10-Q

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 March 31, 2012

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:    000-52691

PROLOR BIOTECH, INC.
(Exact name of registrant as specified in its charter)

Nevada	20-0854033
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7 Golda Meir Street Weizmann Science Park
Nes-Ziona, Israel	74140
(Address of principal executive offices)	(Zip Code)

(866) 644-7811

(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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated filer	¨		Accelerated Filer x
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company ¨

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of April 27, 2012, there were 55,418,066 shares of common stock, par value $0.00001 per share (“Common Stock”), outstanding.

PROLOR BIOTECH, INC.
INDEX TO FORM 10-Q FILING
FOR THE PERIOD ENDED MARCH 30, 2012

Table of Contents

		Page
PART I
ITEM 1.	Financial Statements.	3
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	20
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26
ITEM 4.	Controls and Procedures	26
PART II
ITEM 1A	Risk Factors	27
ITEM 6.	Exhibits.	27
SIGNATURES		28

2

PART I– FINANCIAL INFORMATION

ITEM 1.Financial Statements.

PROLOR BIOTECH, INC. AND SUBSIDIARIES
(A development stage company)

CONSOLIDATED BALANCE SHEETS

	March 31, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	7,250,304		$	13,261,687
Short term deposits		1,884,464			139,000
Accounts receivable and prepaid expenses		381,608			329,244
Restricted cash		-			98,685
Total Current Assets		9,516,376			13,828,616
Long-term Assets:
Property and equipment, net		964,033			898,254
Assets held for employees’ severance payments		259,468			234,385
Restricted cash		60,538			58,858
Long term deposit		4,586			4,458
Total Long Term Assets		1,288,625			1,195,955
Total Assets	$	10,805,001		$	15,024,571
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade payables	$	985,605		$	358,803
Related parties payable		64,806			221,339
Accrued expenses and other liabilities		1,020,241			1,638,470
Total Current Liabilities		2,070,652			2,218,612
Liability in Respect of Employees Severance Payments		334,190			284,677
Commitments and Contingent Liabilities
Shareholders' Equity:
Stock capital -
Preferred stock of $ 0.00001 par value per share 10,000,000 shares of preferred stock authorized; none issued and outstanding as of March 31, 2012 or December 31, 2011		-			-
Common shares of $ 0.00001 par value per share 300,000,000 shares of common stock authorized; 54,809,960 and 54,565,358 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively.		548			545
Additional paid-in capital		63,045,993			62,167,748
(Deficit) accumulated during the development stage		(54,646,382	)		(49,647,011	)
Total Shareholders' Equity		8,400,159			12,521,282
Total Liabilities and Shareholders' Equity	$	10,805,001		$	15,024,571

The accompanying notes are an integral part of the unaudited consolidated financial statements.

3

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

							Period from May 31, 2005
	For the three months ended						(date of inception)
	March 31,						to March 31,
	2012			2011			2012
Revenues	$	-		$	-		$	-
Operating expenses:
In-process research and development write-off		-			-			(3,222,831	)
Research and development, net		(4,304,070	)		(3,035,261	)		(34,046,538	)
General and administrative		(789,780	)		(708,896	)		(17,891,749	)
Total operating expenses		(5,093,850	)		(3,744,157	)		(55,161,118	)
Operating (loss)		(5,093,850	)		(3,744,157	)		(55,161,118	)
Financial income, net		94,479			277,180			514,736
Net (loss)	$	(4,999,371	)	$	(3,466,977	)	$	(54,646,382	)
(Loss) per share (basic & diluted)	$	(0.09	)	$	(0.08	)
Weighted average number of shares outstanding		54,730,050			43,359,771

The accompanying notes are an integral part of the unaudited consolidated financial statements.

4

PROLOR BIOTECH, INC. AND SUBSIDIARIES
(A development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

							Period from May 31, 2005
	For the three months ended						(date of inception)
	March 31,						to March 31,
	2012			2011			2012
Cash flows from operating activities
Net (loss)	$	(4,999,371	)	$	(3,466,977	)	$	(54,646,382	)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation		51,342			26,924			511,271
In-process research and development write-off		-			-			3,222,831
Stock based compensation		391,675			460,400			10,391,811
(Increase) decrease in accounts receivable and prepaid expenses		(52,364	)		136,716			(381,331	)
Increase in accrued severance pay, net		49,513			43,691			334,190
Increase (decrease ) in trade payables		626,802			(277,174	)		975,501
Increase (decrease) in related parties		(156,533	)		(152,453	)		64,806
Long term deposit exchange rate differences		(128	)		(45	)		57
Increase (decrease) in accrued expenses and other liabilities		(618,229	)		(43,583	)		899,225
Net cash (used in) operating activities		(4,707,293	)		(3,272,501	)		(38,628,021	)
Cash flows from investing activities
Purchase of property and equipment		(117,121	)		(57,110	)		(1,460,948	)
Payment for the acquisition of Prolor Biotech Ltd.		-			-			(474,837	)
Assets held for employees’ severance payments		(25,083	)		(18,817	)		(259,468	)
Long term (deposit)		-			-			(4,643	)
Short term (deposit) release		(1,745,464	)		1,119,912			(1,884,464	)
Restricted cash		98,685			(68,228	)		(74,370	)
Restricted cash Long Term		(1,680	)		-			13,832
Net cash provided by (used in) investing activities		(1,790,663	)		975,757			(4,144,898	)
Cash flows from financing activities
Short term bank credit		-			-			(2,841	)
Proceeds from loans		-			-			(173,000	)
Principal payment of loans		-			-			173,000
Proceeds from issuance of shares		-			-			47,188,418
Contributed profit from shareholder's transactions		-			-			17,012
Proceeds from exercise of options		12,212			125,000			1,242,905
Proceeds from exercise of warrants		474,361			32,292			1,577,729
Net cash provided by financing activities		486,573			157,292			50,023,223
Increase (decrease) in cash and cash equivalents		(6,011,383	)		(2,139,452	)		7,250,304
Cash and cash equivalents at the beginning of the period		13,261,687			24,474,458			-
Cash and cash equivalents at the end of the period	$	7,250,304		$	22,335,006		$	7,250,304

The accompanying notes are an integral part of the unaudited consolidated financial statements.

5

PROLOR BIOTECH, INC. AND SUBSIDIARIES
(A development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

					Period from May 31, 2005
	For the three months ended				(date of inception)
	March 31,				to March 31,
	2012		2011		2012
Non cash transactions:
Employee options exercised into shares	$	-	$	-	$	140
Issuance of common stock in reverse acquisition	$	-	$	-	$	73
Conversion of preferred stock to common stock	$	-	$	-	$	18
Cashless exercise of  97,390,  56,947 and 1,184,172 outstanding stock warrants to 59,163, 42,667 and 805,225 shares of common stock, respectively	$	1	$	1	$	8
Additional information:
Cash paid for income taxes	$	-	$	-	$	-
Cash paid for interest expense	$	-	$	-	$	353,736

The accompanying notes are an integral part of the unaudited consolidated financial statements.

6

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 1:-	GENERAL
	a.	Prolor Biotech, Inc. (the “Company”) was incorporated on August 22, 2003 under the laws of the State of Nevada. The Company is a development stage biopharmaceutical company, utilizing an exclusive license from Washington University to patented technology in the development of longer-acting versions of already-approved therapeutic proteins, through its Israeli subsidiary, Prolor Biotech Ltd.
	b.	The Company is devoting substantially all of its efforts toward research and development activities. The Company’s activities also include raising capital, recruiting personnel and building infrastructure. In the course of such activities, the Company has sustained operating losses and expects such losses to continue for the foreseeable future. The Company has not generated any revenues or product sales and has not achieved profitable operations or positive cash flow from operations. The Company’s deficit accumulated during the development stage aggregated $54,646,382 as of March 31, 2012. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. The Company believes that its current cash sources will enable the continuance of the Company’s activities for at least a year with no need for additional funding.

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES
	a.	Basis of presentation:
		The accompanying unaudited financial statements of the Company are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such U.S. Securities and Exchange Commission (“SEC”) rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2011 and the notes thereto included in the Company’s Report on Form 10-K/A filed with the SEC on March 23, 2012.
	b.	Principles of consolidation:
		The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Modigene Inc. and Prolor Biotech Ltd.   Intercompany transactions and balances have been eliminated upon consolidation.

7

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (continued)
	c.	Loss per share:
		Basic and diluted losses per share are presented in accordance with ASC No. 260 “Earnings per share”. Outstanding share options and warrants, convertible preferred stock and restricted stock have been excluded from the calculation of the diluted loss per share because all such securities are antidilutive. The number of shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”), issuable upon exercise or conversion of the foregoing securities that have been excluded from calculations for the three months ended March 31, 2012 and 2011 and the period from May 31, 2005 (date of inception) to March 31, 2012 were 7,129,749, 18,450,260 and 7,869,287, respectively.
	d.	Fair value measurements:
		As defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
		Level 2: Other inputs that are observable, directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs. Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques in its assessment that maximize the use of observable inputs and minimize the use of unobservable inputs. The following table presents the Company’s financial assets and liabilities that are carried at fair value, classified according to the three categories described above:

8

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (continued)
	d.	Fair value measurements: (continued)

	Fair Value Measurements at March 31, 2012
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical Assets		Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	7,250,304	$	7,250,304	$	-	$	-
Short term deposits		1,884,464		1,884,464		-		-
Restricted cash		60,538		60,538		-		-
Total assets at fair value	$	9,195,306	$	9,195,306	$	-	$	-

	Fair Value Measurements at December 31, 2011
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical Assets		Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	13,261,687	$	13,261,687	$	-	$	-
Short term deposits		139,000		139,000
Restricted cash		157,543		157,543		-		-
Total assets at fair value	$	13,558,230	$	13,558,230	$	-	$	-

e.

Recent accounting pronouncements:

In December 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  The ASU requires disclosure of both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement.  The ASU will be applied retrospectively and is effective for periods beginning on or after January 1, 2013.  The Company is currently evaluating the impact, if any, of the adoption of this ASU on its consolidated financial statements and related disclosures.

9

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (continued)
	e.	Recent accounting pronouncements:
		In May 2011, the FASB issued an ASU that further addresses fair value measurement accounting and related disclosure requirements.  The ASU clarifies the FASB’s intent regarding the application of existing fair value measurement and disclosure requirements, changes the fair value measurement requirements for certain financial instruments, and sets forth additional disclosure requirements for other fair value measurements.  The ASU is to be applied prospectively and is effective for periods beginning after December 15, 2011.  The Company adopted the ASU effective January 1, 2012.  The adoption of the requirements of the ASU, which expanded disclosures, had no effect on the Company’s results of operations or financial position. There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's financial position, results of operations or cash flows.

NOTE 3:- ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

	March 31,		December 31,
	2012		2011
Israeli government authorities	$	350,988	$	271,219
Prepaid expenses		30,190		58,025
Other		430		-
	$	381,608	$	329,244

NOTE 4:- PROPERTY AND EQUIPMENT, NET

	March 31,		December 31,
	2012		2011
Cost:
Office furniture and equipment	$	39,570	$	39,570
Computers and electronic equipment		133,811		131,723
Laboratory equipment		884,805		773,174
Leasehold improvements		355,125		351,723
		1,413,311		1,296,190

10

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 4:- PROPERTY AND EQUIPMENT, NET (continued)

Accumulated depreciation:
Office furniture and equipment		6,712		6,170
Computers and electronic equipment		89,058		83,236
Laboratory equipment		312,008		280,347
Leasehold improvements		41,500		28,183
		449,278		397,936
Depreciated cost	$	964,033	$	898,254
Depreciation expenses for the three months ended March 31, 2012, 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012 were $51,342, $26,924 and $511,271, respectively.

NOTE 5:- ACCRUED EXPENSES AND OTHER LIABILITIES

		March 31, 2012		December 31, 2011
Employees and payroll accruals	$	206,503	$	183,761
Accrued expenses		813,738		1,454,709
	$	1,020,241	$	1,638,470

NOTE 6:-

EMPLOYEES' STOCK OPTION PLANS

The Company accounts for stock-based compensation in accordance with ASC 718-10, "Share-Based Payment". ASC 718-10 requires companies to estimate the fair value of equity-based payment awards at the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated income statements. The Company recognizes compensation expenses for the value of awards granted based on the straight line method over the requisite service period, net of estimated forfeitures. The following table summarizes the share – based compensation expenses included in the consolidated statements of operations:

11

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 6:- EMPLOYEES' STOCK OPTION PLANS (continued)

		For the three months ended March 31,				Period from May 31, 2005 (date of inception) to March 31,
		2012		2011		2012
Research and development	$	149,092	$	150,205	$	1,779,690
General and administrative		242,583		310,195		8,612,121
Total	$	391,675	$	460,400	$	10,391,811

Stock-based compensation expenses for the period from May 31, 2005 (date of inception) through March 31, 2012 included $3,876,960 expensed in the acquisition of Prolor Biotech Ltd. and on behalf of deferred compensation on restricted shares.

The Company selected the Black-Scholes Merton option pricing model as the most appropriate fair value method for its stock-options awards. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has not paid dividends and is not expected to pay dividends in the foreseeable future.  

The fair value for options granted in the three months ended March 31, 2012 was estimated at the date of grant using the Black-Scholes Merton options pricing model with the following weighted average assumptions:

Risk-free interest rate	1.49	%
Expected life of options (in years)	6.25
Expected volatility	55.23	%
Expected dividend yield	None

12

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 6:- EMPLOYEES' STOCK OPTION PLANS (continued)

The following is a summary of the stock options granted under the Company’s 2005 Stock Incentive Plan (the “2005 Plan”) and the Company’s 2007 Equity Incentive Plan (the “2007 Plan”):
	For the three months ended
	March 31, 2012
	Number of Options			Weighted Average Exercise Price
Outstanding at the beginning of the period		5,302,905		$	2.07
Exercised		(5,533	)	$	2.21
Forfeited		-		$	-
Issued under the 2007 plan		197,000		$	6.27
Outstanding at the end of the period		5,494,372		$	2.22
Options exercisable		4,304,080		$	1.33

	March 31, 2011
	For the three months ended
	Number of Options			Weighted Average Exercise Price
Outstanding at the beginning of the period		5,134,346		$	1.11
Exercised		(50,000	)	$	2.50
Forfeited		(5,000	)	$	6.23
Issued under the 2007 plan		189,000		$	6.23
Outstanding at the end of the period		5,268,346		$	1.29
Options exercisable		3,526,118		$	1.11

13

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 6:-	EMPLOYEES' STOCK OPTION PLANS (continued)
	The options outstanding as of March 31, 2012 have been separated by exercise prices, as follows:

			Average Remaining			Intrinsic Value	Fair Value at Date of Grant
Exercise Price	# of Options Outstanding		Contractual Life (years)	# of Options Exercisable		of Options Outstanding	of Options Outstanding
$0.65		365,000	6.85		356,250	$5.25	$0.53
$0.88		896,942	4.05		896,942	$5.02	$0.59
$0.90		1,937,239	5.92		1,937,239	$5.00	$0.74
$0.93		25,000	5.93		25,000	$4.97	$0.74
$1.32		93,855	4.26		93,855	$4.58	$0.64
$1.50		121,169	6.07		115,877	$4.40	$0.58
$2.00		400,000	5.11		400,000	$3.90	$1.52
$2.50		34,167	3.50		34,167	$3.40	$0.93
$2.35		50,000	7.77		25,000	$3.55	$1.98
$2.40		500,000	7.79		250,000	$3.50	$2.00
$6.47		500,000	8.76		125,000	$0.00	$3.84
$6.23		179,000	5.85		44,750	$0.00	$3.67
$5.47		195,000	5.47		-	$0.43	$2.10
$6.27		197,000	6.27		-	$0.00	$3.34
		5,494,372			4,304,080

14

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 7:- STOCK WARRANTS

	For the three months ended
	March 31, 2012
	Number of warrants			Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		2,007,856		$	2.15
Exercised		(271,310	)	$	2.50
Exercised		(5,986	)	$	0.88
Outstanding and exercisable at the end of the period		1,730,560		$	2.10

	For the three months ended
	March 31, 2011
	Number of warrants			Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		2,300,231		$	2.04
Exercised		(46,565	)	$	2.50
Exercised		(23,299	)	$	0.88
Outstanding and exercisable at the end of the period		2,230,367		$	2.15

Proceeds from the exercise of 277,296 and 69,864 warrants into 239,069 and 55,584 shares of Common Stock for the three months ended March 31, 2012 and 2011 were $474,361 and $32,292, respectively.

Proceeds from the exercise of 1,828,364 warrants into 1,440,134 shares of Common Stock for the period from May 31, 2005 (date of inception) to March 31, 2012 were $1,577,729.

Total aggregate intrinsic value of warrants outstanding as of March 31, 2012 and 2011 was $6,569,638 and $4,249,335, respectively.

15

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 8:-	COMMITMENTS AND CONTINGENT LIABILITIES
	On March 13, 2011 Prolor Biotech Ltd. entered into a rent agreement for the lease of new office premises. Aggregate minimum rental commitments under the non-cancelable lease as of March 31, 2012, are as follows:

Year ended March 31,
2013	$	52,187
	$	52,187

NOTE 9:- COMMON STOCK

In January 2012, the Company issued:

- 4,533 shares of the Common Stock upon the exercise of 4,533 options at an exercise price of $2.50 per share.

- 158,500 shares of Common Stock upon the cash exercise of 158,500 outstanding stock warrants at a price of $2.50 per share.

- 1,072 shares of Common Stock upon the cash exercise of 1,072 outstanding stock warrants at a price of $0.88 per share.

- 3,149 shares of Common Stock upon the cashless exercise of 5,875 outstanding stock warrants at a price of $2.50 per share.

In February 2012, the Company issued:

- 1,000 shares of Common Stock upon the exercise of 1,000 options at an exercise price of $0.88 per share.

- 8,500 shares of Common Stock upon the cash exercise of 8,500 outstanding stock warrants at a price of $2.50 per share.

- 51,739 shares of Common Stock upon the cashless exercise of 86,404 outstanding stock warrants at a price of $2.50 per share.

In March 2012, the Company issued:

- 11,834 shares of Common Stock upon the cash exercise of 11,834 outstanding stock warrants at a price of $2.50 per share.

- 4,159 shares of Common Stock upon the cashless exercise of 4,914 outstanding stock warrants at a price of $0.88 per share.

- 116 shares of Common Stock upon the cashless exercise of 197 outstanding stock warrants at a price of $2.50 per share.

16

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 10 :- RESEARCH AND DEVELOPMENT EXPENSES, NET

						Period from May 31, 2005
						(date of inception)
	For the three months ended March 31,					to March 31,
	2012		2011			2012
Salaries and related amounts	$	394,924	$	428,266		$	6,437,749
Consultants		306,637		158,981			4,532,546
Stock based compensation		149,092		150,205			1,779,690
Clinical trials		2,766,853		1,483,031			17,900,833
Materials		395,921		608,357			5,003,175
Rent and maintenance		144,320		79,435			977,833
Depreciation		49,631		26,466			489,952
Other expenses		96,692		235,762			1,889,454
Research and development expenses		4,304,070		3,170,503			39,011,232
Less – Government grants and participation		-		(135,242	)		(4,964,694	)
	$	4,304,070	$	3,035,261		$	34,046,538

17

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 11:- GENERAL AND ADMINISTRATIVE EXPENSES

						Period from May 31, 2005
						(date of inception)
		For the three months ended March 31,				to March 31,
		2012		2011		2012
Salaries and related amounts	$	202,637	$	193,333	$	78,492
Stock based compensation		242,583		310,195		8,612,121
Professional services and other fees		195,702		134,876		3,905,199
Depreciation		1,711		458		21,319
Other		147,147		70,034		5,274,618
	$	789,780	$	708,896	$	17,891,749

NOTE 12:- FINANCIAL (EXPENSES) INCOME, NET

								Period from May 31, 2005
								(date of inception)
		For the three months ended March 31,						to March 31,
		2012			2011			2012
Financial income	$	15,718		$	26,095		$	1,061,470
Financial (expenses) and  bank fees		(9,662	)		(9,374	)		(179,232	)
Exchange rate differences gain (loss)		88,423			260,459			(367,502	)
	$	94,479		$	277,180		$	514,736

18

PROLOR BIOTECH, INC. AND SUBSIDIARIES

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(Unaudited)

NOTE 13:-

SUBSEQUENT EVENTS

As defined in FASB ASC 855-10, “Subsequent Events”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Subsequent to March 31, 2012 and through April 27, 2012, 616,846 new shares of Common Stock were issued in connection with the exercise of outstanding warrants and options. On April 6, 2012, the Company filed a registration statement on Form S-3 with the SEC. Under this registration statement, the Company may offer up to an aggregate of $75,000,000 of its Common Stock from time to time in one or more offerings.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), 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”), about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects. You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “likely,” “goal,” “assumes,” “targets” and similar expressions and/or the use of future tense or conditional constructions (such as “will,” “may,” “could,” “should” and the like) and by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual operations or results to differ materially from the operations and results anticipated in forward-looking statements. These factors include, but are not limited to, the factors contained in “Item 1A — Risk Factors” of our most recently filed Annual Report on Form 10-K, as amended, as updated by our subsequently filed Forms 10-Q or other documents we file with the SEC. We do not undertake any obligation to update forward-looking statements, except as required by applicable law. We intend that all forward-looking statements be subject to the safe harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto that appear in Item 1 of this Quarterly Report on Form 10-Q.

The discussion and analysis of the Company’s financial condition and results of operations are based on the Company’s financial statements, which the Company has prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, the Company evaluates such estimates and judgments, including those described in greater detail below. The Company bases its estimates on historical experience and on various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Overview

We are a development stage biopharmaceutical company utilizing patented technology to develop longer-acting, proprietary versions of already-approved therapeutic proteins that currently generate billions of dollars in annual global sales. We have obtained certain exclusive worldwide rights from Washington University in St. Louis, Missouri to use a short, naturally-occurring amino acid sequence (peptide) that has the effect of slowing the removal from the body of the therapeutic protein to which it is attached. This Carboxyl Terminal Peptide (CTP) can be readily attached to a wide array of existing therapeutic proteins, stabilizing the therapeutic protein in the bloodstream and extending its life span without additional toxicity or loss of desired biological activity. We are using the CTP technology to develop new, proprietary versions of certain existing therapeutic proteins that have longer life spans than therapeutic proteins without CTP. We believe that our products will have greatly improved therapeutic profiles and distinct market advantages.

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We also obtained certain exclusive worldwide rights from Yeda Research and Development Company Ltd. (“Yeda”) for a technology that allows elongation of circulation time in the body of therapeutic drugs. This technology is named “Reversible PEGylation”. We plan on using the Reversible PEGylation technology to develop new, proprietary versions of certain existing therapeutic drugs that have longer life spans than therapeutic proteins without Reversible PEGylation. The license to the Reversible PEGylation technology is exclusive, worldwide, and excludes development or commercialization of drug compounds in the following fields: (a) haemophilia A or B; (b)  inhibitor haemophilia; (c) haemorrhage; and/or (d) von Willebrand Disease. The license also excludes drugs containing any of the coagulation proteins known as Factors V, VII, VIIa, VIII or IX, including, in each case, any respective functional human protein molecule of any of the foregoing, including any fragment, subunit, derivative or modified form of any of the foregoing (whether recombinant or human plasma derived). Under the Reversible PEGylation license agreement, we are subject to development and commercialization milestones and timelines, obligated to pay Yeda certain annual fees, as well as up to 3.5% on net sales of products developed using the Reversible PEGylation technology.

We believe our products in development will provide several key advantages over our competitor’s existing products:

· significant reduction in the number of injections required to achieve the same or superior therapeutic effect from the same dosage;

· faster commercialization with greater chance of success and lower costs than those typically associated with a new therapeutic protein; and

· manufacturing using industry-standard biotechnology-based protein production processes.

Merck & Co. has developed the first novel protein containing CTP, named ELONVA®, a long-acting CTP-modified version of the fertility drug follicle stimulating hormone (FSH). On January 28, 2010, Merck received marketing authorization from the European Commission for ELONVA® with unified labeling valid in all European Union Member States. Our license for CTP technology extends to all human therapeutic applications other than Follicle Stimulating Hormone (FSH), human Chorionic Gonadotropin (hCG), Luteinizing Hormone (LH) and Thyroid-Stimulating Hormone (TSH).

Our internal product development program is currently focused on extending the life span of the following biopharmaceuticals, in an effort to provide patients with improved therapies that may enhance their quality of life:

· Human Growth Hormone (hGH)

· Factor IX

· Diabetes Type II & Obesity Peptide Oxyntomodulin

· Factor VIIa

· Interferon β and Erythropoietin (EPO)

· Atherosclerosis and rheumatoid arthritis long-acting therapies

We believe that the CTP technology will be broadly applicable to these as well as other best-selling therapeutic proteins in the market.

Critical Accounting Policies

The historical financial statements of the Company included with this Quarterly Report have been prepared in accordance with GAAP. The significant accounting policies followed in the preparation of the financial statements, on a consistent basis, are described below.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Financial Statements in U.S. Dollars:  The functional and reporting currency of the Company is the U.S. dollar, as the U.S. dollar is the primary currency of the economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. The majority of the operation of the Company’s R&D subsidiary, PROLOR Biotech Ltd. (formerly known as ModigeneTech Ltd., “PROLOR LTD”), are currently conducted in Israel. Most of the Israeli expenses are currently determined and paid in U.S. dollars. Financing and investing activities including loans and equity transactions are made in U.S. dollars.

Monetary accounts maintained in currencies other than the U.S. dollar are remeasured into U.S. dollars. All transaction gains and losses from the remeasurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.

21

Principles of Consolidation: The consolidated financial statements include the accounts of the Company’s wholly owned subsidiary, Modigene Delaware, and its wholly owned subsidiary, PROLOR LTD. Intercompany transactions and balances have been eliminated upon consolidation.

Research and Development Costs and Participation: Research and development (“R&D”) costs are expensed as they are incurred and consist of salaries, benefits and other personnel-related costs, fees paid to consultants, clinical trials and related clinical manufacturing costs, license and milestone fees, and facilities and overhead costs. R&D expenses consist of independent R&D costs and costs associated with collaborative R&D and in-licensing arrangements. Participation from government for development of approved projects are recognized as a reduction of expenses as the related costs are incurred.

Concentrations of Credit Risk: Financial instruments that potentially subjected the Company to concentrations of credit risk consist principally of cash and cash equivalents.

Cash and cash equivalents are invested in major banks in Israel and the United States. Such deposits in the United States are not fully insured. Management believes that the financial institutions that hold the Company’s investments are financially sound, and, accordingly, minimal credit risk exists with respect to these investments.

The Company has no off-balance sheet concentration of credit risk, such as foreign exchange contracts or other foreign hedging arrangements.

Royalty-bearing Grants: Royalty-bearing grants from the Government of Israel for participation in the development of approved projects are recognized as a reduction of expenses as the related costs are incurred. Funding is recognized at the time PROLOR LTD is entitled to such grants, on the basis of the costs incurred.

Research and development grants received by PROLOR LTD for the three months ended March 30, 2012 and 2011 and for the period from May 31, 2005 (inception date) through March 30, 2012 were $0, $135,242 and $4,964,694, respectively. . Research and development grant for the first quarter of 2012 are expected to be received during the second quarter.

Loss per Share: Basic and diluted losses per share are presented in accordance with ASC 260-10 “Earnings per share”. Outstanding share options, warrants and restricted shares have been excluded from the calculation of the diluted loss per share because all such securities are antidilutive. The total weighted average number of shares of Common Stock related to outstanding options, warrants and restricted shares excluded from the calculations of diluted loss per share for the three months ended March 31, 2012 and 2011 and the period from May 31, 2005 (date of inception) to March 31, 2012 were 7,129,749, 18,450,260 and 7,869,287, respectively. 

Results of Operation

Three Months Ended March 31, 2012 Compared to the Three Months ended March 31, 2012

Revenue

The Company has not generated any revenues from operations since its inception. To date, the Company has funded its operations primarily through grants from the Israeli Office of the Chief Scientist (the “OCS”) and the sale of equity securities. If the Company’s development efforts result in clinical success, regulatory approval and successful commercialization of the Company’s products, then the Company could generate revenues from sales of its products.

Research and Development Expenses

The Company expects its research and development expenses to increase as it continues to develop its product candidates. Research and development expenses consists of:

· internal costs associated with research and development activities;

· payments made to third party contract research organizations, contract manufacturers, investigative sites and consultants;

22

· manufacturing development costs;

· personnel-related expenses, including salaries, benefits, travel and related costs for the personnel involved in research and development;

· activities relating to the advancement of product candidates through preclinical studies and clinical trials; and

· facilities and other expenses, which include expenses for rent and maintenance of facilities, as well as laboratory and other supplies.

These costs and expenses are partially funded by grants received by the Company from the OCS. There can be no assurance that the Company will continue to receive grants from the OCS in amounts sufficient for its operations, if at all.

The Company expects its research and development expenditures to increase significantly in the near future in connection with the ongoing production of its protein drug candidates. The Company intends to continue to hire new employees, in research and development, in order to meet its operation plans.

The Company has multiple research and development projects ongoing at any one time. The Company utilizes its internal resources, employees and infrastructure across multiple projects and tracks time spent by employees on specific projects. The Company believes that significant investment in product development is a competitive necessity and plans to continue these investments in order to realize the potential of its product candidates.

For the three months ended March 31, 2012 and 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012, the Company incurred net research and development expenses of $4,304,070, $3,035,261 and $34,046,538, respectively. The increase for the three month period ended March 31, 2012 as compared to the 2011 period resulted primarily from an increase in development expenses associated with the manufacturing of high quantities of non-GMP and GMP of hGH-CTP.

The successful development of the Company’s product candidates is subject to numerous risks, uncertainties and other factors. Beyond the next twelve months, and even during the next twelve months, the Company cannot reasonably estimate the timing or costs of the efforts necessary to complete the remainder of the development of the Company’s product candidates. Additionally, the Company cannot reasonably estimate when it can expect material net cash inflows from the Company’s product candidates or any of the Company’s other development efforts, if at all. The foregoing is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of differences arising during clinical development, including:

· completion of such preclinical and clinical trials;

· receipt of necessary regulatory approvals;

· the number of clinical sites included in the trials;

· the length of time required to enroll suitable patients;

· the number of patients that ultimately participate in the trials;

· adverse medical events or side effects in treated patients;

· lack of comparability with complementary technologies;

· obtaining capital necessary to fund operations, including research and development efforts; and

· the results of clinical trials.

23

The Company’s expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expenses of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. The Company may obtain unexpected results from its clinical trials. The Company may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of the foregoing variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the United States Food and Drug Administration (“FDA”) or other regulatory authorities were to require the Company to conduct clinical trials beyond those which it currently anticipates will be required for the completion of the clinical development of a product candidate, or if the Company experiences significant delays in enrollment in any of its clinical trials, the Company could be required to expend significant additional financial resources and time on the completion of clinical development. Drug development may take several years and millions of dollars in development costs. If the Company does not obtain or maintain regulatory approval for its products, its financial condition and results of operations will be substantially harmed.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation expense for persons serving in the Company’s executive and administration functions. Other general and administrative expenses include facility-related costs not otherwise included in research and development expense and professional fees for legal and accounting services. For the three months ended March 31, 2012 and 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012, the Company incurred general and administrative expenses of $789,780, $708,896 and $17,891,749, respectively. The increase for the 2012 period as compared to the 2011 period was primarily due to an increase in professional services fees and an increase in office expenses as the Company expanded its staff.

Financial Expenses and Income

Financial expenses and income consists of the following:

· interest earned on the Company’s cash and cash equivalents;

· interest expense on short term bank credit and loans; and

· expenses or income resulting from fluctuations of the New Israeli Shekel and the Euro, in which a portion of the Company’s assets and liabilities are denominated, against the U.S. dollar.

For the three months ended March 31, 2012 and 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012, the Company incurred net financial income of $94,479, $277,180 and $514,736, respectively. The financial income for the first quarter of 2012 decreased as compared to the first quarter of 2011 primarily due to currency fluctuations on deposits in Israeli Shekels and Euro.

Stock-based Compensation

The Company records stock-based compensation expenses according to ASC 718-10, “Compensation - Stock Compensation”, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors, including employee stock options under the Company’s stock plans, based on estimated fair values.

ASC 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statement of operations. The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing model.

For the three months ended March 31, 2012 and 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012, the Company incurred stock-based compensation expenses of $391,675, $460,400 and $10,391,811, respectively.

The Company applies ASC 505 “Equity” with respect to options and warrants issued to non-employees.

24

Cash Flows

For the three months ended March 31, 2012 and 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012, net cash used in operating activities was $4,707,293, $3,272,501 and $38,628,021, respectively. The increase in cash used in operating activities for the three months ended March 31, 2012 as compared to 2011 was primarily due to increased R&D spending related to the manufacturing of the hGH-CTP product candidate.

For the three months ended March 31, 2012 and 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012, net cash (used in) provided by investing activities was ($1,790,663), $975,757 and ($4,144,898), respectively. The increase in net cash used in investing activities for the three months ended March 31, 2012 as compared to 2011 resulted primarily from an increase in short-term cash deposits in short-term interest accounts.

For the three months ended March 31, 2012 and 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012, net cash provided by financing activities was $486,573, $157,292 and $50,023,223, respectively. The increase for the three months ended March 31, 2012 as compared to 2011 resulted primarily from an increased number of warrants exercised for cash.

Liquidity and Capital Resources

The Company expects to incur losses from operations for the foreseeable future. The Company expects to incur increasing research and development expenses, including expenses related to the hiring of personnel and additional clinical trials. The Company expects that general and administrative expenses will also increase as the Company expands its finance and administrative staff, adds infrastructure, and incurs additional costs related to being a public company in the United States, including the costs of directors’ and officers’ insurance, investor relations programs, and increased professional fees. Our future capital requirements will depend on a number of factors, including the continued progress of our research and development of product candidates, the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing, and our success in developing markets for our product candidates.

At March 31, 2012, we had approximately $9.5 million of cash and cash equivalents, and we believe that our existing cash and cash equivalents and short-term investments will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least for the next twelve months. We have based this estimate on assumptions that may prove to be wrong and are subject to change, and we may be required to use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future capital requirements will depend on many factors, including the progress and results of our clinical trials, the duration and cost of discovery and preclinical development, and laboratory testing and clinical trials for our product candidates, the timing and outcome of regulatory review of our product candidates, the number and development requirements of other product candidates that we pursue, and the costs of commercialization activities, including product marketing, sales, and distribution. We do not anticipate that we will generate product revenues for at least the next several years, and we expect continuing operating losses to result in increases in our cash used in operations over the next several years. To the extent that our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We cannot assure you that we will be able to consummate any such offerings or financings or enter into any such arrangements on terms favorable to us or at all.

Effects of Inflation and Currency Fluctuation

Inflation generally affects the Company by increasing costs of labor and clinical trials. The Company does not believe that inflation has had a material effect on its results of operations for the three month periods ended March 31, 2012 and 2011.

The Company has operations in Israel and has contracts with European companies as well as Euro and Shekel bank deposits. Our foreign contracts with service providers use applicable local currencies, Euros or Shekels. As a result, we are subject to adverse movements in foreign currency exchange rates in countries in which we conduct business. Our results of operations are predominantly affected by fluctuations in the value of the U.S. dollar as compared to the New Israeli Shekel and the Euro.

We do not engage in trading of market risk sensitive instruments or purchase hedging or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, commodity price or equity price risk. We have not purchased options or entered into swaps or forward or futures contracts, nor do we use derivative financial instruments for speculative trading or any other purpose.

Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements as of March 31, 2012.

25

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

The information in Item 2 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Effects of Inflation and Currency Fluctuation” is incorporated herein by reference. Through the end of the period covered by this Quarterly Report on Form 10-Q, there have been no material changes to the information provided in Item 7A of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011.

Interest Rate Risk

We have no debt outstanding nor do we have any investments in debt instruments other than highly liquid short-term investments. Accordingly, we consider our interest rate risk exposure to be insignificant at this time.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that is designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to management in a timely manner. Our Chief Executive Officer and Chief Financial Officer evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report and, based on such evaluation, concluded that the system was operating effectively as of such date to ensure appropriate disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

26

PART IIOTHER INFORMATION

ITEM 1ARisk Factors

There have been no material changes to our risk factors since the filing of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2011.

ITEM 6. Exhibits.

31.1	Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K.
31.2	Certification of Principal Financial Officer pursuant to Item 601(b)(31) of Regulation S-K.
32.1	Certification of Chief Executive Officer pursuant to Item 601(b)(32) of Regulation S-K.
32.2	Certification of Principal Financial Officer pursuant to Item 601(b)(32) of Regulation S-K.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase
*	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

27

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.

	PROLOR BIOTECH, INC.
	/s/ Abraham Havron
Date: May 4, 2012	Abraham Havron
	Chief Executive Officer
	/s/ Steve Schaeffer
	Steve Schaeffer
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

28

EXHIBIT INDEX

31.1	Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K.
31.2	Certification of Principal Financial Officer pursuant to Item 601(b)(31) of Regulation S-K.
32.1	Certification of Chief Executive Officer pursuant to Item 601(b)(32) of Regulation S-K.
32.2	Certification of Principal Financial Officer pursuant to Item 601(b)(32) of Regulation S-K.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase
*	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

29

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Abraham Havron, certify that:

1. I have reviewed this Report on Form 10-Q of PROLOR Biotech, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and have:

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

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

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in 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

(d) 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 (or persons performing the equivalent functions):

(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: May 4, 2012	/s/ Abraham Havron
	Abraham Havron
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Steve Schaeffer, certify that:

1. I have reviewed this Report on Form 10-Q of PROLOR Biotech, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15(d)-15(f)) for the registrant and have:

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

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

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in 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

(d) 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 (or persons performing the equivalent functions):

(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: May 4, 2012	/s/ Steve Schaeffer
	Steve Schaeffer
	Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

In connection with the accompanying Quarterly Report on Form 10-Q of PROLOR Biotech, Inc. for the period ended March 31, 2012 (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PROLOR Biotech, Inc.

/s/ Abraham Havron

Abraham Havron

Chief Executive Officer

PROLOR Biotech, Inc.

May 4, 2012

The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document of PROLOR Biotech, Inc. or the certifying officers.

EX-32.2

Exhibit 32.2

CERTIFICATION

In connection with the accompanying Quarterly Report on Form 10-Q of PROLOR Biotech, Inc. for the period ended March 31, 2012 (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of PROLOR Biotech, Inc.

/s/ Steve Schaeffer

Steve Schaeffer

Principal Financial Officer

PROLOR Biotech, Inc.

May 4, 2012

The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document of PROLOR Biotech, Inc. or the certifying officers.

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ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

3 Months Ended

Mar. 31, 2012

ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

NOTE 3:- ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

	March 31,		December 31,
	2012		2011
Israeli government authorities	$	350,988	$	271,219
Prepaid expenses		30,190		58,025
Other		430		-
	$	381,608	$	329,244

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SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2012

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES
	a.	Basis of presentation:
		The accompanying unaudited financial statements of the Company are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted pursuant to such U.S. Securities and Exchange Commission (“SEC”) rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been made. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2011 and the notes thereto included in the Company’s Report on Form 10-K/A filed with the SEC on March 23, 2012.
	b.	Principles of consolidation:
		The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Modigene Inc. and Prolor Biotech Ltd.   Intercompany transactions and balances have been eliminated upon consolidation.

c.	Loss per share:
	Basic and diluted losses per share are presented in accordance with ASC No. 260 “Earnings per share”. Outstanding share options and warrants, convertible preferred stock and restricted stock have been excluded from the calculation of the diluted loss per share because all such securities are antidilutive. The number of shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”), issuable upon exercise or conversion of the foregoing securities that have been excluded from calculations for the three months ended March 31, 2012 and 2011 and the period from May 31, 2005 (date of inception) to March 31, 2012 were 7,129,749, 18,450,260 and 7,869,287, respectively.
d.	Fair value measurements:
	As defined in ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
	Level 2: Other inputs that are observable, directly or indirectly, such as quoted prices for similar assets and liabilities or market corroborated inputs. Level 3: Unobservable inputs are used when little or no market data is available, which requires the Company to develop its own assumptions about how market participants would value the assets or liabilities. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques in its assessment that maximize the use of observable inputs and minimize the use of unobservable inputs. The following table presents the Company’s financial assets and liabilities that are carried at fair value, classified according to the three categories described above:

	Fair Value Measurements at March 31, 2012
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical Assets		Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	7,250,304	$	7,250,304	$	-	$	-
Short term deposits		1,884,464		1,884,464		-		-
Restricted cash		60,538		60,538		-		-
Total assets at fair value	$	9,195,306	$	9,195,306	$	-	$	-

	Fair Value Measurements at December 31, 2011
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical Assets		Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	13,261,687	$	13,261,687	$	-	$	-
Short term deposits		139,000		139,000
Restricted cash		157,543		157,543		-		-
Total assets at fair value	$	13,558,230	$	13,558,230	$	-	$	-

e.

Recent accounting pronouncements:

In December 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  The ASU requires disclosure of both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement.  The ASU will be applied retrospectively and is effective for periods beginning on or after January 1, 2013.  The Company is currently evaluating the impact, if any, of the adoption of this ASU on its consolidated financial statements and related disclosures.

In May 2011, the FASB issued an ASU that further addresses fair value measurement accounting and related disclosure requirements.  The ASU clarifies the FASB’s intent regarding the application of existing fair value measurement and disclosure requirements, changes the fair value measurement requirements for certain financial instruments, and sets forth additional disclosure requirements for other fair value measurements.  The ASU is to be applied prospectively and is effective for periods beginning after December 15, 2011.  The Company adopted the ASU effective January 1, 2012.  The adoption of the requirements of the ASU, which expanded disclosures, had no effect on the Company’s results of operations or financial position.

There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's financial position, results of operations or cash flows. 

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CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 7,250,304	$ 13,261,687
Short term deposits	1,884,464	139,000
Accounts receivable and prepaid expenses	381,608	329,244
Restricted cash		98,685
Total Current Assets	9,516,376	13,828,616
Long-term Assets:
Property and equipment, net	964,033	898,254
Assets held for employees' severance payments	259,468	234,385
Restricted cash	60,538	58,858
Long term deposit	4,586	4,458
Total Long Term Assets	1,288,625	1,195,955
Total Assets	10,805,001	15,024,571
Current Liabilities:
Trade payables	985,605	358,803
Related parties payable	64,806	221,339
Accrued expenses and other liabilities	1,020,241	1,638,470
Total Current Liabilities	2,070,652	2,218,612
Liability in Respect of Employees Severance Payments	334,190	284,677
Commitments and Contingent Liabilities
Stock capital -
Preferred stock of $ 0.00001 par value per share 10,000,000 shares of preferred stock authorized; none issued and outstanding as of March 31, 2012 or December 31, 2011
Common shares of $ 0.00001 par value per share 300,000,000 shares of common stock authorized; 54,809,960 and 54,565,358 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively.	548	545
Additional paid-in capital	63,045,993	62,167,748
(Deficit) accumulated during the development stage	(54,646,382)	(49,647,011)
Total Shareholders' Equity	8,400,159	12,521,282
Total Liabilities and Shareholders' Equity	$ 10,805,001	$ 15,024,571

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical)	3 Months Ended		82 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012
Cashless exercise, stock warrants	97,390	56,947	1,184,172
Cashless exercise, shares of common stock	59,163	42,667	805,225

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GENERAL

3 Months Ended

Mar. 31, 2012

GENERAL

NOTE 1:-	GENERAL
	a.	Prolor Biotech, Inc. (the “Company”) was incorporated on August 22, 2003 under the laws of the State of Nevada. The Company is a development stage biopharmaceutical company, utilizing an exclusive license from Washington University to patented technology in the development of longer-acting versions of already-approved therapeutic proteins, through its Israeli subsidiary, Prolor Biotech Ltd.
	b.	The Company is devoting substantially all of its efforts toward research and development activities. The Company’s activities also include raising capital, recruiting personnel and building infrastructure. In the course of such activities, the Company has sustained operating losses and expects such losses to continue for the foreseeable future. The Company has not generated any revenues or product sales and has not achieved profitable operations or positive cash flow from operations. The Company’s deficit accumulated during the development stage aggregated $54,646,382 as of March 31, 2012. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. The Company believes that its current cash sources will enable the continuance of the Company’s activities for at least a year with no need for additional funding.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Preferred stock, par value	$ 0.00001	$ 0.00001
Preferred stock, authorized	10,000,000	10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common shares, par value	$ 0.00001	$ 0.00001
Common stock, authorized	300,000,000	300,000,000
Common shares, shares issued	54,809,960	54,565,358
Common shares, shares outstanding	54,809,960	54,565,358

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GENERAL AND ADMINISTRATIVE EXPENSES

3 Months Ended

Mar. 31, 2012

GENERAL AND ADMINISTRATIVE EXPENSES

NOTE 11:- GENERAL AND ADMINISTRATIVE EXPENSES

						Period from May 31, 2005
						(date of inception)
		For the three months ended March 31,				to March 31,
		2012		2011		2012
Salaries and related amounts	$	202,637	$	193,333	$	78,492
Stock based compensation		242,583		310,195		8,612,121
Professional services and other fees		195,702		134,876		3,905,199
Depreciation		1,711		458		21,319
Other		147,147		70,034		5,274,618
	$	789,780	$	708,896	$	17,891,749

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2012	Apr. 27, 2012
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Trading Symbol	PBTH
Entity Registrant Name	PROLOR BIOTECH, INC.
Entity Central Index Key	0001268659
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		55,418,066

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FINANCIAL (EXPENSES) INCOME, NET

3 Months Ended

Mar. 31, 2012

FINANCIAL (EXPENSES) INCOME, NET

NOTE 12:- FINANCIAL (EXPENSES) INCOME, NET

								Period from May 31, 2005
								(date of inception)
		For the three months ended March 31,						to March 31,
		2012			2011			2012
Financial income	$	15,718		$	26,095		$	1,061,470
Financial (expenses) and  bank fees		(9,662	)		(9,374	)		(179,232	)
Exchange rate differences gain (loss)		88,423			260,459			(367,502	)
	$	94,479		$	277,180		$	514,736

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		82 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012
Revenues
Operating expenses:
In-process research and development write-off			(3,222,831)
Research and development, net	(4,304,070)	(3,035,261)	(34,046,538)
General and administrative	(789,780)	(708,896)	(17,891,749)
Total operating expenses	(5,093,850)	(3,744,157)	(55,161,118)
Operating (loss)	(5,093,850)	(3,744,157)	(55,161,118)
Financial income, net	94,479	277,180	514,736
Net (loss)	$ (4,999,371)	$ (3,466,977)	$ (54,646,382)
(Loss) per share (basic & diluted)	$ (0.09)	$ (0.08)
Weighted average number of shares outstanding	54,730,050	43,359,771

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EMPLOYEES' STOCK OPTION PLANS

3 Months Ended

Mar. 31, 2012

EMPLOYEES' STOCK OPTION PLANS

NOTE 6:-

EMPLOYEES' STOCK OPTION PLANS

The Company accounts for stock-based compensation in accordance with ASC 718-10, "Share-Based Payment". ASC 718-10 requires companies to estimate the fair value of equity-based payment awards at the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated income statements. The Company recognizes compensation expenses for the value of awards granted based on the straight line method over the requisite service period, net of estimated forfeitures. The following table summarizes the share – based compensation expenses included in the consolidated statements of operations:

		For the three months ended March 31,				Period from May 31, 2005 (date of inception) to March 31,
		2012		2011		2012
Research and development	$	149,092	$	150,205	$	1,779,690
General and administrative		242,583		310,195		8,612,121
Total	$	391,675	$	460,400	$	10,391,811

Stock-based compensation expenses for the period from May 31, 2005 (date of inception) through March 31, 2012 included $3,876,960 expensed in the acquisition of Prolor Biotech Ltd. and on behalf of deferred compensation on restricted shares.

The Company selected the Black-Scholes Merton option pricing model as the most appropriate fair value method for its stock-options awards. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon actual historical stock price movements. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has not paid dividends and is not expected to pay dividends in the foreseeable future.  

The fair value for options granted in the three months ended March 31, 2012 was estimated at the date of grant using the Black-Scholes Merton options pricing model with the following weighted average assumptions:

Risk-free interest rate	1.49	%
Expected life of options (in years)	6.25
Expected volatility	55.23	%
Expected dividend yield	None

The following is a summary of the stock options granted under the Company’s 2005 Stock Incentive Plan (the “2005 Plan”) and the Company’s 2007 Equity Incentive Plan (the “2007 Plan”):
	For the three months ended
	March 31, 2012
	Number of Options			Weighted Average Exercise Price
Outstanding at the beginning of the period		5,302,905		$	2.07
Exercised		(5,533	)	$	2.21
Forfeited		-		$	-
Issued under the 2007 plan		197,000		$	6.27
Outstanding at the end of the period		5,494,372		$	2.22
Options exercisable		4,304,080		$	1.33

	March 31, 2011
	For the three months ended
	Number of Options			Weighted Average Exercise Price
Outstanding at the beginning of the period		5,134,346		$	1.11
Exercised		(50,000	)	$	2.50
Forfeited		(5,000	)	$	6.23
Issued under the 2007 plan		189,000		$	6.23
Outstanding at the end of the period		5,268,346		$	1.29
Options exercisable		3,526,118		$	1.11

The options outstanding as of March 31, 2012 have been separated by exercise prices, as follows: 

			Average Remaining			Intrinsic Value	Fair Value at Date of Grant
Exercise Price	# of Options Outstanding		Contractual Life (years)	# of Options Exercisable		of Options Outstanding	of Options Outstanding
$0.65		365,000	6.85		356,250	$5.25	$0.53
$0.88		896,942	4.05		896,942	$5.02	$0.59
$0.90		1,937,239	5.92		1,937,239	$5.00	$0.74
$0.93		25,000	5.93		25,000	$4.97	$0.74
$1.32		93,855	4.26		93,855	$4.58	$0.64
$1.50		121,169	6.07		115,877	$4.40	$0.58
$2.00		400,000	5.11		400,000	$3.90	$1.52
$2.50		34,167	3.50		34,167	$3.40	$0.93
$2.35		50,000	7.77		25,000	$3.55	$1.98
$2.40		500,000	7.79		250,000	$3.50	$2.00
$6.47		500,000	8.76		125,000	$0.00	$3.84
$6.23		179,000	5.85		44,750	$0.00	$3.67
$5.47		195,000	5.47		-	$0.43	$2.10
$6.27		197,000	6.27		-	$0.00	$3.34
		5,494,372			4,304,080

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ACCRUED EXPENSES AND OTHER LIABILITIES

3 Months Ended

Mar. 31, 2012

ACCRUED EXPENSES AND OTHER LIABILITIES

NOTE 5:- ACCRUED EXPENSES AND OTHER LIABILITIES

		March 31, 2012		December 31, 2011
Employees and payroll accruals	$	206,503	$	183,761
Accrued expenses		813,738		1,454,709
	$	1,020,241	$	1,638,470

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2012

SUBSEQUENT EVENTS

NOTE 13:-

SUBSEQUENT EVENTS

As defined in FASB ASC 855-10, “Subsequent Events”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Subsequent to March 31, 2012 and through April 27, 2012, 616,846 new shares of Common Stock were issued in connection with the exercise of outstanding warrants and options. On April 6, 2012, the Company filed a registration statement on Form S-3 with the SEC. Under this registration statement, the Company may offer up to an aggregate of $75,000,000 of its Common Stock from time to time in one or more offerings.

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COMMON STOCK

3 Months Ended

Mar. 31, 2012

COMMON STOCK

NOTE 9:- COMMON STOCK

In January 2012, the Company issued:

- 4,533 shares of the Common Stock upon the exercise of 4,533 options at an exercise price of $2.50 per share.

- 158,500 shares of Common Stock upon the cash exercise of 158,500 outstanding stock warrants at a price of $2.50 per share.

- 1,072 shares of Common Stock upon the cash exercise of 1,072 outstanding stock warrants at a price of $0.88 per share.

- 3,149 shares of Common Stock upon the cashless exercise of 5,875 outstanding stock warrants at a price of $2.50 per share.

In February 2012, the Company issued:

- 1,000 shares of Common Stock upon the exercise of 1,000 options at an exercise price of $0.88 per share.

- 8,500 shares of Common Stock upon the cash exercise of 8,500 outstanding stock warrants at a price of $2.50 per share.

- 51,739 shares of Common Stock upon the cashless exercise of 86,404 outstanding stock warrants at a price of $2.50 per share.

In March 2012, the Company issued:

- 11,834 shares of Common Stock upon the cash exercise of 11,834 outstanding stock warrants at a price of $2.50 per share.

- 4,159 shares of Common Stock upon the cashless exercise of 4,914 outstanding stock warrants at a price of $0.88 per share.

- 116 shares of Common Stock upon the cashless exercise of 197 outstanding stock warrants at a price of $2.50 per share.

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STOCK WARRANTS

3 Months Ended

Mar. 31, 2012

STOCK WARRANTS

NOTE 7:- STOCK WARRANTS

	For the three months ended
	March 31, 2012
	Number of warrants			Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		2,007,856		$	2.15
Exercised		(271,310	)	$	2.50
Exercised		(5,986	)	$	0.88
Outstanding and exercisable at the end of the period		1,730,560		$	2.10

	For the three months ended
	March 31, 2011
	Number of warrants			Weighted Average Exercise Price
Outstanding and exercisable at the beginning of the period		2,300,231		$	2.04
Exercised		(46,565	)	$	2.50
Exercised		(23,299	)	$	0.88
Outstanding and exercisable at the end of the period		2,230,367		$	2.15

Proceeds from the exercise of 277,296 and 69,864 warrants into 239,069 and 55,584 shares of Common Stock for the three months ended March 31, 2012 and 2011 were $474,361 and $32,292, respectively.

Proceeds from the exercise of 1,828,364 warrants into 1,440,134 shares of Common Stock for the period from May 31, 2005 (date of inception) to March 31, 2012 were $1,577,729.

Total aggregate intrinsic value of warrants outstanding as of March 31, 2012 and 2011 was $6,569,638 and $4,249,335, respectively.

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COMMITMENTS AND CONTINGENT LIABILITIES

3 Months Ended

Mar. 31, 2012

COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 8:-	COMMITMENTS AND CONTINGENT LIABILITIES
	On March 13, 2011 Prolor Biotech Ltd. entered into a rent agreement for the lease of new office premises. Aggregate minimum rental commitments under the non-cancelable lease as of March 31, 2012, are as follows:

Year ended March 31,
2013	$	52,187
	$	52,187

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RESEARCH AND DEVELOPMENT EXPENSES, NET

3 Months Ended

Mar. 31, 2012

RESEARCH AND DEVELOPMENT EXPENSES, NET

NOTE 10 :- RESEARCH AND DEVELOPMENT EXPENSES, NET

						Period from May 31, 2005
						(date of inception)
	For the three months ended March 31,					to March 31,
	2012		2011			2012
Salaries and related amounts	$	394,924	$	428,266		$	6,437,749
Consultants		306,637		158,981			4,532,546
Stock based compensation		149,092		150,205			1,779,690
Clinical trials		2,766,853		1,483,031			17,900,833
Materials		395,921		608,357			5,003,175
Rent and maintenance		144,320		79,435			977,833
Depreciation		49,631		26,466			489,952
Other expenses		96,692		235,762			1,889,454
Research and development expenses		4,304,070		3,170,503			39,011,232
Less – Government grants and participation		-		(135,242	)		(4,964,694	)
	$	4,304,070	$	3,035,261		$	34,046,538

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended		82 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012
Cash flows from operating activities
Net (loss)	$ (4,999,371)	$ (3,466,977)	$ (54,646,382)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation	51,342	26,924	511,271
In-process research and development write-off			3,222,831
Stock based compensation	391,675	460,400	10,391,811
(Increase) decrease in accounts receivable and prepaid expenses	(52,364)	136,716	(381,331)
Increase in accrued severance pay, net	49,513	43,691	334,190
Increase (decrease ) in trade payables	626,802	(277,174)	975,501
Increase (decrease) in related parties	(156,533)	(152,453)	64,806
Long term deposit exchange rate differences	(128)	(45)	57
Increase (decrease) in accrued expenses and other liabilities	(618,229)	(43,583)	899,225
Net cash (used in) operating activities	(4,707,293)	(3,272,501)	(38,628,021)
Cash flows from investing activities
Purchase of property and equipment	(117,121)	(57,110)	(1,460,948)
Payment for the acquisition of Prolor Biotech Ltd.			(474,837)
Assets held for employees' severance payments	(25,083)	(18,817)	(259,468)
Net cash provided by (used in) investing activities	(1,790,663)	975,757	(4,144,898)
Cash flows from financing activities
Short term bank credit			(2,841)
Proceeds from loans			(173,000)
Principal payment of loans			173,000
Proceeds from issuance of shares			47,188,418
Contributed profit from shareholder's transactions			17,012
Proceeds from exercise of options	12,212	125,000	1,242,905
Proceeds from exercise of warrants	474,361	32,292	1,577,729
Net cash provided by financing activities	486,573	157,292	50,023,223
Increase (decrease) in cash and cash equivalents	(6,011,383)	(2,139,452)	7,250,304
Cash and cash equivalents at the beginning of the period	13,261,687	24,474,458
Cash and cash equivalents at the end of the period	7,250,304	22,335,006	7,250,304
Non cash transactions:
Employee options exercised into shares			140
Issuance of common stock in reverse acquisition			73
Conversion of preferred stock to common stock			18
Cashless exercise of 97,390, 56,947 and 1,184,172 outstanding stock warrants to 59,163, 42,667 and 805,225 shares of common stock, respectively	1	1	8
Additional information:
Cash paid for income taxes
Cash paid for interest expense			353,736
Long term deposit
Cash flows from investing activities
Proceeds from (Payments) Deposits			(4,643)
Increase (decrease)restricted cash	(1,680)		13,832
Short term deposit
Cash flows from investing activities
Proceeds from (Payments) Deposits	(1,745,464)	1,119,912	(1,884,464)
Increase (decrease)restricted cash	$ 98,685	$ (68,228)	$ (74,370)

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PROPERTY AND EQUIPMENT, NET

3 Months Ended

Mar. 31, 2012

PROPERTY AND EQUIPMENT, NET

NOTE 4:- PROPERTY AND EQUIPMENT, NET

	March 31,		December 31,
	2012		2011
Cost:
Office furniture and equipment	$	39,570	$	39,570
Computers and electronic equipment		133,811		131,723
Laboratory equipment		884,805		773,174
Leasehold improvements		355,125		351,723
		1,413,311		1,296,190

Accumulated depreciation:
Office furniture and equipment		6,712		6,170
Computers and electronic equipment		89,058		83,236
Laboratory equipment		312,008		280,347
Leasehold improvements		41,500		28,183
		449,278		397,936
Depreciated cost	$	964,033	$	898,254
Depreciation expenses for the three months ended March 31, 2012, 2011 and for the period from May 31, 2005 (inception date) through March 31, 2012 were $51,342, $26,924 and $511,271, respectively.