Special Note Regarding Forward-Looking Statements

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

· our inability to obtain additional required financing or financing available to us on acceptable terms, particularly in the context of the current global financial crisis;

· our inability to maintain or enter into, and our dependence upon, collaboration or contractual arrangements necessary for the clinical development of phenoxodiol and other drug candidates;

· our limited operating history;

· our failure to successfully commercialize our product candidates;

· our termination of new enrollment into the OVATURE Phase III clinical trial;

· costs and delays in the development and/or receipt of the approval of the U.S. Food and Drug Administration (the "FDA") or other required governmental approvals, or the failure to obtain such approvals, for our product candidates;

· uncertainties in clinical trial results;

· our inability to demonstrate the efficacy and safety of phenoxodiol for the recruitment of platinum resistant late stage ovarian cancer;

· our inability to maintain or enter into, and the risks resulting from our dependence upon, collaboration or contractual arrangements necessary for the manufacture, commercialization, marketing, sales and distribution of any products;

· our inability to control the costs of manufacturing our products;

· continued cooperation and support of Novogen Limited ("Novogen"), our parent company;

· competition and competitive factors;

· our inability to protect our patents or proprietary rights and obtain necessary rights to third party patents and intellectual property to operate our business;

· our inability to operate our business without infringing the patents and proprietary rights of others;

· costs stemming from our defense against third party intellectual property infringement claims;

· difficulties in enforcement of civil liabilities against those of our officers and directors who are residents of jurisdictions outside the United States;

· general economic conditions;

· the failure of any products to gain market acceptance;

· technological changes;

· government regulation generally and the receipt of the regulatory approvals;

· changes in industry practice; and

· one-time events.

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

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

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

Overview

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

In April 2009, we announced our determination to terminate enrollment into the OVATURE Phase III trial and our intention to undertake an un-blinded analysis of the available data from the trial. The patients currently enrolled in the trial will continue their treatment according to the study protocol. However, we will cease recruiting new patients to participate in the OVATURE trial and the available data from the 142 completed and current patients will be analyzed for safety and efficacy outcomes.

We decided to terminate new enrollment into the OVATURE Phase III trial and assess the available patient data, in part, because we believe that the global financial downturn makes it unlikely that we will be able to raise the necessary capital through debt or equity issuances in the near future to fund the trial to completion as originally planned. Additionally, changes in the standard of care over the period that the OVATURE trial has been in operation resulted in fewer women meeting the inclusion criteria of the OVATURE protocol, which slowed patient recruitment rates.

We intend to allocate our current funds of approximately $23 million to completing the OVATURE data analysis of 142 patients, pursuing negotiations for out-licensing phenoxodiol should evidence of efficacy and safety emerge from the OVATURE analysis, maintaining other ongoing phenoxodiol ovarian and prostate cancer clinical trials, initiating the triphendiol clinical program, and in-licensing further promising anti-cancer compounds from Novogen.

We believe that the proceeds from the registered direct offering closed in July 2008 and savings generated from ceasing the OVATURE trial will provide us with sufficient cash resources to fund these operations over the next twelve months.

We will, however, need additional funds in order complete the planned clinical development programs beyond the current objectives.

As of March 31, 2009, we had accumulated losses of $57,486,000.

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

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

Expenses to date have consisted primarily of costs associated with conducting the clinical trials of phenoxodiol including OVATURE, costs incurred under the Phenoxodiol Licence Agreement, as amended, the Licence Agreement for Triphendiol and NV-143, the Services Agreement and the Manufacturing Licence 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.

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

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 March 31, 2009 aggregate to $30,254,000.

Research and development costs include clinical trial expenses and are expensed as they are incurred.

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.

The duration and cost of clinical trials may vary significantly over the life of a project as a result of:
· the number of sites included in the trials;
· the length of time required to enroll suitable patients;
· the number of patients who participate in the trials;
· the number of treatment cycles patients complete while they are enrolled in the trials;
· the indication being studied;
· the availability of alternative treatment; and
· the efficacy and safety profile of the product.

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

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

Clinical Trial Expenses

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

Clinical trial expenses of $1,260,000 have been accrued at March 31, 2009. 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.

Stock Based Compensation

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

See Note 6 "Equity" for details of options issued under the Equity Compensation Plan in January 2009.

We account for stock based payments in accordance with SFAS No. 123R "Share-Based Payments". The costs of these equity-settled transactions are determined using a binomial model to calculate the fair value at the date on which they are granted. With respect to the fair value of the 62,091 warrants representing 248,364 warrant shares issued August 6, 2007 to Blue Trading, LLC as part of a placement fee, the warrant representing 46,083 warrant shares issued to Mr. J. O'Connor July 30, 2008, in consideration for investor relations services rendered, and the stock option representing 50,000 shares of common stock issued to Associate Professor Gil Mor of Yale University in January 28, 2009, in recognition of his contribution to the development of phenoxodiol under the Equity Compensation Plan, the following assumptions were used:

                                August 6, 2007 July 30, 2008 January 28, 2009
      Dividend yield                        0%            0%               0%
      Expected volatility                  71%           81%             111%
      Historical volatility                71%           81%             111%
      Risk-free interest rate            4.13%         3.36%            1.70%
      Expected life of warrant         5 years       5 years          5 years
      Warrant fair value                $1.777         $1.41            $0.50

The dividend yield reflects the assumption that the current dividend payout, which is zero, will continue with no anticipated increases. The expected life of the warrant or stock 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.

Results of Operations

Three Months Ended March 31, 2009 and 2008

We recorded a consolidated loss of $1,904,000 and $3,332,000 for the three months ended March 31, 2009 and 2008, respectively.

Revenues: We received interest on cash assets and cash equivalents and short term investments of $29,000 for the three months ended March 31, 2009 compared to $149,000 for the three months ended March 31, 2008. The decrease was primarily due to lower interest rates in the U.S. earned by our cash deposits.

Research and Development: Research and development expenses decreased $315,000 to $1,545,000 for the three months ended March 31, 2009 compared to $1,860,000 for the three months ended March 31, 2008. The reduction was due to reduced costs associated with the recruitment into the OVATURE trial and reduced service fees charged by Novogen in $A, as a result of falling $A compared to the $US .

Selling, General and Administrative: Selling, general and administrative expenses decreased by $232,000 to $388,000 for the three months ended March 31, 2009 compared to $620,000 for the three months ended March 31, 2008. The decrease was due to net foreign exchange gains (described below), reduced spending on public relations, reduced travel expenses and reduced service fees charged by Novogen in $A, as a result of falling $A compared to the $US.

Foreign exchange gains/(losses) are included in selling, general and administrative expenses and occur when revaluing cash denominated in foreign currencies and upon consolidation of our wholly owned subsidiary Marshall Edwards Pty Ltd ("MEPL"). MEPL uses U.S. dollars as its functional currency and also engages in transactions in foreign currencies. Further, MEPL's accounts and financial statements are denominated in Australian dollars. Translation of MEPL's financial statements into U.S. dollars did not have a material impact on our financial position. However, exchange rates are volatile in the current market resulting from the global financial crisis and there is a possibility that foreign exchange gains/losses may have a material impact in future periods. At March 31, 2009, we had not established a foreign currency hedging program. Net foreign exchange gains during the three months ended March 31, 2009 were $1,000 compared with foreign exchange losses of $61,000 during the three months ended March 31, 2008.

Nine months Ended March 31, 2009 and 2008

We recorded a consolidated loss of $5,755,000 and $9,009,000 for the nine months ended March 31, 2009 and 2008, respectively.

Revenues: We received interest on cash assets and cash equivalents and short term investments of $201,000 for the nine months ended March 31, 2009 compared to $582,000 for the nine months ended March 31, 2008. The decrease was primarily due to lower interest rates in the U.S. earned by our cash deposits.

Research and Development: Research and development expenses decreased $1,643,000 to $4,988,000 for the nine months ended March 31, 2009 compared to $6,631,000 for the nine months ended March 31, 2008. The reduction was due to reduced manufacturing scale-up costs of phenoxodiol, reduced expenditure relating to the development of triphendiol, reduced costs associated with the recruitment into the OVATURE trial and reduced service fees charged by Novogen in $A, as a result of falling $A compared to the $US.

Selling, General and Administrative: Selling, general and administrative expenses decreased by $990,000 to $967,000 for the nine months ended March 31, 2009 compared to $1,957,000 for the nine months ended March 31, 2008. The decrease was primarily due to net foreign exchange gains, as described below, and reduced spending on public relations and travel, partially offset by additional legal fees and share based payment expense incurred in the nine months ended March 31, 2009.

Foreign exchange gains/(losses) are included in selling, general and administrative expenses and occur when revaluing cash denominated in foreign currencies and upon consolidation of MEPL. MEPL uses U.S. dollars as its functional currency and also engages in transactions in foreign currencies. Further, MEPL's accounts and financial statements are denominated in Australian dollars. Translation of MEPL's financial statements into U.S. dollars did not have a material impact on our financial position. However, exchange rates are volatile in the current market resulting from the global financial crisis and there is a possibility that foreign exchange gains/losses may have a material impact in future periods. At March 31, 2009, we had not established a foreign currency hedging program. Net foreign exchange gains during the nine months ended March 31, 2009 were $558,000 compared with foreign exchange losses of $159,000 during the nine months ended March 31, 2008.

Liquidity and Capital Resources

At March 31, 2009, we had cash resources of $23,152,000 compared to $19,743,000 at June 30, 2008. The increase was due to the registered direct offering in July 2008, as described below, which was partially offset by expenditures in the clinical trial program and other corporate expenses incurred in the period. Funds are invested in short term money market accounts, pending use.

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

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

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

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

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

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

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

Given the current state of the global financial markets, we do not expect to be able to raise additional capital through the issuance of equity or debt in the near term.

Source and Uses of Cash

Cash Used in Operating Activities

Cash used in operating activities for the nine months ended March 31, 2009 was $6,469,000 compared to $8,397,000 for the same period in 2008.

Cash Requirements
The Company intends to allocate its current funds of approximately $23 million to completing the OVATURE data analysis of 142 patients, pursuing negotiations for out-licensing phenoxodiol should evidence of efficacy and safety emerge from the OVATURE analysis, maintaining other ongoing phenoxodiol ovarian and prostate cancer clinical trials, initiating the triphendiol clinical program, and in-licensing further promising anti-cancer compounds from Novogen.

Specifically we intend to:

· Complete the Phase Ib/IIa study of phenoxodiol in combination with the Sanofi-Aventis drug Docetaxel (Taxotere†) in ovarian cancer currently underway at the Yale University School of Medicine;

· Complete at Yale, the Phase II clinical trial of phenoxodiol comparing its safety and efficacy in patients with early stage and advanced prostate cancer.

· Commence the development of the drug candidate triphendiol (NV-196), for which an Investigational New Drug Application ("IND") has been granted by the FDA, allowing clinical trials to commence in the U.S. for pancreatic and bile duct cancers. In addition, this drug was designated by the FDA as an Orphan Drug for treatment of pancreatic cancer, bile duct cancer, and late stage melanoma;

· Complete negotiations with Novogen to in-licence the mTOR inhibitor NV-128, which has shown compelling preclinical results to date.

Ongoing operations through the conduct of the clinical trial program will continue to consume cash resources without generating revenues. In order to obtain the additional funding necessary to conduct our business, we may need to rely on collaboration and /or licensing opportunities. We cannot assure you that we will be able to raise the funds necessary to fund our programs or find appropriate collaboration or licensing opportunities.

Payments to Novogen

Future payments to Novogen under the terms of the Phenoxodiol Licence Agreement, as amended and the Licence Agreement for Triphendiol and NV-143 are detailed in Note 5 of the financial statements "Related Party Transactions" on page 12 of this Quarterly Report.

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

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

Off-Balance Sheet Arrangements

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

Contractual Obligations

For details of our contractual obligations at March 31, 2009 see Note 3 to the financial statements "Expenditure Commitments" on page 11 of this Quarterly Report.