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 (the "Securities Act") 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 us, 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 required additional financing or financing available to us on acceptable terms, particularly in the context of the 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 clinical development program and/or receipt of U.S. Food and Drug Administration (the "FDA") or other required governmental approvals, or the failure to obtain such approvals, for our product candidates;

· uncertainties in clinical trial results;

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

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

· continued cooperation and support of Novogen Limited, 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 protect our patents or proprietary rights and obtain necessary rights to third party patents and intellectual property to operate our business;

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

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

· difficulties in enforcement of civil liabilities against our officers and directors who are residents of jurisdictions outside the U.S.;

· 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 on Form 10-Q may include additional factors which could adversely impact our 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, 2009. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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 Quarterly Report on Form 10-Q.

Overview

Our main focus since commencing operations has been to undertake human clinical testing of phenoxodiol. Our operations were expanded to include the additional licensed drug candidates triphendiol and NV-143. In August 2009, we entered into a third license agreement for the drug candidate NV-128. During fiscal year 2007, we commenced the Phase III clinical trial (known as "OVATURE").

We 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 the termination of 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, ceased recruiting new patients and the available data from 142 completed and current patients will be analyzed for safety and efficacy outcomes.

We intend to allocate our current funds of approximately $15 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, initiating the triphendiol clinical program and continuing the pre-clinical program for NV-128.

We believe that the proceeds from the registered direct offering which 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 September 30, 2009, we had accumulated losses of $65,319,000.

We have not generated any revenues from operations since inception other than interest on cash assets. We have incurred losses since inception and expect to incur operating losses and generate negative cash flows from operations for the foreseeable future.

We do not employ any staff directly but obtain services from Novogen under the Services Agreement.

Expenses to date have consisted primarily of costs associated with conducting the clinical trials of phenoxodiol, including OVATURE, costs incurred under the Phenoxodiol License Agreement, as amended, the License Agreement for Triphendiol and NV-143, the License Agreement from NV-128, 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.

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 U.S. 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.

Clinical Trials 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 statements.

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.

Clinical trial expenses of $838,000 have been accrued at September 30, 2009. These estimates are based on the number of patients in each trial and the drug administration cycle.

At June 30, 2009 we had accrued $1,181,000 in relation to claims received for clinical trial expenses in connection with the termination of enrollment into the OVATURE Phase III clinical trial. Following negotiations we have paid $649,000 during the quarter and have accrued $266,000 as at September 30, 2009 representing management's best estimate of the final amounts payable for claims received.

Stock Based Compensation

On December 9, 2008, we adopted the Marshall Edwards, Inc. 2008 Stock Omnibus Equity Compensation Plan (the "2008 Stock Omnibus 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 2008 Stock Omnibus 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 2008 Stock Omnibus Equity Compensation Plan.

We account for stock based payments by estimating the fair value of the options issued. 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 warrant representing 46,083 warrant shares issued to Mr. John O'Connor on July 30, 2008, in consideration for investor relations services rendered, and stock options representing 50,000 shares of common stock issued to Associate Professor Gil Mor of Yale University on January 28, 2009, in recognition of his contribution to the development of phenoxodiol under the 2008 Stock Omnibus Equity Compensation Plan, the following assumptions were used:

                         July 30, 2008 January 28, 2009
Dividend yield                0%              0%
Expected volatility           81%            111%
Historical volatility         81%            111%
Risk-free interest rate      3.36%          1.70%
Expected life of warrant    5 years        5 years
Warrant fair value           $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 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 September 30, 2009 and 2008

We recorded a consolidated loss of $2,408,000 and $2,252,000 for the three months ended September 30, 2009 and 2008, respectively.

Revenues: We received interest on cash assets and cash equivalents and short term investments of $26,000 for the three months ended September 30, 2009 compared to $96,000 for the three months ended September 30, 2008. The decrease was due to lower cash balances and lower interest rates earned by our cash deposits.

Research and Development: Research and development expenses decreased $1,575,000 to $503,000 for the three months ended September 30, 2009 compared to $2,078,000 for the three months ended September 30, 2008. The reduction was due to the termination of the enrollment in the OVATURE Phase III clinical trial and associated cost savings .

Selling, General and Administrative: Selling, general and administrative expenses increased by $162,000 to $431,000 for the three months ended September 30, 2009 compared to $269,000 for the three months ended September 30, 2008. The increase was due to net foreign exchange movements (described below), partially offset by reduced spending on legal fees, reduced travel expenses and reduced share based payment expenses which were not incurred in the three months ended September 30, 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 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 September 30, 2009, we had not established a foreign currency hedging program. Net foreign exchange losses during the three months ended September 30, 2009 were $90,000 compared with foreign exchange gains of $408,000 during the three months ended September 30, 2008.

Liquidity and Capital Resources

At September 30, 2009, we had cash resources of $15,233,000 compared to $19,067,000 at June 30, 2009. The decrease was due to the 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 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 on July 28, 2008. The shares were registered under the Securities Act of 1933, as amended (the "Securities Act") under a Shelf Registration Statement on Form S-3 (File No. 333-149807). We received gross proceeds of $10 million from the sale of the shares.

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

In July 2008, we 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 a 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 Marshall Edwards, Inc 2008 Stock Omnibus Equity Compensation Plan. The option has an exercise price of $0.63 per share of common stock. The options are exercisable immediately and expire five years from date of issue, on January 28, 2014.

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 this calander year.

Source and Uses of Cash

Cash Used in Operating Activities

Cash used in operating activities for the three months ended September 30, 2009 was $3,834,000 compared to $2,726,000 for the same period in 2008.

Cash Requirements

The Company intends to allocate its current funds of approximately $15 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, initiating the triphendiol clinical program and continuing the pre-clinical program for NV-128.

Specifically we intend to:

· Continue the clinical development of the drug candidate triphendiol;

· Continue the pre-clinical development of NV-128. In August 2009 we completed negotiations with Novogen to in-license the mTOR inhibitor NV-128, which has shown compelling preclinical results to date. In consideration of the license granted to us we paid Novogen a license fee of $1,500,000.

Ongoing operations, including the conduct of the pre clinical and 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 License Agreement, as amended and the License Agreement for Triphendiol and NV-143 and the License agreement for NV-128 are detailed in Note 5 of the financial statements "Related Party Transactions" on page 12 of this Quarterly Report on Form 10-Q.

We will also be required to make payments to Novogen under the Services Agreement and Manufacturing License and Supply Agreement if future clinical supplies of drug product are sourced from Novogen.

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 September 30, 2009 see Note 3 to the financial statements "Expenditure Commitments" on page 11 of this Quarterly Report on Form 10-Q.