**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 September 30, 2006**





**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 x   No
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                accelerated filero
            Accelerated
                filer o
            Non-accelerated
                filer x





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




As
      of
      October 31, 2006 the number of shares outstanding of the issuer’s common stock,
      $0.00000002 par value, was 63,390,937.










1
 
  **MARSHALL
          EDWARDS, INC.**
  **INDEX**


**PART
                I**
            **FINANCIAL
                INFORMATION**
            **Page**Item
                1:
            Financial
                Statements (Unaudited)Consolidated
                Balance Sheets as of September 30, 2006 and June 30, 2006
            3Consolidated
                Statements of Operations for the three months ended September 30,
                2006 and
                2005 and for the period from December 1, 2000 (inception) through
                September 30, 2006
            4Consolidated
                Statements of Cash Flows for the three months ended September 30,
                2006 and
                2005 and for the period from December 1, 2000 (inception) through
                September 30, 2006
            5Consolidated
                Statement of Stockholders’ Equity
            6Notes
                to Consolidated Financial Statements
            7Item
                2:
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation
            18Item
                3:
            Quantitative
                and Qualitative Disclosures about Market Risk
            30Item
                4:
            Controls
                and Procedures
            31**PART
                II**
            **OTHER
                INFORMATION**Item
                1A:
            Risk
                Factors
            32Item
                6:
            Exhibits
            32**SIGNATURES**
            33








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)





**September
                  30,**
              
              **June
                  30,****2006**
              
              **2006**(unaudited)**ASSETS**Current
                  assetsCash and cash equivalents
              
              **$**
              **20,894**
              
              **$**
              **10,054**Deferred offering costs
              
              
              **-**
              
              
              **95**Prepaid expenses and other current assets
              
              
              **64**
              
              
              **246**Total
                  current assets
              
              
              **20,958**
              
              
              **10,395**Total
                  assets
              
              **$**
              **20,958**
              
              **$**
              **10,395****LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Current
                  liabilitiesAccounts payable
              
              **$**
              **187**
              
              **$**
              **420**Accrued expenses
              
              
              **802**
              
              
              **638**Amount due to related company
              
              
              **205**
              
              
              **202**Total
                  current liabilities
              
              
              **1,194**
              
              
              **1,260**Stockholders'
                  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: 63,390,937 atSeptember 30, 2006 and 56,938,000 at June 30, 2006
              
              
              **-**
              
              
              **-**Additional
                  paid-in capital
              
              
              **53,145**
              
              
              **34,636**Deficit
                  accumulated during development stage
              
              
              **(33,381**
              **)**
              
              **(25,501**
              **)**Total
                  stockholders' equity
              
              
              **19,764**
              
              
              **9,135**Total
                  liabilities and stockholders' equity
              
              **$**
              **20,958**
              
              **$**
              **10,395**





*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**
                **September
                  30,**
              **Period
                  from December 1, 2000 (Inception) through September
                  30,****2006**
              
              
              **2005**
              
              
              **2006**Revenues:Interest and other income
              
              **$**
              **135**
              
              $
              122
              
              $
              1,234Total
                  revenues
              
              
              **135**
              
              
              122
              
              
              1,234Operating
                  expenses:Research and development
              
              
              **(927**
              **)**
              
              (586
              )
              
              (11,107
              )License fees
              
              
              **(5,000**
              **)**
              
              (1,000
              )
              
              (17,000
              )Selling, general and administrative
              
              
              **(2,088**
              **)**
              
              (339
              )
              
              (6,506
              )Total
                  operating expenses
              
              
              **(8,015**
              **)**
              
              (1,925
              )
              
              (34,613
              )Loss
                  from operations
              
              
              **(7,880**
              **)**
              
              (1,803
              )
              
              (33,379
              )Income
                  tax expense
              
              
              **-**
              
              
              -
              
              
              (2
              )Net
                  loss arising during development stage
              
              **$**
              **(7,880**
              **)**
              $
              (1,803
              )
              $
              (33,381
              )Net
                  loss per common share:Basic
                  and diluted
              
              **$**
              **(0.13**
              **)**
              $
              (0.03
              )Weighted
                  average common shares outstanding
              
              
              **62,619,391**
              
              
              56,938,000








*See
      accompanying notes to the consolidated financial
      statements.*


4





**MARSHALL
      EDWARDS, INC.**


**(A
      Development Stage Company)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)


(Unaudited)








**Three
                  Months Ended**
                **September
                  30,**
              
              **Period
                  from December 1, 2000 (Inception) through September
                  30,****2006**
              
              **2005**
              
              **2006****Operating
                  activities**Net loss arising during development stage
              
              **$**
              **(7,880**
              **)**
              $
              (1,803
              )
              $
              (33,381
              )Adjustments to reconcile net loss to net cash(used in) provided by operating activities:Share based payments
              
              
              **1,642**
              
              
              -
              
              
              1,642Changes in operating assets and liabilities:Prepaid expenses and other current assets
              
              
              **182**
              
              
              (34
              )
              
              (64
              )Accounts payable
              
              
              **(233**
              **)**
              
              80
              
              
              187Accrued expenses
              
              
              **164**
              
              
              (19
              )
              
              802Amounts due to related company
              
              
              **3**
              
              
              960
              
              
              205Net cash used in operating activities
              
              
              **(6,122**
              **)**
              
              (816
              )
              
              (30,609
              )**Financing
                  activities**Net proceeds from issuance of common stock
              
              
              **16,962**
              
              
              -
              
              
              51,503Net cash provided by financing activities
              
              
              **16,962**
              
              
              -
              
              
              51,503Net increase (decrease) in cash and cashequivalents
              
              
              **10,840**
              
              
              (816
              )
              
              20,894Cash and cash equivalents at beginning of period
              
              
              **10,054**
              
              
              9,238
              
              
              -Cash and cash equivalents at end of period
              
              **$**
              **20,894**
              
              $
              8,422
              
              $
              20,894




















*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, 2006**
                
                
                **56,938,000**
                
                **$**
                **34,636**
                
                **$**
                **(25,501**
                **)**
                **$**
                **9,135**Net
                    loss arising during development stage
                
                
                
                
                
                
                
                
                **(7,880**
                **)**
                
                **(7,880**
                **)**Comprehensive Loss
                
                
                
                
                
                
                
                
                
                
                
                **(7,880**
                **)**Common
                    Stock issued July 11, 2006
                
                
                **6,329,311**
                
                
                **16,867**
                
                
                
                
                
                **16,867**Shares
                    issued as share-based payment (refer Note 6)
                
                
                **123,626**
                
                
                **443**
                
                
                **-**
                
                **$**
                **443**Warrants
                    issued as share-based payment (refer Note 6)
                
                
                
                
                
                **1,199**
                
                
                **-**
                
                **$**
                **1,199****Balance
                    at September 30, 2006**
                
                
                **63,390,937**
                
                **$**
                **53,145**
                
                **$**
                **(33,381**
                **)**
                **$**
                **19,764**














*See
      accompanying notes to the consolidated financial statements.*





6


**MARSHALL
      EDWARDS, INC.**


**(A
      Development Stage Company)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**


**September
      30, 2006**








**1.**  **The
      Company and Summary of Significant Accounting Policies**





Marshall
      Edwards, Inc. (“MEI” or the
“Company”) is a development stage company incorporated in December 2000 as a
      wholly-owned subsidiary of Novogen. The Company commenced operations in May
      2002
      and its business purpose is the development and commercialization of drugs
      for
      the treatment of cancer. The Company is presently engaged in the clinical and
      pre-clinical development of the anti-cancer drugs phenoxodiol, NV-196 and
      NV-143. Novogen’s subsidiary has granted to the Company’s subsidiary, Marshall
      Edwards Pty Ltd (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, NV-196 and
      NV-143 for uses in the field of prevention, treatment, and cure of cancer in
      humans, except topical applications.





The
      Company’s main focus since commencing operations has been to undertake human
      clinical testing of phenoxodiol. The Company has now reached agreement under
      the
      Special Protocol Assessment (SPA) process with the United States Food and Drug
      Administration (FDA) on the design of a pivotal study protocol for the
      investigational anti-cancer drug, phenoxodiol. The trial, known as the OVATURE
      study, 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.





In
      May
      2006, the Company licensed two oncology compounds, NV-196 and NV-143, from
      Novogen. NV-196 is being developed initially in oral form for 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 pre-clinical
      testing stage. The Company will continue the clinical development and
      commercialization of these two additional drug candidates which will complement
      the current drug candidate, phenoxodiol, in the area of cancer.





**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.





**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.





7


**Revenue
      Recognition**





*Interest*





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





**Cash
      and** **Cash
      Equivalents and Short Term Investments**





Cash
      on
      hand and in banks and short-term deposits are stated at their nominal value.
      The
      Company considers all highly liquid investments with a maturity of three months
      or less when purchased to be cash equivalents. Highly liquid investments with
      stated maturities of greater than three months are classified as short-term
      investments. The Company’s cash, held in the 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.





**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 re alizable.





**Fair
      Value of Financial Instruments**





The
      carrying amounts of the Company’s financial instruments, including cash and cash
      equivalents and accounts payable approximate fair value.





**Foreign
      Currency Translation**





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





Translation
      of MEPL’s Financial Statements into U.S dollars does not have a material impact
      on t he
      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, NV-196 and NV-143. Research
      and
      development costs are charged to expense as incurred.





8


**License
      Fees**





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





**Stock-Based
      Compensation**





The
      Company’s stock option plan provides for the grant of options to the Company’s
      directors, employees, employees of the Company’s affiliates and certain of the
      Company’s contractors and consultants. To date no options have been issued under
      the plan.





Other
      stock-based payments have been accounted for in accordance with SFAS No. 123R
      “Share-Based Payments”. The Company therefore recognises 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
      recognises 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 are excluded, whereas for diluted
      earnings per share they are included unless the effect is anti-dilutive. Since
      the Company has a loss for all periods presented, there is no dilutive effect
      of
      stock options.





**Comprehensive
      Loss**





Comprehensive
      loss is comprised of net loss and other comprehensive loss. Other comprehensive
      loss includes certain changes in stockholders’ equity that are excluded from net
      loss. Comprehensive loss for all periods presented has been reflected in the
      Consolidated Statement of stockholders’ equity.





**Stockholders’
      Equity**





Ordinary
      share capital is recognised 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.





9


**2** **.**  **Loss
      Per Share**





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





**Three
                  Months Ended**
                **September
                  30,****2006**
              
              
              **2005****Numerator**Net
                  loss arising during development stage
              
              
              (7,880
              )
              
              (1,803
              )Effect
                  of dilutive securities
              
              
              -
              
              
              -Numerator
                  for diluted earnings per share
              
              $
              (7,880
              )
              $
              (1,803
              )**Denominator**Denominator
                  for basic earnings per share -Weighted
                  average number of shares used in computing net loss per share,
                  basic and
                  diluted
              
              
              62,619,391
              
              
              56,938,000Effect
                  of dilutive securities
              
              
              -
              
              
              -Dilutive
                  potential common shares
              
              
              62,619,391
              
              
              56,938,000Basic
                  and diluted earnings per share
              
              $
              (0.13
              )
              $
              (0.03
              )


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





**As
                  at September 30,****2006**
              
              **2005**Warrants
                  excercisable prior to December 18, 2006 at an exercise price of
                  $9.00
              
              
              2,392,000
              
              
              2,392,000Warrants
                  excercisable prior to July 11, 2010 at an exercise price of
                  $4.35
              
              
              2,815,258
              
              
              -Common
                  shares issuable upon exercise of outstanding warrants
              
              
              5,207,258
              
              
              2,392,000




During
      July 2006, the Company issued 6,452,937 shares of common stock and 2,815,258
      warrants in connection with a PIPE capital raising and for securing a Standby
      Equity Distribution Agreement. For further details see Note 6
“Equity”.








**3.**  **Expenditure
      Commitments**





At
      September 30, 2006, the Company had contractual obligations for the conduct
      of
      clinical trials, pre-clinical research and development and manufacturing process
      development of approximately $7,550,000. 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:





10




Payment
                  due by period (in thousands)**Contractual
                  Obligations**
              
              **Total**
              
              less
                  than 1 Year
              
              1
                  -
                  3 Years
              
              3
                  -
                  5 Years
              
              More
                  than 5 YearsPurchase
                  Obligations
              
              $
              7,550
              
              $
              5,072
              
              $
              2,478
              
              $
              -
              
              $
              -Total
              
              $
              7,550
              
              $
              5,072
              
              $
              2,478
              
              $
              -
              
              $
              -




No
      amounts have been included for future payments to Novogen which may arise in
      connection with the license agreements for phenoxodiol, NV-143 and NV-196,
      the
      services agreement or the manufacturing license and supply agreement as future
      payments under the terms of the agreements are subject to termination
      provisions. Payments in connection with these agreements are detailed in Note
      5
“Related Party Transactions”.





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





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





The
      Company has guaranteed the payment and performance of the obligations of its
      subsidiary, MEPL, to Novogen and its subsidiaries, Novogen Laboratories Pty
      Limited and Novogen Research Pty Limited, under the license agreements, the
      manufacturing license and supply agreement and the services agreement. Novogen
      has guaranteed the performance of the obligations of Novogen Research Pty
      Limited under the license agreement for phenoxodiol 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.





The
      Company has issued a letter of support to the Directors of MEPL guaranteeing
      financial support, for a period of twelve months ending October 3, 2007, should
      it be unable to meet any of its financial commitments.








**4.**  **Segment
      Information**





The
      Company’s focus is to continue the clinical and pre-clinical program currently
      underway for the development and commercialization of phenoxodiol, NV-143 and
      NV-196. The business contains two major segments based on geographic location.





**Three
                  Months Ended**
                **September
                  30, 2006**
              
              **Three
                  Months Ended**
                **September
                  30, 2005***(In
                  Thousands)*USA
              
              
              Australia
              
              
              USA
              
              
              AustraliaLoss
                  from operations
              
              $
              (1,772
              )
              $
              (6,108
              )
              $
              (30
              )
              $
              (1,773
              )Segment
                  assets
              
              
              15,277
              
              
              5,680
              
              
              15,077
              
              
              3,505


11


**5.**  **Related
      Party Transactions**





**License
      Agreement**





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 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 agreement by giving three
      months’ notice to Novogen. MEPL paid $5,000,000 to Novogen in February 2004
      which was the first lump sum license fee payment due under the terms of the
      license agreement. Also, MEPL paid $2,000,000 to Novogen in January 2005 and
      $4,000,000 in January 2006 which were the annual milestone license fee payments
      due under the 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. 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 share issue 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 license agreement are as
      follows:





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 license agreement with Novogen; or





(b)  the
      date
      of expiration or lapsing of the last licensed patent right which MEPL would,
      but
      for the license granted in the license agreement, infringe in any country in
      the
      geographical territory covered by the license agreement by doing in that country
      any of the things set out in the license agreement.





2.
      In
      addition to the amounts above, beginning in 2006, an $8,000,000 annual milestone
      license fee is payable under the amended terms of the license agreement for
      each
      calendar year ending December 31 during the exclusivity period of the license.
      The December 31, 2006 license fee has been deferred under the license amendment
      deed which is discussed below.








12


**License
      Amendment Deed for Phenoxodiol**





In
      June
      2006, the Company entered into an amendment deed to the license agreement for
      phenoxodiol. Pursuant to the original term of the license agreement for
      phenoxodiol the Company was required to pay an $8,000,000 license milestone
      fee
      to Novogen Research Pty Limited in December 2006. The amendment deed extends
      the
      date that the $8,000,000 license milestone fee is payable until the earliest
      receipt 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.





Upon
      receipt of any of the above, the Company must pay to Novogen, $8,000,000,
      together with interest on that amount from (and including) December 31, 2006,
      calculated at the bank bill rate. This milestone license fee replaces the
      $8,000,000 December 31, 2006 milestone fee.





The
      license amendment deed provides that this milestone license fee is not due
      until
      one of the approvals set out above is obtained. As no approvals described above
      have been received no milestone license fees have been accrued at September
      30,
      2006 or June 30, 2006.





**License
      Agreement NV-196 and NV-143**





In
      May
      2006, the Company entered into a second license agreement with Novogen for
      two
      oncology compounds, NV-196 and NV-143. NV-196 is being developed initially
      in
      oral form for 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 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 NV-196 and NV-143 products. The license agreement covers uses
      of
      NV-196 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
      or patent applications in the world and thereafter is non-exclusive. MEPL may
      terminate the agreement by giving three months’ notice to Novogen. MEPL paid
      $1,000,000 to Novogen in May 2006 which was the first lump sum license fee
      payment due under the terms of the license agreement. The Company is required
      to
      make payments under the terms of this second license agreement 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.


13





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





a)
            the
                first license product containing NV-196 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 investigational new drug application (IND) for the
                licensed
                product goes into effect or the equivalent approval of a government
                agency
                is obtained in another country. If this event does not occur before
                March
                31, 2008 then this amount will be due on this
                date;


ii)
            $2,000,000
                on the date of enrollment of the first clinical trial subject in
                a Phase
                II clinical trial of the licensed product. If this event does not
                occur
                before June 30, 2009, then this amount will be due on this
                date;


iii)
            $3,000,000
                on the date of enrollment of the first clinical trial subject in
                a Phase
                III clinical trial of the licensed product. If this event does not
                occur
                before December 31, 2011, then this amount will be due on this date;
                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.





**License
      Option Deed**





The
      license option deed grants MEPL an exclusive right to accept and an exclusive
      right to match any proposed dealing by Novogen of its intellectual property
      rights with a third party relating to synthetic compounds (other than
      phenoxodiol) that have known or potential applications in the field of
      prevention, treatment or cure of cancer in humans in all forms other than
      topical applications.





**Services
      Agreement**





The
      Company does not currently intend to directly employ any staff. Under the terms
      of the services agreement, Novogen Limited or its subsidiaries have agreed
      to
      provide services reasonably required by the Company relating to the development
      and commercialization of phenoxodiol and other licensed products, including
      NV-196 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.





14




Transactions
      giving rise to expenditures amounting to $515,000 and $329,000 were made under
      the services agreement with Novogen during the three months ended September
      30,
      2006 and 2005 respectively. Of these amounts, $318,000 and $149,000 related
      to
      service fees paid to Novogen for research and development services provided
      in
      the three months ended September 30, 2006 and 2005 respectively, reflecting
      the
      time spent by Novogen research staff on the development of phenoxodiol.
      Additionally, $197,000 and $180,000 of the total expenditures during the three
      months ended September 30, 2006 and 2005, respectively, related to costs
      incurred for administration and accounting services provided by Novogen.





At
      September 30, 2006 and 2005, $187,000 and $121,000, respectively, were due
      and
      owing to Novogen under the services agreement and are included in amounts due
      to related
      company.





**Manufacturing
      License and Supply Agreement**





Under
      the
      terms of the manufacturing license and supply agreement, MEPL has granted to one of Novogen’s
      subsidiaries an exclusive, non-transferable sub license to manufacture and
      supply phenoxodiol in its primary manufactured form. Novogen’s subsidiary has
      agreed to supply phenoxodiol to MEPL for the clinical trial development program
      and phenoxodiol’s ultimate commercial use. Phenoxodiol supplied by Novogen under
      the terms of this agreement will be charged at cost plus a 50% markup.





Transactions
      giving rise to expenditures amounting to $50,000 and $85,000 were made under
      the
      manufacturing license and supply agreement with Novogen during the three months
      ended September 30 , 2006 and 2005, respectively.





At
      September 30, 2006 and 2005, $6,000 and $22,000, respectively, were due and
      owing to Novogen under the manufacturing license and supply agreement and are
      included in amounts due to parent company.








**6.
      Equity**





MEI is a
      development stage company incorporated in December 2000 that commenced
      operations in May 2002 coinciding with its listing on the London Stock
      Exchange’s Alternative Investment Market (AIM).





In
      May
      2002, the Company sold 2,523,000 shares of its common stock and 2,523,000
      warrants, raising proceeds of $9,022,000, net of $1,070,000 of transaction
      costs. The warrants were exercisable prior to November 30, 2003 at an exercise
      price of $4.00 per share. The common stock was listed for trading on the AIM.
      Following the listing, Novogen Limited retained 95.1% of the Company’s common
      stock.





In
      June
      2003, 9,000 warrants were exercised, resulting in proceeds to the Company of
      $36,000. In November 2003 the remaining 2,514,000 warrants were exercised at
      an
      exercise price of $4.00 per share with proceeds to the Company of
      $10,056,000.





15


In
      December 2003, the Company sold 2,392,000 common stock units at a public
      offering price of $7.50 per unit. Each common stock unit consisted
      of:





·
            one
                share of common stock; and




·
            one
                warrant to purchase a share of common stock, exercisable prior to
                December
                18, 2006 at an exercise price equal to
                $9.00.




In
      connection with the December 2003 offering, the Company’s common stock and
      warrants commenced trading separately on the Nasdaq Global
      Market. The Company received proceeds of $15,522,000, net of $2,431,000
      transaction costs in the December 2003 offering. Following the offering, Novogen
      Limited retained 86.9% of the Company’s common stock.





In
      January 2006, the Company voluntarily cancelled the trading of its common stock
      on the Alternative Investment Market of the London Stock Exchange (AIM).





On
      July
      11, 2006, the
      Company entered into a securities subscription agreement with certain accredited
      investors providing for the placement of 6,329,311 shares of our common stock
      and warrants exercisable for 2,215,258 shares of our common stock at a purchase
      price of $2.90 per unit. Each unit consisted of one share of common stock and
      0.35 of a warrant to purchase one share of common stock. The warrants have
      an
      exercise price of $4.35 per share, subject to certain adjustments. The exercise
      price and number of shares issuable upon exercise of such warrants are subject
      to adjustment in the event of stock dividends, stock splits and other similar
      events. The warrants may be exercised no less than six months from the closing
      date and will expire four years from the date of issuance, or July 11, 2010.
      The
      Company closed the private placement on July 11, 2006. In connection with the
      PIPE the company received proceeds of $16.9 million net of $1.5 million
      commissions and other costs.





In
      connection with the securities subscription agreement the Company entered into
      with certain accredited investors as of July 11, 2006, the Company entered
      into
      a registration rights agreement pursuant to which the Company is obligated
      to
      file a resale registration statement with the SEC covering the shares of common
      stock issued in connection with the securities subscription agreement, in
      addition to the shares of common stock underlying the warrants issued in
      connection with the securities subscription agreement. The Company filed the
      registration statement on August 9, 2006 which was declared effective September
      5, 2006.





On
      July
      11, 2006, the Company entered into a standby equity distribution agreement
      (the
“SEDA”), with Cornell Capital Partners, LP. Under the SEDA, the Company may
      issue and sell to Cornell shares of its common stock for a total purchase price
      of up to $15 million, once a resale registration statement is in effect.
      Commencing as of the effective date of the registration statement and continuing
      for up to 24 months thereafter the Company has sole discretion whether and
      when
      to sell shares of its common stock to Cornell. Cornell will be irrevocably
      bound
      to purchase shares of common stock from the Company after the Company sends
      a
      notice that it intends to sell shares of its common stock to Cornell. Each
      advance under the SEDA is limited to a maximum of $1.5 million.





In
      connection with the SEDA, the Company paid Cornell a commitment fee of 123,626
      shares of its common stock and warrants to purchase 600,000 shares of its common
      stock that expire on July 11, 2010. The warrants have an exercise price of
      $4.35
      per share, subject to certain adjustments. The exercise price and number of
      shares issuable upon exercise of such warrants




16




are
      subject to adjustment in the event of stock dividends, stock splits and other
      similar events. The commitment fee, comprising shares and warrants, is a
      share-based payment and has been accounted for in accordance with FAS123R
      "Share-based Payment". The fair values of shares and warrants issued have been
      recognised directly in equity in the balance sheet and as selling, general
      and
      administration expenses in the income statement in the quarter ended September
      30, 2006. Under the terms of the PIPE the Company is required to maintain an
      effective registration statement. As the penalty for not maintaining this
      registration is less than the difference between the value of registered shares
      and unregistered shares the equity has been classified as permanent
      equity.





Before the
      Company can sell any shares of its common stock to Cornell under the SEDA,
      a
      resale registration statement will have to be filed with and declared effective
      by the SEC to cover Cornell’s resale of shares of our common stock it buys under
      the SEDA.





The
      Company has not issued any shares under the terms of the standby equity
      distribution agreement.





Following
      the private
      placement, Novogen Limited retained 78.1% of the Company’s common
      stock.








**7.
      Contingent Liability**





In
      the
      event that the registration statement ,
      filed
      in connection to the securities subscription agreement, ceases to be effective
      or usable at any time while shares of common stock covered by it remain unsold
      or may only be sold subject to certain volume limitations, or investors are
      not
      permitted to utilize the prospectus in connection with the registration
      statement to resell shares of common stock covered by the registration
      statement, the Company will be obligated to pay investors who purchased shares
      of common stock in the private placement liquidated damages equal to 1% of
      the
      aggregate purchase price paid by each investor pursuant to the securities
      subscription agreement for any shares of common stock, shares of common stock
      issuable upon exercise of warrants or warrants then held by each investor per
      month (pro rated for any period less than a month) until the registration
      statement is effective or the investors are permitted to utilize the prospectus
      in connection with the registration statement to resell shares of common stock
      covered by the registration statement.





Liquidated
      damages paid to each investor in the private placement may not exceed more
      than
      10% of the purchase price paid by such investor for shares of common stock,
      shares of common stock issuable upon exercise of warrants or warrants purchased
      under the securities subscription agreement. The maximum amount of liquidated
      damages payable would be approximately $1.8 million. If the Company becomes
      obligated to pay liquidated damages, the Company would deplete its limited
      working capital and potentially need to raise additional funds.


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 Security Exchange
      Act of 1934, as amended. All statements other than statements of historical
      facts contained in this quarterly report, including statements regarding the
      future financial position, business strategy and plans and objectives of
      management for future operations, are forward-looking statements. The words
      “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,”
“should,” “plan,” “expect,” and similar expressions, as they relate to the
      Company, are intended to identify forward-looking statements. We have based
      these forward-looking statements largely on current expectations and projections
      about future events and financial trends that it believes may affect financial
      condition, results of operations, business strategy and financial needs. These
      forward-looking statements are subject to a number of risks, uncertainties
      and
      assumptions, including, among other things:





·our
                limited operating history;·our
                inability to obtain any additional required financing or financing
                available to us on acceptable terms;·our
                failure to successfully commercialize its product
                candidates;·costs
                and delays in the development and/or receipt of FDA or other required
                governmental approvals, or the failure to obtain such
              approvals,for
                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
              necessaryfor
                the development, manufacture, commercialization, marketing, sales
                and
                distribution of any products;·our
                inability to control the costs of manufacturing our
                products;·continued
                cooperation and support of Novogen, 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 operateour
                business;·our
                inability to operate our business without infringing the patents
                and
                proprietary rights of others;·costs
                stemming from our defence against third party intellectual property
                infringement claims;·difficulties
                in enforcement of civil liabilities against our officers and directors
                who
                are residents of jurisdictions outside the
              United States;·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.





18




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, 2006. 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 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
      report.




**Overview**





We
      are a
      development stage pharmaceutical company listed on the Nasdaq Global Market
      under the symbol “MSHL”. We were incorporated on December 1, 2000 as a
      wholly-owned subsidiary of Novogen Limited, an Australian company. We commenced
      operations in May 2002 and our business purpose is the development and
      commercialization of drugs for the treatment of cancer.





We
      are
      presently engaged in the clinical development and commercialization of a drug
      candidate called phenoxodiol. We believe that phenoxodiol may have broad
      application against a wide range of cancers. Phenoxodiol appears to target
      a
      number of key components involved in cancer cell survival and proliferation
      based on the emerging field of signal transduction regulation, with little
      or no
      effect on normal cells detected in pre-clinical testing. We have also licensed
      two other anti-cancer compounds, NV-196 and NV-143, from a subsidiary of
      Novogen.





Our
      strategy is to undertake further clinical development and testing of
      phenoxodiol, focusing on those therapeutic indications that will expedite drug
      marketing approval by regulatory bodies, leading to phenoxodiol’s
      commercialization and wide scale distribution. We also plan to develop NV-196
      and NV-143 for therapeutic indications not currently targeted by
      phenoxodiol.






19




We
      do not
      employ any staff directly but obtain services from Novogen under a 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 as we expand research and development activities and move phenoxodiol
      into later stages of development. As of September 30, 2006, we had accumulated
      losses of $32,182,000.





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





Expenses
      have consisted primarily of costs associated with conducting the clinical trials
      of phenoxodiol and costs incurred under the license agreement for phenoxodiol,
      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.





We
      expect
      that quarterly and annual operating results of operations will fluctuate for
      the
      foreseeable future due to several factors including the timing and extent of
      research and development efforts and the outcome and extent of clinical trial
      activities. Our limited operating history makes accurate prediction of future
      operating results difficult or impossible.





**Critical
      Accounting Estimates**





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





*Development
      Expenses*




Research
      and development costs incurred since inception through September 30, 2006
      aggregate to $11,107,000.





Research
      and development costs include clinical trial expenses and are expensed as they
      are incurred. These costs are expected to increase in the future as the
      phenoxodiol clinical program progresses and as we expand our research and
      development of NV-196 and NV-143. The planned phenoxodiol Phase III OVATURE
      trial will require large patient numbers 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.





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.







20




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 enrol suitable patients;





•  the
      number of patients that participate in the trials;





•  the
      indication being studied; 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.





We
      intend
      to continue the clinical development of phenoxodiol as well as NV-196 and
      NV-143, which were licensed from Novogen. We will also continue to assess the
      opportunity to license other cancer drugs developed by Novogen as the
      opportunities arise.





*Clinical
      Trial Expenses*





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





Clinical
      trial expenses of $524,000 have been accrued at September 30, 2006. 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




The
      manufacturing process development of phenoxodiol is being undertaken to develop
      a scalable manufacturing process which will facilitate larger scale production
      quantities while concurrently developing analytical methods and the
      documentation required for the future New Drug Application (NDA). An NDA is
      needed in order to market phenoxodiol and will be required if the OVATURE study
      is successful. The work being undertaken will also provide the drug quantities
      needed for the OVATURE clinical trial.





No
      manufacturing scale-up expenses were accrued at September 30, 2006. 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 at which they are
      granted. With respect to the fair value of 600,000 warrants issued July 11,
      2006, in connection with the SEDA commitment fee, the following assumptions
      were
      used:




Dividend
      yield 0%


Expected
      volatility 76%


Historical
      volatility 76%


Risk-free
      interest rate 5.45%


Expected
      life of warrant 4
      years


Warrant
      fair value $1.998





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
      option 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.





The
      Company’s stock option plan provides for the grant of options to the
      Company’s directors, employees, employees of the Company’s affiliates and
      certain of the Company’s contractors and consultants. To date no options have
      been issued under the plan.




22


**Results
      of Operations**





**Three
      Months Ended September 30, 2006 and 2005**





We
      recorded a consolidated loss of $7,880,000 and $1,803,000 for the three months
      ended September 30, 2006 and 2005, respectively.





**Revenues:** We
      received interest on cash assets and cash equivalents and short term investments
      of $135,000 for the three months ended September 30, 2006 versus $122,000 for
      the three months ended September 30, 2005. The increase was due to higher cash
      balances following the capital raising in July 2006 combined with an increase
      in
      interest rates earned by our cash deposits.





**Research
      and Development:** Research
      and Development expenses increased $341,000 to $927,000 for the three months
      ended September 30, 2006 compared to $586,000 for the three months ended
      September 30, 2005. The increase was due to a number of factors including the
      initial fee following the appointment of the clinical research organization
      which has commenced preparations for enrollment of patients into the Phase
      III
      OVATURE clinical trial. Costs were also incurred in connection with the
      production scale-up activities of phenoxodiol and the initial development of
      the
      NDA (New Drug Application) documentation. A further contributing factor to
      the
      increase in the research and development expenses for the three months ended
      September 30, 2006 compared to corresponding period in 2005 was an increase
      in
      the research and development service fees incurred under the services agreement
      with Novogen as a result of the additional time spent on OVATURE clinical trial
      and in developing the recently licensed product candidates NV-196 and NV-143.
      We
      expect research and development clinical trial expenses to increase
      significantly in the future due to the Phase III OVATURE study.





**License
      Fees:** Milestone
      license fees of $5,000,000 have been expensed in the three months ended
      September 30, 2006. 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 exceeds $50,000,000. Following the
      PIPE
      share issue on July 11, 2006 the funds received from equity issuances exceeded
      $50,000,000 which triggered this license fee payment. Milestone license fees
      of
      $1,000,000 were expensed in the three months ended September 30, 2005 in
      connection with the annual milestone license fee of $4,000,000 due to Novogen
      December 31, 2005.





**Selling,
      General and Administrative:** Selling,
      general and administrative expenses increased by $1,749,000 to $2,088,000 for
      the three months ended September 30, 2006 compared to $339,000 for the three
      months ended September 30, 2005. The increase was due primarily to the cost
      of
      the share-based payment of the SEDA commitment fee paid to Cornell Capital
      Partners, LLP in the form of shares and warrants which were valued at
      $1,642,000.





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




23




of
      MEPL’s
      financial statements into U.S. dollars did not have a material impact on the
      our
      financial position. At September 30, 2006 we had not established a foreign
      currency hedging program. Net foreign exchange gains during the three months
      ended September 30, 2006 were $19,000 compared with net foreign exchange losses
      of $3,000 during the three months ended September 30, 2005.








**Liquidity
      and Capital Resources**





At
      September 30, 2006, we had cash resources of $20,894,000 compared to $10,054,000
      at June 30, 2006. The increase was due to the capital raising in July 2006,
      as
      described below, which was partially offset by the payment of the $5,000,000
      milestone license fee and expenditures in the clinical trial program and other
      corporate expenses incurred in the period. Funds are invested in short term
      market accounts, pending use.





On
      July
      11, 2006, we entered into a securities subscription
      agreement with certain accredited investors providing for the placement of
      6,329,311 shares of our common stock and warrants exercisable for 2,215,258
      shares of our common stock at a purchase price of $2.90 per unit. Each unit
      consisted of one share of common stock and 0.35 of a warrant to purchase one
      share of common stock. The warrants have an exercise price of $4.35 per share,
      subject to certain adjustments. The warrants may be exercised no less than
      six
      months from the closing date and will expire four years from the date of
      issuance, or July 11, 2010. We closed the private placement on July 11, 2006.





On
      July
      11, 2006, we entered into a standby equity distribution agreement, which we
      refer to as the SEDA, with Cornell Capital Partners, LP. Under the SEDA, we
      may
      issue and sell to Cornell shares of our common stock for a total purchase price
      of up to $15 million, once a resale registration statement is in effect. We
      have
      sole discretion whether and when to sell shares of our common stock to Cornell.
      Cornell will be irrevocably bound to purchase shares of our common stock from
      us
      after we send a notice that we intend to sell shares of our common stock to
      Cornell. Each advance under the SEDA is limited to a maximum of $1.5
      million.





In
      connection with the SEDA, we paid Cornell a commitment fee of 123,626 shares
      of
      our common stock and warrants to purchase 600,000 shares of our common stock
      that expire on July 11, 2010. The warrants have an exercise price of $4.35
      per
      share, subject to certain adjustments.








While
      the
      SEDA provides us access to significant equity financing, using the SEDA at
      low
      market prices could result in a
      dilution of net tangible assets per share to current shareholders, and also
      may
      have a depressing effect on our stock price.








24


**Source
      and Uses of Cash**




*Cash
      Used in Operating Activities*





Cash
      used
      in operating activities for the three months ended September 30, 2006 was
      $6,122,000 compared to $816,000 for the same period in 2005. The increase in
      cash outflow of $5,306,000 for the three months ended September 30, 2006 was
      due
      primarily to the license fee paid to Novogen of $5,000,000 during the period.
      Additional cash was also used to fund the manufacturing production scale-up
      program.





*Cash
      Requirements*





We
      are
      commencing a pivotal clinical study to support marketing approval of phenoxodiol
      for ovarian cancer. The trial, known as the OVATURE study, is designed to
      establish the safety and effectiveness of phenoxodiol in combination with
      carboplatin for late-stage ovarian cancers. We expect to have significant cash
      requirements in connection with the OVATURE study.





Additional
      cash resources will also be required to continue the clinical trial programs
      for
      NV-196 and NV-143 which were licensed from Novogen in May 2006.





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




We
      believe that the proceeds of the private placement closed in July 2006, as
      well
      as our access to the SEDA, provide us with sufficient cash resources to fund
      our
      planned operations over the next twelve months, which include costs expected
      to
      be incurred in the OVATURE trial, the planned preclinical development of NV-196
      and NV-143 and the planned human Phase I clinical program for NV-196. We do
      not
      expect to access the SEDA prior to 2007.





We
      will
      however need to raise additional funds in the future in order to further the
      clinical development program for NV-196 and NV-143 beyond the current
      objectives.





**License
      Agreement for Phenoxodiol**





In
      September 2003, we 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 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 agreement by giving three
      months’ notice to Novogen. MEPL paid $5,000,000 to Novogen in February 2004
      which was the first lump sum license fee payment due under the terms of the
      license agreement. Also, MEPL paid $2,000,000 to Novogen in January 2005 and
      $4,000,000 in January 2006 which were the annual milestone license fee payments
      due under the license agreement. We 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. This license fee was due on the later of November 1, 2003 or such
      later date when the




25




cumulative
      total of all funds received from debt or equity issuances and revenue received
      from commercialization (income other than sales) and sales of phenoxodiol
      products exceeds $50,000,000. Following the PIPE share issue 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
      license agreement are as follows:





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 license agreement with Novogen; or





(b)  the
      date
      of expiration or lapsing of the last licensed patent right which MEPL would,
      but
      for the license granted in the license agreement, infringe in any country in
      the
      geographical territory covered by the license agreement by doing in that country
      any of the things set out in the license agreement.





2.
      In
      addition to the amounts above, beginning in 2006, an $8,000,000 annual milestone
      license fee is payable under the amended terms of the license agreement for
      each
      calendar year ending December 31 during the exclusivity period of the license.
      The December 31, 2006 license fee has been deferred under the license amendment
      deed which is discussed below.





**License
      Amendment Deed for Phenoxodiol**





In
      June
      2006, we entered into an amendment deed to the license agreement for
      phenoxodiol. Pursuant to the original term of the license agreement for
      phenoxodiol we were required to pay an $8,000,000 license milestone fee to
      Novogen Research Pty Limited in December 2006. The amendment deed extends the
      date that the $8,000,000 license milestone fee is payable until the earliest
      receipt 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.





Upon
      receipt of any of the above, we must pay to Novogen, $8,000,000, together with
      interest on that amount from (and including) December 31, 2006, calculated
      at
      the bank bill rate. This milestone license fee replaces the $8,000,000 December
      31, 2006 milestone fee.





At
      June
      30, 2005 an amount of $2,000,000 was accrued and reflected in amounts due to
      Novogen, representing 50% of the $4,000,000 milestone payment payable to Novogen
      on December 31, 2005 under the terms of the license agreement with Novogen.
      We
      paid the $4,000,000 due to Novogen at the end of January 2006. The license
      amendment deed




26




provides
      that the next milestone license fee is not due until one of the approvals set
      out above is obtained. Therefore no license fees have been accrued at September
      30, 2006.





**License
      Agreement NV-196 and NV-143**





In
      May
      2006, we entered into a second license agreement with Novogen for two oncology
      compounds, NV-196 and NV-143. NV-196 is being developed initially in oral form
      for 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 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
      NV-196 and NV-143 products. The license agreement covers uses of NV-196 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 or patent
      applications in the world and thereafter is non-exclusive. MEPL may terminate
      the agreement by giving three months’ notice to Novogen. MEPL paid $1,000,000 to
      Novogen in May 2006 which was the first lump sum license fee payment due under
      the terms of the license agreement. We are required to make payments under
      the
      terms of this second license agreement 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.  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 NV-196 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 investigational new drug application (IND) for the
                licensed
                product goes into effect or the equivalent approval of a government
                agency
                is obtained in another country. If this event does not occur before
                March
                31, 2008 then this amount will be due on this
                date; ii)
            $2,000,000
                on the date of enrollment of the first clinical trial subject in
                a Phase
                II clinical trial of the licensed product. If this event does not
                occur
                before June 30, 2009, then this amount will be due on this
                date; iii)
            $3,000,000
                on the date of enrollment of the first clinical trial subject in
                a Phase
                III clinical trial of the licensed product. If this event does not
                occur
                before December 31, 2011, then this amount will be due on this date;
                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




27




rights
      in
      any country or territory expire, lapse, are revoked, does not exist or is
      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.





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.





We
      are
      currently assessing the future cash requirements needed to fund new clinical
      trial initiatives and licensing options available under the license option
      deed.








*Off-Balance
      Sheet Arrangements*





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








28


*Contractual
            Obligations*


The
        following table summarizes our contractual obligations at September 30,
        2006:
  Payment
                      due by period (in thousands)**Contractual
                      Obligations**
                  
                  **Total**
                  
                  less
                      than 1 Year
                  
                  1
                      -
                      3 Years
                  
                  3
                      -
                      5 Years
                  
                  More
                      than 5 YearsPurchase
                      Obligations
                  
                  $
                  7,550
                  
                  $
                  5,072
                  
                  $
                  2,478
                  
                  $
                  -
                  
                  $
                  -Total
                  
                  $
                  7,550
                  
                  $
                  5,072
                  
                  $
                  2,478
                  
                  $
                  -
                  
                  $
                  -
 No
        amounts have been included for future payments to Novogen which may arise
        in
        connection with the license agreements for phenoxodiol, NV-196 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.


29


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
      a portion of our business in various currencies, primarily in U.S. and
      Australian dollars. At September 30, 2006, we had not established a foreign
      currency hedging program. Net foreign exchange gains during the three months
      ended September 30, 2006 were $19,000 compared with net foreign exchange losses
      of $3,000 during the three months ended September 30, 2005. 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 .





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











30





Item
      4:  Controls
      and Procedures




**Evaluation
      of Disclosure Controls and Procedures**





At
      the
      end of the period covered by this 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 Securities Exchange Act of 1934, as amended).
      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 Securities and Exchange
      Commission rules and forms.




There
      were no changes in our internal control over financial reporting during the
      period covered by this Form 10-Q that have materially affected, or are
      reasonably likely to affect, the Company’s internal control over financial
      reporting.


31








**PART
      II OTHER INFORMATION**





Item
      1A:  Risk
      Factors





The
      risks
      described in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the
      year ended June 30, 2006, could materially and adversely effect our business,
      financial condition and results of operations. Additional information concerning
      those risks and uncertainties and other factors that you may wish to consider
      are contained elsewhere in our filings with the Securities and Exchange
      Commission.





The
      risk
      factor titled “ *We
      depend on a number of key personnel whose services are provided by Novogen
      under
      our services agreement. If we are not able to procure these services in the
      future, the strategic direction of the clinical development program would be
      disrupted, causing a delay in our commercialization program.”* in our
      Annual Report on Form 10-K for the year ended June 30, 2006, is amended in
      its
      entirety to read as follows:





***“We
      depend on a number of key personnel whose services are provided by Novogen
      under
      our services agreement. If we are not able to procure these services in the
      future, the strategic direction of the clinical development program may be
      disrupted, causing a delay in our commercialization
      program”***





We
      currently rely on Professor Alan Husband, Novogen Research Director and Mr.
      Christopher Naughton, our President and Chief Executive Officer, to provide
      the
      strategic direction for the clinical development of phenoxodiol. If we are
      unable to secure the ongoing services of Professor Husband and Mr. Naughton,
      the
      clinical program for phenoxodiol may be disrupted and may cause delays in
      obtaining marketing approval. Novogen continues to maintain employment
      agreements with Professor Husband and Mr. Naughton.








Item
      6:  Exhibits
      and Reports on Form 8-K








a)
      Exhibits


**Exhibit
      Index**








Exhibits


31.1  Certification
        required by Rule 13a-14(a) or Rule 15d-14(a)
 31.2  Certification
        required by Rule 13a-14(a) or Rule 15d-14(a)
 32  Certification
        required by Rule 13a-14(b) or Rule 15d-14(b) and section 1350 of Chapter
        63 of
        Title 18 of the United States Code (18 U.S.C 1350).








32





**SIGNATURES**











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





MARSHALL
      EDWARDS, INC.






/s/
      D AVID S EATON




David
      R.
      Seaton


Chief
      Financial Offer


(Duly
      Authorized Officer and Principal Financial Officer)







Date:
      November 7, 2006


33





Exhibit
      31.1


**CERTIFICATION**





I,
      Christopher Naughton, certify that:







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




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




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




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




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




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




(c)
            Disclosed
                in this report any change in the registrant’s internal control over
                financial reporting that occurred during the registrant’s most recent
                fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
                annual report) that has materially affected, or is reasonably likely
                to
                materially affect, the registrant’s internal control over financial
                reporting; and




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




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




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










Date:
      November 7, 2006     /s/C HRISTOPHER N AUGHTON





Christopher
      Naughton


Chief
      Executive
      Officer


34





Exhibit
      31.2


**CERTIFICATION**





I,
      David
      Ross Seaton, certify that:







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




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




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




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




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




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




(c)
            Disclosed
                in this report any change in the registrant’s internal control over
                financial reporting that occurred during the registrant’s most recent
                fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
                annual report) that has materially affected, or is reasonably likely
                to
                materially affect, the Company’s internal control over financial
                reporting; and




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




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




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












Date:
      November 7, 2006    /s/
      D AVID S EATON





David
      R.
      Seaton


Chief
      Financial
      Officer


35





Exhibit
      32





**CERTIFICATION**








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





1.
            The
                Registrant’s Quarterly Report on Form 10-Q for the period ended September
                30, 2006, to which this Certification is attached as Exhibit 32 (the
                “Periodic Report”), fully complies with the requirements of Section 13(a)
                or Section 15(d) of the Securities Exchange Act of 1934, as amended;
                and


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





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





Dated:
      November 7, 2006




















/s/
      C HRISTOPHER N AUGHTON





Christopher
      Naughton


Chief
      Executive Officer










/s/
      D AVID S EATON







David
      R.
      Seaton


Chief
      Financial Officer




36