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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q/A
 (Amendment No. 1)
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 001-33357
(Commission file number)
 
 PROTALIX BIOTHERAPEUTICS, INC.
 (Exact name of registrant as specified in its charter)
 
 Florida
    
    65-0643773(State or other jurisdiction 
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)2 Snunit Street 
Science Park 
POB 455Carmiel, Israel
    
    20100(Address of principal executive offices)
    
    (Zip Code)
 972-4-988-9488
 (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon stock, par value $0.001 per share
    
    American Stock Exchange
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



FORM 10-Q/A
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONCautionary Statement Regarding Forward-Looking Statements
    
    iiItem 1. Financial StatementsCondensed Consolidated Balance Sheets -
As of September 30, 2008 (Unaudited) and December 31, 2007
    
    
    1Condensed Consolidated Statements of Operations (Unaudited) -
For the Nine Months and the Three Months Ended September 30, 2008 and 2007; and for
the Period from December 27, 1993 through September 30, 2008
    
    
    2Condensed Consolidated Statement of Changes in Shareholders Equity -
As of September 30, 2008 (Unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited) -
For the Nine Months Ended September 30, 2008 and 2007; and for the Period from
December 27, 1993 through September 30, 2008
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    25Signatures
    
    
    26EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
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Except where the context otherwise requires, the terms we, us, our or the Company, refer to
the business of Protalix BioTherapeutics, Inc. and its consolidated subsidiaries, and Protalix or
Protalix Ltd. refers to the business of Protalix Ltd., our wholly-owned subsidiary and sole
operating unit.
 
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   
    
    the inherent risks and uncertainties in developing drug platforms and products of
the type we are developing;
    
    delays in our preparation and filing of applications for regulatory approval;
    
    delays in the approval or potential rejection of any applications we file with the
United States Food and Drug Administration, or the FDA, or other regulatory
authorities;
    
    any lack of progress of our research and development (including the results of
clinical trials we are conducting);
    
    obtaining on a timely basis sufficient patient enrollment in our clinical trials;
    
    the impact of development of competing therapies and/or technologies by other
companies;
    
    our ability to obtain additional financing required to fund our research programs;
    
    the risk that we will not be able to develop a successful sales and marketing
organization in a timely manner, if at all;
    
    our ability to establish and maintain strategic license, collaboration and
distribution arrangements and to manage our relationships with collaborators,
distributors and partners;
    
    potential product liability risks and risks of securing adequate levels of product
liability and clinical trial insurance coverage;
    
    the availability of reimbursement to patients from health care payors for any of our
drug products, if approved;
    
    the possibility of infringing a third partys patents or other intellectual property
rights;
    
    the uncertainty of obtaining patents covering our products and processes and in
successfully enforcing our intellectual property rights against third parties;
    
    the possible disruption of our operations due to terrorist activities and armed
conflict, including as a result of the disruption of the operations of regulatory
authorities, our subsidiary, our manufacturing facilities and our customers, suppliers,
distributors, collaborative partners, licensees and clinical trial sites; and
    
    other risks and uncertainties detailed in Section 1A of this Quarterly Report.
  ii




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EXPLANATORY NOTE
 Share-Based Payment
        iii




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PART I  FINANCIAL INFORMATION
  Item 1. Financial Statements
 PROTALIX BIOTHERAPEUTICS, INC.
  CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30, 2008
    
    
    December 31, 2007(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    46,045
    
    
    $
    61,813Accounts receivable
    
    
    2,913
    
    
    
    1,354Total current assets
    
    
    48,958
    
    
    
    63,167FUNDS IN RESPECT OF EMPLOYEE
RIGHTS UPON RETIREMENT
    
    
    657
    
    
    
    464PROPERTY AND EQUIPMENT, NET
    
    
    6,273
    
    
    
    4,506Total assets
    
    $
    55,888
    
    
    $
    68,137LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accruals:Trade
    
    $
    2,067
    
    
    $
    899Other
    
    
    2,332
    
    
    
    2,863Total current liabilities
    
    
    4,399
    
    
    
    3,762LIABILITY FOR EMPLOYEE RIGHTS
UPON RETIREMENT
    
    
    994
    
    
    
    690Total liabilities
    
    
    5,393
    
    
    
    4,452SHAREHOLDERS EQUITY
    
    
    50,495
    
    
    
    63,685Total liabilities and
shareholders equity
    
    $
    55,888
    
    
    $
    68,137
 The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Period fromDecember 27, 1993*Nine Months Ended September 30,
    
    
    Three Months Ended September 30,
    
    
    through2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    September 30, 2008(restated)
    
    
    
    
    
    
    (restated)
    
    
    (restated)REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    830COST OF REVENUES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206GROSS PROFIT
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    624RESEARCH AND DEVELOPMENT EXPENSES (1)
    
    $
    15,817
    
    
    $
    10,246
    
    
    $
    6,133
    
    
    $
    3,845
    
    
    
    48,119less  grants
    
    
    (3,244
    )
    
    
    (1,466
    )
    
    
    (729
    )
    
    
    (385
    )
    
    
    (9,431
    )12,573
    
    
    
    8,780
    
    
    
    5,404
    
    
    
    3,460
    
    
    
    38,688GENERAL AND ADMINISTRATIVE EXPENSES (2)
    
    
    5,306
    
    
    
    21,800
    
    
    
    1,314
    
    
    
    9,045
    
    
    
    34,902OPERATING LOSS
    
    
    17,879
    
    
    
    30,580
    
    
    
    6,718
    
    
    
    12,505
    
    
    
    72,966FINANCIAL INCOME  NET
    
    
    (2,041
    )
    
    
    (1,191
    )
    
    
    (222
    )
    
    
    (685
    )
    
    
    (4,489
    )OTHER INCOME
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )NET LOSS BEFORE CHANGE IN
ACCOUNTING PRINCIPLE
    
    
    15,838
    
    
    
    29,383
    
    
    
    6,496
    
    
    
    11,820
    
    
    
    68,471CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )NET LOSS FOR THE PERIOD
    
    $
    15,838
    
    
    $
    29,383
    
    
    $
    6,496
    
    
    $
    11,820
    
    
    $
    68,434NET LOSS PER SHARE OF COMMON STOCK  BASIC AND DILUTED:
    
    $
    0.21
    
    
    $
    0.45
    
    
    $
    0.09
    
    
    $
    0.18WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED
IN COMPUTING LOSS PER SHARE:Basic and diluted
    
    
    75,879,778
    
    
    
    65,275,435
    
    
    
    75,924,657
    
    
    
    65,674,568(1) Includes share-based compensation
    
    
    965
    
    
    
    2,688
    
    
    
    293
    
    
    
    910
    
    
    
    6,349(2) Includes share-based compensation
    
    
    1,680
    
    
    
    19,543
    
    
    
    185
    
    
    
    8,277
    
    
    
    22,680
 
 *
    
    Incorporation date. See Note 1a The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 DeficitaccumulatedConvertible
    
    
    
    
    
    
    Convertible
    
    
    
    
    
    
    Additional
    
    
    duringCommon
    
    
    Preferred
    
    
    Common
    
    
    Preferred
    
    
    
    
    
    
    paid-in
    
    
    developmentStock (2)
    
    
    Shares
    
    
    Stock
    
    
    Shares
    
    
    Warrants
    
    
    capital
    
    
    stage
    
    
    TotalNumber of shares
    
    
    AmountBalance at December 27, 1993(1)Changes during the period from December 27, 1993
through December 31, 2007 (restated):Common Stock and convertible preferred A, B and C
shares and warrants issued for cash (net of
issuance costs of $5,078)
    
    
    38,856,127
    
    
    
    398,227
    
    
    $
    39
    
    
    $
    1
    
    
    $
    1,382
    
    
    $
    73,836
    
    
    
    
    
    
    $
    75,258Exercise of options granted to employees and
non-employees
    
    
    2,780,467
    
    
    
    847
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    408
    
    
    
    
    
    
    
    411Conversion of convertible preferred shares into
common stock
    
    
    24,375,870
    
    
    
    (399,074
    )
    
    
    24
    
    
    
    (1
    )
    
    
    
    
    
    
    (23
    )Change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )
    
    $
    37Expiration of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    34Merger with a wholly owned subsidiary of the
Company (net of issuance cost of $642)
    
    
    583,280
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    241Exercise of warrants
    
    
    9,171,695
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    (1,348
    )
    
    
    15,342
    
    
    
    
    
    
    
    14,003Restricted common stock issued for future services
    
    
    8,000
    
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    11Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,394
    
    
    
    
    
    
    
    26,394Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,633
    )
    
    
    (52,633
    )Balance at December 31, 2007 (restated)
    
    
    75,775,439
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    116,205
    
    
    
    (52,596
    )
    
    
    63,685Changes during the nine month period ended
September 30, 2008(Unaudited):Restricted common stock issued for future services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,648
    
    
    
    
    
    
    
    2,648Exercise (includes Net Exercise) of options
granted to employees
    
    
    154,796
    
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,838
    )
    
    
    (15,838
    )Balance
at September 30, 2008(Unaudited)  (restated)
    
    
    75,930,235
    
    
    
    
    
    
    $
    76
    
    
    
    
    
    
    
    
    
    
    $
    118,853
    
    
    $
    (68,434
    )
    
    $
    50,495
 
 *
    
    Represents an amount less than $1.(1)
    
    Incorporation date. See Note 1a.(2)
    
    Common Stock, $0.001 par value; Authorized  as of December 31, 2007 and September 30, 2008 -
150,000,000 shares. The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Period fromDecember 27, 1993*Nine Months Ended September 30,
    
    
    through2008
    
    
    2007
    
    
    September 30, 2008(restated)
    
    
    (restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss for the period
    
    $
    (15,838
    )
    
    $
    (29,383
    )
    
    $
    (68,434
    )Adjustments required to reconcile net loss to net
cash used in operating activities:
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (37
    )Share based compensation
    
    
    2,645
    
    
    
    22,231
    
    
    
    29,029Financial income, net (principal differences
relate to currency transaction gains/losses)
    
    
    (823
    )
    
    
    (417
    )
    
    
    (1,629
    )Depreciation and impairment of fixed assets
    
    
    927
    
    
    
    530
    
    
    
    2,866Changes in accrued liability for employee rights
upon retirement
    
    
    304
    
    
    
    193
    
    
    
    994Gain on amounts funded in respect of employee
rights upon retirement
    
    
    (70
    )
    
    
    (34
    )
    
    
    (174
    )Gain on sale of fixed assets
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Changes in operating assets and liabilities:Increase in accounts receivable
    
    
    (1,243
    )
    
    
    (264
    )
    
    
    (2,388
    )Increase in accounts payable and accruals
    
    
    322
    
    
    
    153
    
    
    
    3,329Net cash used in operating activities
    
    $
    (13,776
    )
    
    $
    (6,997
    )
    
    $
    (36,450
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    $
    (2,643
    )
    
    $
    (1,072
    )
    
    $
    (8,465
    )Investment grant received in respect of fixed assets
    
    
    
    
    
    
    
    
    
    
    38Investment in restricted cash deposit
    
    
    (175
    )
    
    
    
    
    
    
    (222
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    10
    
    
    
    11Amounts funded in respect of employee rights upon
retirement
    
    
    (123
    )
    
    
    (89
    )
    
    
    (654
    )Amounts paid in respect of employee rights upon
retirement
    
    
    
    
    
    
    14
    
    
    
    171Net cash used in investing activities
    
    $
    (2,941
    )
    
    $
    (1,137
    )
    
    $
    (9,121
    )CASH FLOWS FROM FINANCING ACTIVITIES:Loan and convertible bridge loan received
    
    
    
    
    
    
    
    
    
    $
    2,145Repayment of loan
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Issuance of shares and warrants, net of issuance cost
    
    $
    (56
    )
    
    
    
    
    
    
    74,059Exercise of options and warrants
    
    
    3
    
    
    $
    12,913
    
    
    
    14,417Deferred issuance cost
    
    
    
    
    
    
    (21
    )Merger with a wholly owned subsidiary of the Company,
net of issuance cost
    
    
    
    
    
    
    (104
    )
    
    
    237Net cash (used) provided by financing activities
    
    $
    (53
    )
    
    $
    12,788
    
    
    $
    89,858EFFECT OF EXCHANGE RATE CHANGES
ON CASH
    
    $
    1,002
    
    
    $
    408
    
    
    $
    1,758NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (15,768
    )
    
    
    5,062
    
    
    
    46,045BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
    
    
    61,813
    
    
    
    15,378
    
    
    
    BALANCE OF CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    46,045
    
    
    $
    20,440
    
    
    $
    46,045
 The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Period fromDecember 27,1993*throughNine Months Ended September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008(restated)
    
    
    (restated)SUPPLEMENTARY DISCLOSURE OF
CASH FLOW INFORMATION:Cash paid during the period for interest
    
    
    
    
    
    
    
    
    
    $
    80SUPPLEMENTARY INFORMATION
ON INVESTING AND FINANCING
ACTIVITIES NOT INVOLVING CASH FLOWS:Conversion of convertible bridge loan into shares
    
    
    
    
    
    
    
    
    
    $
    1,145Purchase of property and equipment
    
    $
    717
    
    
    $
    956
    
    
    $
    717Issuance cost not yet paid and accruals  other:
    
    $
    5
    
    
    $
    5
    
    
    $
    5Issuance cost paid by a grant of options
    
    
    
    
    
    
    
    
    
    $
    21Consultants and director credit balance converted into shares
    
    
    
    
    
    
    
    
    
    $
    80Issuance cost not yet paid against deferred issuance cost
    
    
    
    
    
    $
    386
 
 *
    
    Incorporation date. See Note 1a. The accompanying notes are an integral part of the condensed consolidated financial statements.
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PROTALIX BIOTHERAPEUTICS, INC.
  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES
 a.
    
    General
 1.
    
    OperationProtalix BioTherapeutics, Inc. and its wholly-owned subsidiary, Protalix Ltd.
(collectively, the Company), are biopharmaceutical companies focused on the
development and commercialization of recombinant therapeutic proteins based on the
Companys proprietary ProCellExtm protein expression system (ProCellEx).
The Companys lead product development candidate is prGCD for the treatment of Gaucher
disease, which the Company is developing using its ProCellEx protein expression system.
The Company is currently enrolling and treating patients in a phase III clinical trial
of prGCD, and has initiated an extension study in connection with the trial for patients
that have completed the trial and chose to continue the treatment.The Company has been in the development stage since its inception. The Companys
successful completion of its development program and its transition to normal operations
is dependent upon the Companys receipt of necessary regulatory approvals from the
United States Food and Drug Administration (FDA) prior to selling its products within
the United States, and foreign regulatory approvals must be obtained to sell its
products internationally. There can be no assurance that the Companys products will
receive regulatory approvals, and a substantial amount of time may pass before the
Company achieves a level of sales adequate to support the Companys operations, if at
all. The Company will also incur substantial expenditures in connection with the
regulatory approval process and it might need to raise additional capital during the
developmental period. Obtaining marketing approval will be directly dependent on the
Companys ability to implement the necessary regulatory steps required to obtain
marketing approval in the United States and other countries and the success of the
Companys clinical trials. The Company cannot predict the outcome of these activities.2.
    
    Liquidity and Financial ResourcesThe Company currently does not have sufficient resources to complete the
commercialization of any of its proposed products. Based on its current cash resources
and commitments, the Company believes it will be able to maintain its current planned
development activities and the corresponding level of expenditures for approximately the
next 24 months, although no assurance can be given that it will not need additional cash
prior to such time. If there are unexpected increases in general and administrative
expenses, capital expenditures and research and development expenses, the Company may
need to seek additional financing during the next 24 months.
 b.
    
    General Basis of PresentationThe accompanying unaudited condensed consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles in the
United States (GAAP) for interim financial information, Statement of Financial
Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage
Enterprises, and Article 10 of Regulation S-X under the Securities Exchange Act of
1934. Accordingly, they do not include all of the information and notes required by
GAAP for complete financial statements. In the opinion of management, all adjustments
(of a normal recurring nature) considered necessary for a fair statement of the results
for
the interim periods presented have been included. Operating results for the interim
period are not necessarily indicative of the results that may be expected for the full
year. These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 financial statements in the Annual Report on Form 10-K for the year ended December 31,
2007, filed by the Company with the Securities and Exchange Commission (the
Commission). The comparative balance sheet at December 31, 2007 has been derived from
the audited financial statements at that date, but does not include all of the
information and notes required under GAAP for complete financial statements.c.
    
    Net loss per shareBasic and diluted loss per share (LPS) are computed by dividing net loss by the
weighted average number of shares of the Companys common stock, par value $.001 per
share (the Common Stock), outstanding for each period.Shares of restricted Common Stock and the shares of Common Stock underlying outstanding
options and warrants of the Company were not included in the calculation of diluted LPS
because the effect would be anti-dilutive.Diluted LPS does not include options, restricted shares of Common Stock and warrants of
the Company in the amount of 12,233,626 and 10,968,132 shares of Common Stock for the
nine months ended September 30, 2007 and 2008, respectively, and 11,887,934 and
11,101,670 shares of Common Stock for the three months ended September 30, 2007 and
2008, respectively.d.
    
    Newly issued Accounting Pronouncements
 1.
    
    In December 2007, the Financial Accounting Standards Board (the FASB)
issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141(R)). SFAS
141(R) changes the accounting for business combinations, including the measurement
of acquirer shares issued in consideration for a business combination, the
recognition of contingent consideration, the accounting for contingencies, the
recognition of capitalized in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the acquirers income
tax valuation allowance and income tax uncertainties. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. Early application is prohibited. The Company will be required
to adopt SFAS 141(R) on January 1, 2009.2.
    
    In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (SFAS
160). SFAS 160 amends ARB 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Ownership interests in subsidiaries held by parties other than the
parent company of the subsidiary are required to be presented in the consolidated
statement of financial position within equity, but separate from the parent
companys equity. SFAS 160 requires that changes in a parent companys ownership
interest while the parent company retains its controlling financial interest in its
subsidiary should be accounted for in a manner similar to the accounting treatment
of equity transactions. When a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary should be
initially measured at fair value, with any gain or loss recognized in earnings.
SFAS 160 requires consolidated net income to be reported in amounts that include the
amounts attributable to both the parent company and the noncontrolling interest. It
also requires disclosure, on the face of the consolidated income statement, of the
amounts of consolidated net income attributable to both parent companies and the
noncontrolling interests.
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 SFAS 160 is effective for fiscal years (including interim periods within those
fiscal years) beginning on or after December 15, 2008. Earlier adoption is
prohibited. SFAS 160 is required to be applied prospectively as of the beginning of
the fiscal year in which it is initially applied, except for the presentation and
disclosure requirement which shall be applied retrospectively for all periods
presented. The Company is required to adopt SFAS 160 as of January 1, 2009. The
Company is currently assessing the impact that SFAS 160 may have on its results of
operations and financial position.3.
    
    In December 2007, the FASB ratified EITF Issue No. 07-01, Accounting
for Collaborative Arrangements (EITF 07-01). EITF 07-01 defines collaborative
arrangements and establishes reporting requirements for transactions between
participants in a collaborative arrangement and between participants in the
arrangement and third parties. EITF 07-01 also establishes the appropriate income
statement presentation and classification for joint operating activities and
payments between participants, as well as the sufficiency of the disclosures
related to these arrangements. EITF 07-01 is effective for fiscal years beginning
after December 15, 2008 (January 1, 2009, for the Company). Companies are required
to apply EITF 07-01 using a modified version of retrospective transition for those
arrangements in place at the effective date. In addition, companies are required
to report the effects of the application of EITF 07-01 as a change in accounting
principle through retrospective application to all prior periods presented for all
arrangements existing as of the effective date, unless it is impracticable to apply
the effects of the change retrospectively. The Company is currently assessing the
impact that EITF 07-01 may have on its results of operations and financial
position.4.
    
    In March 2008, the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 is intended
to improve financial reporting regarding derivative instruments and hedging
activities by requiring enhanced disclosure to enable investors to better
understand the effects of such derivative instruments and hedging activities on a
companys financial position, financial performance and cash flows. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged (January 1,
2009, for the Company). SFAS 161 also improves transparency regarding the location
and amounts of derivative instruments in a companys financial statements; how
derivative instruments and related hedged items are accounted for under Statement
of Financial Accounting Standards No. 133 Accounting for Derivative Instruments
and Hedging Activities; and how derivative instruments and related hedged items
affect a companys financial position, financial performance and cash flows. The
Company is currently evaluating the effect SFAS 161 will have on its financial
statement presentations.5.
    
    In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles (SFAS 162). The statement is intended to improve
financial reporting by identifying a consistent hierarchy for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles (GAAP). SFAS 162
will go into effect 60 days following the Commissions approval of the Public
Company Accounting Oversight Board Auditing amendments to AU Section 411 The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles. The Company does not expect the adoption of SFAS 162 to have a
material impact on its results of operations and financial position.
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES (Continued):
 e.
    
    ReclassificationsCertain figures in respect of prior years have been reclassified to conform to the
current year presentation.
 NOTE 2  RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued):
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(unaudited)
 As Reported
    
    Adjustment
    
    As RestatedResearch and development Expenses, Net (1)
    
    $
    8,071
    
    
    $
    709
    
    
    $
    8,780General and Administrative Expenses (2)
    
    
    10,476
    
    
    
    11,324
    
    
    
    21,800Operating Loss
    
    
    18,547
    
    
    
    12,033
    
    
    
    30,580Net Loss for the Period
    
    
    17,350
    
    
    
    12,033
    
    
    
    29,383Net Loss Per Share of Common Stock Basic and Diluted
    
    
    0.27
    
    
    
    0.18
    
    
    
    0.45(1) Includes share-based compensation
    
    
    1,979
    
    
    
    709
    
    
    
    2,688(2) Includes share-based compensation
    
    
    8,219
    
    
    
    11,324
    
    
    
    19,543
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2007 (unaudited)
 As Reported
    
    Adjustment
    
    As RestatedResearch and development Expenses, Net (1)
    
    $
    3,445
    
    
    $
    15
    
    
    $
    3,460General and Administrative Expenses (2)
    
    
    1,986
    
    
    
    7,059
    
    
    
    9,045Operating Loss
    
    
    5,431
    
    
    
    7,074
    
    
    
    12,505Net Loss for the Period
    
    
    4,746
    
    
    
    7,074
    
    
    
    11,820Net Loss Per Share of Common Stock Basic and Diluted
    
    
    0.07
    
    
    
    0.11
    
    
    
    0.18(1) Includes share-based compensation
    
    
    895
    
    
    
    15
    
    
    
    910(2) Includes share-based compensation
    
    
    1,218
    
    
    
    7,059
    
    
    
    8,277
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (Continued):
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(unaudited)
 As Reported
    
    Adjustment
    
    As RestatedNet loss for the period
    
    $
    (17,350
    )
    
    $
    (12,033
    )
    
    $
    (29,383
    )Adjustments required to
reconcile net loss to net
cash used in operating
activities:Share based compensation
    
    
    10,198
    
    
    
    12,033
    
    
    
    22,231
  NOTE 3  STOCK TRANSACTIONS
 a.
    
    During the nine months ended September 30, 2008, the Company issued 154,796
shares of Common Stock in connection with the exercise of 189,460 options by certain
officers and employees of the Company. The Company received cash proceeds equal to $3
in connection with such exercises as 167,440 of such options were exercised on a
net-exercise basis.b.
    
    On February 7, 2008, the Companys board of directors approved the grant of
options to purchase 50,000 shares of Common Stock to a newly appointed member of the
Companys board of directors, at an exercise price of $3.02 per share. The options
vest over a four-year period and are exercisable for a 10-year period commencing on the
date of grant. The Company estimated the fair value of the options on the date of the
grant using the Black-Scholes option-pricing model to be approximately $109, based on
the following assumptions: dividend yield of 0% for all years; expected volatility of
62.5%; risk-free interest rates of 2.9%; and expected life of 10 years.c.
    
    On February 7, 2008, the Companys board of directors approved the grant of
options to purchase 1,900,000 shares of Common Stock, in the aggregate, to certain
officers and employees of the Company, at an exercise price of $5.00 per share. The
options vest variably over periods of up to five years and are exercisable for a
10-year period commencing on the date of grant. The Company estimated the fair value
of the options on the date of the grant using the Black-Scholes option-pricing model to
be approximately $2,766, based on the following assumptions: dividend yield of 0% for
all years; expected volatility of 62.5%; risk-free interest rates of 2.9%; and expected
life of six years.d.
    
    In February 2008, the Company amended the stock option agreements of certain
executive officers. As amended, such stock option agreements provide for the full
acceleration of the vesting period of unvested options held by such officers
immediately upon a change of control. The Company concluded that the amendments do not
result in a modification accounting charge against share-based compensation.
 NOTE 4  COMMITMENTS
 a.
    
    In January 2008, the Company entered into a lease agreement for the expansion
of its current facility. The term of the lease is 7.5 years, commencing upon the date
the newly-leased space is ready for occupancy by the Company, with three options for
additional five-year periods, for a total of 15 additional years. The monthly rental
payment is approximately $25 and is subject to increase based on certain improvements
to be performed by the lessor.
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PROTALIX BIOTHERAPEUTICS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4  COMMITMENTS (Continued):
 b.
    
    During the nine months ended September 30, 2008, the Company entered into
contracts with certain third parties in connection with certain clinical services. The
aggregate fees payable by the Company during the life of the agreements are equal to
approximately $1.64 million.
 NOTE 5  FAIR VALUE
      NOTE 6  SUBSEQUENT EVENTS
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 You should read the following discussion and analysis of our financial condition and results
of operations together with our condensed financial statements and the consolidated financial
statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our
Annual Report on Form 10-K for the year ended December 31, 2007. Some of the information contained
in this discussion and analysis, particularly with respect to our plans and strategy for our
business and related financing, includes forward-looking statements that involve risks and
uncertainties. You should read Risk Factors in this Quarterly Report on Form 10-Q and in our
Annual Report on Form 10-K for the year ended December 31, 2007 for a discussion of important
factors that could cause actual results to differ materially from the results described in or
implied by the forward-looking statements contained in the following discussion and analysis.
 Restatement
 Share-Based Payment
    13




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Overview
 tm
    14




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Critical Accounting Policies
  Results of Operations
 Three months ended September 30, 2008 compared to the three months ended September 30, 2007
 Research and Development Expenses
   General and Administrative Expenses
  Financial Expenses and Income
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Nine months ended September 30, 2008 compared to the nine months ended September 30, 2007
 Research and Development Expenses
   General and Administrative Expenses
  Financial Expenses and Income
  Liquidity and Capital Resources
 Sources of Liquidity
  Cash Flows
  16




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Future Funding Requirements
     Effects of Inflation and Currency Fluctuations
   17




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Off-Balance Sheet Arrangements
  Recently Issued Accounting Pronouncements
      18




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Currency Exchange Risk
   Nine months ended
    
    Year endedSeptember 30,
    
    December 31,2008
    
    2007
    
    2007Average rate for period
    
    
    3.5130
    
    
    
    4.1628
    
    
    
    4.1081Rate at period end
    
    
    3.4210
    
    
    
    4.0130
    
    
    
    3.8460
  Interest Rate Risk
  19




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Inherent Limitations on Effectiveness of Controls
  20




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Changes in internal controls
  Management Consideration of Restatement
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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  We currently have no product revenues and will need to raise additional capital to operate our
business, which may not be available on favorable terms, or at all, and which will have a dilutive
effect on our shareholders.
  Clinical trials are very expensive, time-consuming and difficult to design and implement and may
result in unforeseen costs which may have a material adverse effect on our business and results of
operations.
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
    
    unforeseen safety issues;
    
    determination of dosing issues;
    
    lack of effectiveness during clinical trials;
    
    slower than expected rates of patient recruitment;
    
    inability to monitor patients adequately during or after treatment;
    
    inability or unwillingness of medical investigators and institutional review boards to
follow our clinical protocols; and
    
    lack of sufficient funding to finance the clinical trials.
  Trading of our common stock is limited.
     Future sales of our common stock could reduce our stock price.
  23




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Unregistered Sales of Equity Securities
  Use of Proceeds
     Item 3. Defaults Upon Senior Securities
   Item 4. Submission of Matters to a Vote of Security Holders
   Item 5. Other Information
  24




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Item 6. Exhibits
 ExhibitNumber
    
    Exhibit Description
    
    Method of Filing3.1
    
    Amended and Restated Articles
of Incorporation of the
Company
    
    Incorporated by
reference to the
Companys Registration
Statement on Form S-4
filed on March 26,
1998, SEC File No.
333-486773.2
    
    Article of Amendment to
Articles of Incorporation
dated June 9, 2006
    
    Incorporated by
reference to the
Companys Registration
Statement on Form 8-A
filed on March 9,
2007, SEC File No.
001-333573.3
    
    Article of Amendment to
Articles of Incorporation
dated December 13, 2006
    
    Incorporated by
reference to the
Companys Registration
Statement on Form 8-A
filed on March 9,
2007, SEC File No.
001-333573.4
    
    Article of Amendment to
Articles of Incorporation
dated December 26, 2006
    
    Incorporated by
reference to the
Companys Registration
Statement on Form 8-A
filed on March 9,
2007, SEC File No.
001-333573.5
    
    Article of Amendment to
Articles of Incorporation
dated February 26, 2007
    
    Incorporated by
reference to the
Companys Registration
Statement on Form 8-A
filed on March 9,
2007, SEC File No.
001-333573.6
    
    Amended and Restated By-Laws
    
    Incorporated by
reference to the
Companys Quarterly
Report on Form 10-Q
filed on August 8,
2008, SEC File No.
001-3335731.1
    
    Certification of Chief
Executive Officer pursuant to
Rule 13a-14(a) as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith31.2
    
    Certification of Chief
Financial Officer pursuant to
Rule 13a-14(a) as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Filed herewith32.1
    
    18 U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002, Certification of
Chief Executive Officer
    
    Filed herewith32.2
    
    18 U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002, Certification of
Chief Financial Officer
    
    Filed herewith
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SIGNATURES
  PROTALIX BIOTHERAPEUTICS, INC.(Registrant)Date: March 6, 2009
    
    By:
    
    /s/ David AviezerDavid Aviezer, Ph.D.President and Chief Executive Officer(Principal Executive Officer)Date: March 6, 2009
    
    By:
    
    /s/ Yossi MaimonYossi MaimonChief Financial Officer, Treasurer and Secretary(Principal Financial and Accounting Officer)
 26