registration Statement.
The Company received gross proceeds of $10 million from the sale of the
shares.





Following
the closing of the registered direct offering described above in July 2008,
Novogen retained approximately 71.3% of the Company’s common stock.





In July
2008, the Company also issued a warrant to Mr. John O’Connor exercisable for
46,083 shares of common stock, as consideration for investor relations services
rendered by him to the Company. The warrant has an exercise price of $2.17 per
share. The warrant may be exercised immediately and expires five years from the
date of issuance, on July 30, 2013. The warrant has not been registered under
the Securities Act. The Company issued the warrant to Mr. O’Connor in a private
placement made in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act.





7.
Contingent Liabilities





Under the
terms of the license agreements with Novogen, milestone license fee payments are
payable upon achieving certain milestones. Details of the payments due under
these agreements are detailed in Note 5 “Related Party Transactions.” The
license agreements are subject to termination provisions.





8.
Significant Events after Balance Sheet Date





In
January 2009, we filed a registration statement on Form S-8 with the SEC
registering 7,000,000 shares of common stock eligible for issuance under the
Equity Compensation Plan.





In
January 2009, the Company issued options exercisable for 50,000 shares of common
stock to Associate Professor Gil Mor of Yale University in recognition of his
contribution to the development of phenoxodiol under the Equity Compensation
Plan. The options have an exercise price of $0.63. The options are exercisable
immediately and expire five years from date of issue.





17


Item
2:          Management’s Discussion
and Analysis of Financial Condition and Results of Operation





Special
Note Regarding Forward-Looking Statements




This
Quarterly Report on Form 10-Q includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All
statements other than statements of historical facts contained in this Quarterly
Report, including statements regarding the future financial position, business
strategy and plans and objectives of management for future operations, are
forward-looking statements. The words “believe,” “may,” “will,” “estimate,”
“continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” and similar
expressions, as they relate to the Company, are intended to identify
forward-looking statements. We have based these forward-looking statements
largely on current expectations and projections about future events and
financial trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including, among other things:




·our
      inability to obtain additional required financing or financing available
      to us on acceptable terms, particularly in the
                context of the current global financial crisis;·our
      inability to maintain or enter into, and our dependence upon,
      collaboration or contractual arrangements necessary
                for the clinical development of phenoxodiol and other drug
      candidates;·our
      limited operating history;·our
      failure to successfully commercialize our product candidates;·costs
      and delays in the development and/or receipt of the approval of the U.S.
      Food and Drug Administration (the
                “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 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;






18


·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 those of our officers and
      directors who are residents of jurisdictions
                outside the United States;·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.




These
risks are not exhaustive. Other sections of this Quarterly Report may include
additional factors which could adversely impact business and financial
performance. In addition, our business and financial performance may be affected
by the factors that are discussed under “Risk Factors” in the Annual Report on
Form 10-K for the year ended June 30, 2008 and in the Form 10-Q for the quarter
ended September 30, 2008. Moreover, we operate in a very competitive and rapidly
changing environment.




You
should not rely upon forward-looking statements as predictions of future events.
We cannot assure you that the events and circumstances reflected in the
forward-looking statements will be achieved or will occur. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.




The
following discussion is qualified in its entirety by, and should be read in
conjunction with, the more detailed information set forth in the financial
statements and the notes thereto appearing elsewhere in this Quarterly
Report.




Overview





Our main
focus since commencing operations is to undertake human clinical testing of
phenoxodiol. Our operations were expanded to include the additional licensed
drug candidates triphendiol and NV-143. During fiscal year 2007, we commenced
the Phase III clinical trial (known as “OVATURE”). We have reached agreement
under the Special Protocol Assessment process with the FDA on the design of our
OVATURE pivotal study protocol for phenoxodiol. The trial is designed to test
the ability of phenoxodiol to restore sensitivity of late-stage ovarian cancers
to carboplatin, a standard form of therapy for ovarian cancer. During fiscal
year 2008 and the period to December 31, 2008, the Company has continued to
recruit patients into the OVATURE trial.





As at the
date of the Quarterly Report, Novogen owns approximately 71.3% of the
outstanding shares of our common stock.





19


We
believe that the proceeds from the registered direct offering closed in July
2008 provides us with sufficient cash resources to fund operations over the next
twelve months which include progressing the Phase III OVATURE
trial.





Due to
the current financial crisis and the uncertainties surrounding our ability to
raise funds from the equity markets in the short to medium term, we have
progressed the development of triphendiol to an IND, which was approved by the
FDA in December 2008, and we have put on hold the development of NV-143. This
will enable us to conserve cash and focus our resources on conducting the
OVATURE trial. We will however need additional funds in order complete the
OVATURE trial and to progress the clinical development program for triphendiol
and NV-143 beyond the current objectives.





As of
December 31, 2008, we had accumulated losses of $55,582,000.





We have
not generated any revenues from operations since inception other than interest
on cash assets.





We do not
employ any staff directly but obtain services from Novogen under the Services
Agreement. We have incurred losses since inception and expect to incur operating
losses and generate negative cash flows from operations for the foreseeable
future.





Expenses
to date have consisted primarily of costs associated with conducting the
clinical trials of phenoxodiol including OVATURE, costs incurred under the
Phenoxodiol License Agreement, the License Agreement for Triphendiol and NV-143,
the Services Agreement and the Manufacturing License and Supply Agreements with
Novogen and its subsidiaries, including the costs of the clinical trial drug
supplies.





To date,
operations have been funded primarily through the sale of equity
securities.





Critical
Accounting Estimates





The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from those estimates.





Development
Expenses





Research
and development costs incurred since inception through December 31, 2008
aggregate to $28,709,000.





Research
and development costs include clinical trial expenses and are expensed as they
are incurred. Costs are expected to increase in the future as the number of
treated patients in the OVATURE trial increases resulting in significantly
increased costs.





Historical
research and development costs and clinical trial costs have not been documented
on a project by project basis. In addition, research and development resources
are supplied by Novogen across several projects. As a result, the costs incurred
for each clinical project cannot be stated precisely on a project by project
basis.





20


We expect
that a large percentage of research and development expenses in the future will
be incurred in support of current and future clinical development programs.
These expenditures are subject to a number of uncertainties in timing and cost
to completion.





The
duration and cost of clinical trials may vary significantly over the life of a
project as a result of:


·the
      number of sites included in the trials;·the
      length of time required to enroll suitable patients;·the
      number of patients who participate in the trials;·the
      number of treatment cycles patients complete while they are enrolled in
      the trials;·the
      indication being studied;·the
      availability of alternative treatment; and·the
      efficacy and safety profile of the
product.





Our
strategy also includes the option of entering into collaborative arrangements
with third parties to participate in the development and commercialization of
our drug candidates. In the event third parties have control over the clinical
development process, the completion date would largely be under the control of
that third party.





As a
result of these uncertainties, we are unable to determine the duration of, or
completion costs for, research and development projects or when, and to what
extent, we will receive cash inflows from the commercialization and sale of the
drug candidates.





Clinical
Trial Expenses





Estimates
have been used in determining the expense liability under certain clinical trial
contracts where services have been performed but not yet invoiced. The actual
costs of those services could differ in amount and timing from the estimates
used in completing the financial results.




Clinical
trial expenses of $1,422,000 have been accrued at December 31, 2008. These
estimates are based on the number of patients in each trial and the number of
drug administration cycles completed.





Clinical
research contracts may vary depending on the clinical trial design and protocol.
Generally the costs, and therefore estimates, associated with clinical trial
contracts are based on the number of patients, drug administration cycles, the
type of treatment and the outcome being measured. The length of time before
actual amounts can be determined will vary depending on length of the patient
cycles and the timing of the invoices by the clinical trial
partners.





Manufacturing
Scale-up Expenses





Estimates
have been used in determining the expense liability under certain manufacturing
scale-up contracts where services have been performed but not yet invoiced. The
actual costs of those services could differ in amount and timing from the
estimates used in completing the financial results.






21


Manufacturing
expenses of $29,000 have been accrued at December 31, 2008. These estimates are
based on the milestones completed for each of the service
contracts.





Stock
Based Compensation





We
account for stock based payments in accordance with SFAS No. 123R “Share-Based
Payments”. The costs of these equity-settled transactions are determined using a
binomial model to calculate the fair value at the date on which they are
granted. With respect to the fair value of the 62,091 warrants representing
248,364 warrant shares issued August 6, 2007 to Blue Trading, LLC as part of a
placement fee, and the warrant representing 46,083 warrant shares issued to Mr.
J. O’Connor July 30, 2008, in consideration for investor relations services
rendered, the following assumptions were used:





August
      6, 2007
                                        July
      30, 2008Dividend
      yield
                                        0%
                                        0%Expected
      volatility
                                        71%
                                        81%Historical
      volatility
                                        71%
                                        81%Risk-free
      interest rate
                                        4.13%
                                        3.36%Expected
      life of warrant
                                        5
      years
                                        5
      yearsWarrant
      fair value
                                        $1.777
                                        $1.41





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
warrant 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.





On
December 9, 2008, the Company adopted the Marshall Edwards, Inc. 2008 Stock
Omnibus Equity Compensation Plan (the “Equity Compensation Plan”) and cancelled
the Marshall Edwards, Inc. Share Option Plan (the “Share Option
Plan”).  No options were issued under the Share Option Plan. The
Equity Compensation Plan provides for the issuance of a maximum of 7,000,000
shares of common stock in connection with the grant of options and/or other
stock-based or stock-denominated awards to the Company’s non-employee directors,
officers, employees and advisors. To date, the Company has issued options
exercisable for 50,000 shares of common stock under the Equity Compensation
Plan.





See note
8 “Significant Events after Balance Date” for details of options issued under
the Equity Compensation Plan in January 2009.





22


Results
of Operations





Three
Months Ended December 31, 2008 and 2007





We
recorded a consolidated loss of $1,599,000 and $2,311,000 for the three months
ended December 31, 2008 and 2007, respectively.





Revenues: We received interest
on cash assets and cash equivalents and short term investments of $76,000 for
the three months ended December 31, 2008 compared to $215,000 for the three
months ended December 31, 2007. The decrease was primarily due to lower interest
rates in the U.S. earned by our cash deposits.





Research and Development:
Research and development expenses decreased $500,000 to $1,365,000 for the three
months ended December 31, 2008 compared to $1,865,000 for the three months ended
December 31, 2007. The reduction was due primarily to the cost of triphendiol
pre-clinical trials and triphendiol drug supply cost incurred in quarter ending
December 2007. These expenses have not been incurred in the quarter ended
December 2008 as we have completed the development of triphendiol to IND
stage.





Selling, General and Administrative:Selling, general and administrative expenses decreased by $350,000 to
$310,000 for the three months ended December 31, 2008 compared to $660,000 for
the three months ended December 31, 2007. The decrease was primarily due to net
foreign exchange gains, as described below, and reduced spending on public
relations and reduced travel expenses.





Foreign
exchange gains/(losses) are included in selling, general and administrative
expenses and occur when revaluing cash denominated in foreign currencies and
upon consolidation of our wholly owned subsidiary Marshall Edwards Pty Ltd
(“MEPL”). MEPL uses U.S. dollars as its functional currency and also engages in
transactions in foreign currencies. Further, MEPL’s accounts and financial
statements are denominated in Australian dollars. Translation of MEPL’s
financial statements into U.S. dollars did not have a material impact on our
financial position. However, exchange rates are volatile in the current market
resulting from the global financial crisis and there is a possibility that
foreign exchange gains/losses may have a material impact in future periods. At
December 31, 2008, we had not established a foreign currency hedging program.
Net foreign exchange gains during the three months ended December 31, 2008 were
$150,000 compared with foreign exchange gains of $5,000 during the three months
ended December 31, 2007.





Six
Months Ended December 31, 2008 and 2007





We
recorded a consolidated loss of $3,851,000 and $5,677,000 for the six months
ended December 31, 2008 and 2007, respectively.





Revenues: We received interest
on cash assets and cash equivalents and short term investments of $172,000 for
the six months ended December 31, 2008 compared to $433,000 for the six months
ended December 31, 2007. The decrease was primarily due to lower interest rates
in the U.S. earned by our cash deposits.





23


Research and Development:
Research and development expenses decreased $1,328,000 to $3,443,000 for the six
months ended December 31, 2008 compared to $4,771,000 for the six months ended
December 31, 2007. The reduction was due primarily to the manufacturing scale-up
of phenoxodiol which is nearing completion and reduced expenditure relating to
the development of triphendiol.





Selling, General and Administrative:Selling, general and administrative expenses decreased by $758,000 to
$579,000 for the six months ended December 31, 2008 compared to $1,337,000 for
the six months ended December 31, 2007. The decrease was primarily due to net
foreign exchange gains, as described below, and reduced spending on public
relations and travel, partially offset by additional legal fees and share based
payment expense incurred in the six months ended December 31, 2008.





Foreign
exchange gains/(losses) are included in selling, general and administrative
expenses and occur when revaluing cash denominated in foreign currencies and
upon consolidation of MEPL. MEPL uses U.S. dollars as its functional currency
and also engages in transactions in foreign currencies. Further, MEPL’s accounts
and financial statements are denominated in Australian dollars. Translation of
MEPL’s financial statements into U.S. dollars did not have a material impact on
our financial position. However, exchange rates are volatile in the current
market resulting from the global financial crisis and there is a possibility
that foreign exchange gains/losses may have a material impact in future periods.
At December 31, 2008, we had not established a foreign currency hedging program.
Net foreign exchange gains during the six months ended December 31, 2008 were
$557,000 compared with foreign exchange losses of $99,000 during the six months
ended December 31, 2007.





Liquidity
and Capital Resources





We have
traditionally raised capital through the sale of equity securities to
investors.  Recently the financial services industry and credit
markets have experienced a period of unprecedented turmoil characterized by
bankruptcy, failure and collapse or sale of various financial institutions.
Although the ultimate outcome of these events cannot be predicted, they may
preclude us from raising the capital necessary to finance our business
operations, including our clinical trials such as the OVATURE trial, through the
sale of equity securities. In order to obtain the additional funding necessary
to conduct our business, we may need to rely on collaboration and /or licensing
opportunities. We cannot assure you that we will be able to raise the funds
necessary to complete the OVATURE trial or find appropriate collaboration or
licensing opportunities.





At
December 31, 2008, we had cash resources of $24,989,000 compared to $19,743,000
at June 30, 2008. The increase was due to the registered direct offering in July
2008, as described below, which was partially offset by expenditures in the
clinical trial program and other corporate expenses incurred in the period.
Funds are invested in short term money market accounts, pending
use.





On August
1, 2007, we entered into a securities subscription agreement with certain
accredited investors providing for the placement of 5,464,001 shares of our
common stock at a purchase price of $3.00 per share. The investors in the
transaction also received a warrant to purchase an additional 4 shares of common
stock for every block of 10 shares of common stock purchased. All of the
warrants have an exercise price of $3.60 per share. The warrants may be
exercised beginning February 6, 2008 and will expire five years from the date of




24


issuance,
or August 6, 2012. We also issued 62,091 warrants to Blue Trading, LLC, which
acted as the placement agent in the private placement or PIPE, as part of the
placement fee. The warrants issued to Blue Trading, LLC have an exercise price
of $3.00 per share and each warrant is convertible for 4 shares of common stock.
These warrants may be exercised immediately and will expire five years from the
date of issuance, on August 6, 2012. We closed the private placement on August
6, 2007 and we received proceeds of $15.2 million net of $1.2 million
commissions and other costs.





We have
entered into a registration rights agreement with the investors party to the
securities subscription agreement and Blue Trading, LLC, and agreed to file a
registration statement with the Securities and Exchange Commission (the “SEC”)
for the common stock and the common stock issuable upon exercise of the warrants
sold pursuant to the securities subscription agreement for resale thereunder. We
filed the registration statement on October 2, 2007. The resale registration
statement was declared effective on October 19, 2007.





In
connection with our preparation to raise additional funds, we filed a shelf
registration statement on Form S-3 (File No. 333-149807)(the “Shelf Registration
Statement”) with the SEC in March 2008. The Shelf Registration Statement was
declared effective by the SEC on April 3, 2008. The Shelf Registration Statement
permits us to sell, from time to time, up to $75,000,000 of common stock,
preferred stock and warrants or any combination of the foregoing. Pursuant to
SEC regulations, however, we cannot sell securities from the Shelf Registration
Statement which represent more than one third of our public float during any
12-month period.





On July
28, 2008 we entered into a Securities Subscription Agreement with Novogen and
OppenheimerFunds, Inc. (“Oppenheimer”) pursuant to which we sold 2,908,295 and
1,700,000 shares of common stock to Novogen and Oppenheimer, respectively, with
Oppenheimer acting as adviser to each of the following parties severally and not
jointly: (i) Oppenheimer International Growth Fund; (ii) Mass Mutual
International Equity Fund; (iii) Oppenheimer International Growth Fund/VA; (iv)
AZL Oppenheimer International Growth Fund; (v) OFITC International Growth Fund;
and (vi) OFI International Equity Fund, at a purchase price of $2.17 per share,
the consolidated closing bid price of our Common Stock as quoted by the Nasdaq
Market Intelligence Desk at 4:00 PM EST on July 28, 2008.  The shares
were registered under the Securities Act of 1933, as amended (the “Securities
Act”) under the Shelf Registration Statement. We received gross proceeds of
$10 million from the sale of the shares.





Following
the closing of the registered direct offering described above in July 2008,
Novogen retained approximately 71.3% of the our common stock.





In July
2008, we also issued a warrant to Mr. John O’Connor exercisable for 46,083
shares of common stock, as consideration for investor relation services rendered
by him to us. The warrant has an exercise price of $2.17 per share. The warrant
may be exercised immediately and expires five years from the date of issuance,
on July 30, 2013. The warrant has not been registered under the Securities Act.
We issued the warrant to Mr. O’Connor in a private placement made in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act.





25


Source
and Uses of Cash





Cash
Used in Operating Activities





Cash used
in operating activities for the six months ended December 31, 2008 was
$4,632,000 compared to $4,780,000 for the same period in 2007.





Cash
Requirements





We are
currently conducting the OVATURE Phase III clinical study to support marketing
approval of phenoxodiol for ovarian cancer.





Ongoing
operations through the conduct of the clinical trial program will continue to
consume cash resources without generating revenues.





We
believe that the proceeds from the registered direct offering closed in July
2008 provides us with sufficient cash resources to fund operations over the next
twelve months which include progressing the Phase III OVATURE
trial.





As a
result of the uncertainty in the financial markets, we do not anticipate being
able to raise additional funds through the equity markets in the short to medium
term as a result we have progressed the development of triphendiol to an IND,
which was approved by the FDA in December 2008, and we have put on hold the
development of NV-143. This will enable us to conserve cash and focus our
resources on conducting the OVATURE trial. We will however need additional funds
in order complete the OVATURE trial and to progress the clinical development
program for triphendiol and NV-143 beyond the current objectives. In order to
obtain the additional funding necessary to conduct our business, we may need to
rely on collaboration and /or licensing opportunities.  We cannot
assure you that we will be able to raise the funds necessary to complete the
OVATURE trial or find appropriate collaboration or licensing
opportunities.





Payments
to Novogen





Future
payments to Novogen under the terms of the Phenoxodiol License Agreement, the
License Amendment Deed for Phenoxodiol, the Further Amended and Restated License
Agreement and the License Agreement for Triphendiol and NV-143 are detailed in
Note 5 of the financial statements “Related Party Transactions” on page 12 of
this Quarterly Report





We will
also be required to make payments to Novogen under the Services Agreement and
Manufacturing License and Supply Agreement.





We do not
intend to incur any significant capital expenditures in the foreseeable
future.





Off-Balance
Sheet Arrangements





We do not
currently have any off-balance sheet arrangements.





26


Contractual
Obligations





For
details of our contractual obligations at December 31, 2008 see Note 3 to the
financial statements “Expenditure Commitments” on page 11 of this Quarterly
Report.




27


Item
3:          Quantitative and
Qualitative Disclosures about Market Risk







Interest
Rate Risk





We place
cash in “on call” deposits and short term investments with high quality
financial institutions.





We do not
consider the effects of interest rate movements to be a material risk to our
financial condition. We do not use derivative financial instruments to hedge our
risks associated with the fluctuations of interest rates.





Foreign
Currency Risk





We
conduct our business in various currencies, primarily in U.S. and Australian
dollars. At December 31, 2008, we had not established a foreign currency hedging
program. Net foreign exchange gains during the six months ended December 31,
2008 were $557,000 compared with net foreign exchange losses of $99,000 during
the six months ended December 31, 2007. Foreign exchange gains and losses occur
upon consolidation of MEPL, which uses U.S. dollars as its functional currency
and also engages in transactions in foreign currencies. MEPL’s accounts are
denominated in Australian dollars. Translation of MEPL’s financial statements
into U.S. dollars did not have a material impact on our financial position.
However, exchange rates are volatile in the current market resulting from the
global financial crisis and there is a possibility that foreign exchange
gains/losses may have a material impact in future periods.





We do not
consider the effects of foreign currency movements to be a material risk to our
financial condition.











28


Item
4T:          Controls and
Procedures




Evaluation
of Disclosure Controls and Procedures





At the
end of the period covered by this Quarterly Report, our management, with the
participation of our principal executive officer and principal financial
officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on
this evaluation, our principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and have ensured that
information required to be disclosed by us in such reports is accumulated and
communicated to our management, including our principal executive officer and principal financial officer,
as appropriate to allow timely decisions regarding  required
disclosures.




There
were no changes in our internal control over financial reporting during the
period covered by this Quarterly Report that have materially affected, or are
reasonably likely to affect, the Company’s internal control over financial
reporting.








29


PART
II  OTHER INFORMATION





Item
4:                      Submission
of Matters to a Vote of Security Holders





(a)  The
Company held its Annual Meeting of Stockholders on December 9,
2008.





(b) Mr.
Christopher Naughton and Mr. William D. Rueckert were elected to serve on the
Company’s Board of Directors as directors until the 2011 Annual Meeting of
Stockholders and until their respective successors have been elected and
qualified.





The
following directors continued their term of office after the
meeting:


Professor
Bryan Williams


Mr.
Stephen Breckenridge


Mr.
Philip Johnston


Professor
Paul Nestel





(c)  At the
Annual Meeting of Stockholders held on December 9, 2008, holders of the
Company’s common stock, voted to:


(i) elect
each of Mr. Christopher Naughton and Mr. William D. Rueckert as members of the
Company’s Board of Directors to serve for terms expiring at the 2011 Annual
Meeting of Stockholders and until their respective successors have been duly
elected and qualified;


(ii) adopt
the Marshall Edwards, Inc. 2008 Stock Omnibus Equity Compensation Plan;
and


(iii)
ratify the appointment of BDO Kendalls Audit and Assurance (NSW-VIC) Pty Ltd as
the Company’s auditors.





At the
meeting the following votes for and against, as well as the number of
abstentions and broker non-votes, were recorded for each matter as set forth
below:







Matter
                    
                    For
                    
                    
                    Against
                    
                    
                    Abstain
                    
                    
                    Withhold authority
                    
                    
                    Broker non-votes1.
      Election of DirectorsChristopher Naughton
                    
                    
                    59,585,660
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,600,924
                    
                    
                    
                    -William D. Rueckert
                    
                    
                    62,819,362
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    367,222
                    
                    
                    
                    -2.
      Adoption of the Marshall Edwards, Inc, 2008 Stock Omnibus Equity
      Compensation Plan.
                    
                    
                    57,578,876
                    
                    
                    
                    2,857,409
                    
                    
                    
                    62,875
                    
                    
                    
                    -
                    
                    
                    
                    2,687,4243.
      Ratification of appointment of BDO Kendalls Audit & Assurance
      (NSW-VIC) Pty Ltd as auditors.
                    
                    
                    60,667,094
                    
                    
                    
                    2,441,818
                    
                    
                    
                    77,672
                    
                    
                    
                    -
                    
                    
                    
                    -







30


Item
6:          Exhibits








Exhibit
Index








Exhibits





31.1
            Certification
      required by Rule 13a-14(a) or Rule 15d-14(a)31.2
            Certification
      required by Rule 13a-14(a) or Rule 15d-14(a)32.1
            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).























31


SIGNATURES











Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Quarterly Report to be signed on its behalf by the undersigned,
thereunto duly authorized.





MARSHALL
EDWARDS, INC.
 
 
 /s/ DAVIDSEATON
 
 David R.
Seaton
 Chief
Financial Officer
 (Duly
Authorized Officer and Principal Financial Officer)
 
 Date:
February 10, 2009
 32




Exhibit
31.1


CERTIFICATION





I,
Christopher Naughton, certify that:







1.
            I
      have reviewed this Quarterly Report on Form 10-Q of Marshall Edwards,
      Inc.;




2.
            Based
      on my knowledge, this Quarterly Report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this Quarterly Report;




3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this Quarterly Report, fairly present in all material respects
      the financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this Quarterly
      Report;




4.
            The
      registrant’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e) ) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
  have:




(a)
            Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within the
      entities, particularly during the period in which this Quarterly Report is
      being prepared;




(b)
            Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;




(c)
            Evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in the Quarterly Report our conclusions about the
      effectiveness of this disclosure controls and procedures, as of the end of
      the period covered by this Quarterly Report based on such evaluation;
      and




(d)
            Disclosed
      in this Quarterly Report any change in the registrant’s internal control
      over financial reporting that occurred during the registrants first fiscal
      quarter that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting.




5.
            The
      registrant’s other certifying officer and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the registrant’s auditors and the audit committee of the registrant’s
      board of directors:




(a)
            All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
  and




(b)
            Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant’s internal control
      over financial reporting.





Date:
February 10, 2009
   /s/CHRISTOPHERNAUGHTON
 
 Christopher
      Naughton
 Chief
      Executive Officer
 33


Exhibit
31.2


CERTIFICATION





I, David
Ross Seaton, certify that:







1.
            I
      have reviewed this Quarterly Report on Form 10-Q of Marshall Edwards,
      Inc.;




2.
            Based
      on my knowledge, this Quarterly Report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this Quarterly Report;




3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this Quarterly Report, fairly present in all material respects
      the financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this Quarterly
      Report;




4.
            The
      registrant’s other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e) ) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
  have:




(a)
            Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within the
      entities, particularly during the period in which this Quarterly Report is
      being prepared;




(b)
            Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;




(c)
            Evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in the Quarterly Report our conclusions about the
      effectiveness of this disclosure controls and procedures, as of the end of
      the period covered by this Quarterly Report based on such evaluation;
      and




(d)
            Disclosed
      in this Quarterly Report any change in the registrant’s internal control
      over financial reporting that occurred during the registrants first fiscal
      quarter that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting.




5.
            The
      Company’s other certifying officer and I have disclosed, based on our most
      recent evaluation of internal control over financial reporting, to the
      registrant’s auditors and the audit committee of the registrant’s board of
      directors:




(a)
            All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
  and




(b)
            Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant’s internal control
      over financial reporting.








Date:
February 10, 2009
   /s/ DAVIDSEATON
 
 David
      R. Seaton
 Chief
      Financial Officer
  34


Exhibit
32.1





CERTIFICATION








Pursuant
to the requirement set forth in Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. § 1350), Christopher Naughton, the
President and Chief Executive Officer of Marshall Edwards, Inc. (the
“Registrant”), and David R. Seaton, the Chief Financial Officer of the
Registrant, each hereby certifies that, to his or her knowledge:





1.
            The
      Registrant’s Quarterly Report on Form 10-Q for the period ended December
      31, 2008, (the “Form 10-Q”) to which this Certification is attached as
      Exhibit 32.1, fully complies with the requirements of Section 13(a) or
      Section 15(d) of the Securities Exchange Act of 1934, as amended;
      and


2.
            The
      information contained in the Form 10-Q fairly presents, in all material
      respects, the financial condition of the Registrant at the end of the
      period covered by the Form 10-Q and results of operations of the
      registrant for the period covered by the Form
  10-Q.





These
certifications accompanying the Form 10-Q to which they relate, are not deemed
filed with the Securities and Exchange Commission and are not to be incorporated
by reference into any filing of the registrant under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended (whether made
before or after the date of the Form 10-Q), irrespective of any general
incorporation language contained in such filing.





Dated:
February 10, 2009
 
 
 
 
 /s/ CHRISTOPHERNAUGHTON
 
 Christopher
Naughton
 Chief
Executive Officer
 
 /s/ DAVIDSEATON
 
 David R.
Seaton
 Chief
Financial Officer
  35