UNITED
STATES
 SECURITIES AND EXCHANGE
COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 xQUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the
quarterly period ended June 30, 2009
  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 jurisdictionof incorporation or
      organization)
              (I.R.S.
      Employer IdentificationNo.)3
      Sapir Street, WeizmannScience ParkNes-Ziona,
      Israel
              74140(Address
      of principal executiveoffices)
              (Zip
      Code)
  (866)
644-7811
 (Registrant’s
telephone number, including area code)
  ______________________________
 (Former
name, former address and former fiscal year, if changed since last
report)
   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  ̈  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
                       ̈Non-accelerated filer
                       ̈  (Do not check if a smaller reporting company)
                      
                      Smaller reporting company
                      x
 
 Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No x
 
 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 August 12, 2009 there were 35,549,017shares
of common stock, par value $0.00001 per share (the “Common Stock”),
outstanding.
  
 
 PROLOR
BIOTECH, INC.
 INDEX TO
FORM 10-Q FILING
 FOR THE
QUARTER ENDED JUNE 30, 2009
 
 Table of
Contents
 
 PagePart IItem
      1.
                                      Financial
      Statements
                                      3Item
      2.
                                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                      11Item
      3.
                                      Quantitative
      and Qualitative Disclosures About Market Risk
                                      18Item
      4T.
                                      Controls
      and Procedures
                                      18Part IIItem
      1.
                                      Legal
      Proceedings
                                      19Item
      1A.
                                      Risk
      Factors
                                      19Item
      2.
                                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                                      19Item
      3.
                                      Defaults
      upon Senior Securities
                                      19Item
      4.
                                      Submission
      of Matter to a Vote of Security Holders
                                      19Item
      5.
                                      Other
      Information
                                      20Item
      6.
                                      Exhibits
                                      20Signatures
                                      21Certifications
  Page
2
  PART
I – FINANCIAL INFORMATION
 
 ITEM
      1.
              Financial
      Statements.
 
 PROLOR
BIOTECH, INC. AND SUBSIDIARY
 (A
development stage company)
 
 CONSOLIDATED
BALANCE SHEETS
 
 June 30,
                    2009
                  
                  
                  December 31,
                    2008(Unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                  
                  $
                  3,752,648
                  
                  
                  $
                  7,465,232Accounts
      receivable and prepaid expenses
                  
                  
                  1,091,926
                  
                  
                  
                  412,515Restricted
      cash
                  
                  
                  88,359
                  
                  
                  
                  91,078Total
      Current Assets
                  
                  
                  4,932,933
                  
                  
                  
                  7,968,825Property
      and Equipment, net
                  
                  
                  305,241
                  
                  
                  
                  310,173Long-term
      Assets:Severance
      pay fund
                  
                  
                  93,282
                  
                  
                  
                  73,775Long
      term deposit
                  
                  
                  1,837
                  
                  
                  
                  1,894Total
      Long Term Assets
                  
                  
                  95,119
                  
                  
                  
                  75,669Total
      Assets
                  
                  $
                  5,333,293
                  
                  
                  $
                  8,354,667LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Short-term
      bank credit
                  
                  $
                  
                  
                  
                  $Trade
      payables
                  
                  
                  312,454
                  
                  
                  
                  156,039Related
      party  payables
                  
                  
                  47,001
                  
                  
                  
                  51,374Accrued
      expenses and other liabilities
                  
                  
                  516,308
                  
                  
                  
                  188,660Total
      Current Liabilities
                  
                  
                  875,763
                  
                  
                  
                  396,073Accrued
      Severance Pay
                  
                  
                  108,050
                  
                  
                  
                  90,732Commitments
      and Contingent LiabilitiesShareholders’
      Equity:Stock
      capital -Preferred
      stock of $ 0.00001 par value –
                    10,000,000
      shares of preferred stock authorized,800,000 issued and
      outstanding
                  
                  
                  8
                  
                  
                  
                  8Common
      stock of $ 0.00001 par value –
                    300,000,000
      shares of common stock authorized
                    35,549,028
      shares issued and outstanding as of June 30, 2009 and December 31,
      2008
                  
                  
                  355
                  
                  
                  
                  355Additional
      paid-in capital
                  
                  
                  27,824,317
                  
                  
                  
                  27,407,606(Deficit)
      accumulated during the development stage
                  
                  
                  (23,475,200
                  )
                  
                  
                  ((19,540,107Total
      Shareholders’ Equity
                  
                  
                  4,349,480
                  
                  
                  
                  7,867,862Total
      Liabilities and Shareholders’ Equity
                  
                  $
                  5,333,293
                  
                  
                  $
                  8,354,667
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  Page
3
  PROLOR
BIOTECH, INC. AND SUBSIDIARY
 (A
development stage company)
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 
 For the six months ended
                      June 30
                    
                    
                    For the three months ended
                      June 30,
                    
                    
                    Period from May
                      31, 2005
                      (date of inception)
                      to June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009Revenues
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Operating
      expenses:In-process
      research and development write-off
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,222,831Research
      and development,
      net
                    
                    
                    2,890,403
                    
                    
                    
                    2,095,957
                    
                    
                    
                    304,701
                    
                    
                    
                    1,355,447
                    
                    
                    
                    10,435,838General
      and administrative
                    
                    
                    973,042
                    
                    
                    
                    1,221,431
                    
                    
                    
                    494,308
                    
                    
                    
                    612,628
                    
                    
                    
                    10,290,616Total
      operating expenses
                    
                    
                    3,863,445
                    
                    
                    
                    3,317,388
                    
                    
                    
                    799,009
                    
                    
                    
                    1,968,075
                    
                    
                    
                    23,949,285Operating
      (loss)
                    
                    
                    (3,863,445
                    )
                    
                    
                    (3,317,388
                    )
                    
                    
                    (799,009
                    )
                    
                    
                    (1,968,075
                    )
                    
                    
                    (23,949,285
                    )Financial
      income
                    
                    
                    34,194
                    
                    
                    
                    356,274
                    
                    
                    
                    4,003
                    
                    
                    
                    120,614
                    
                    
                    
                    875,881Financial
      (expenses)
                    
                    
                    (105,842
                    )
                    
                    
                    (790
                    )
                    
                    
                    (21,209
                    )
                    
                    
                    (212
                    )
                    
                    
                    (401,796
                    )Net
      (loss)
                    
                    $
                    (3,935,093
                    )
                    
                    $
                    (2,961,904
                    )
                    
                    $
                    (816,215
                    )
                    
                    $
                    (1,847,673
                    )
                    
                    $
                    (23,475,200
                    )(Loss)
      per share (basic & diluted)
                    
                    $
                    (0.11
                    )
                    
                    $
                    (0.08
                    )
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.05
                    )
                    
                    $
                    (0.94
                    )Weighted
      average number of shares outstanding
                    
                    
                    35,549,028
                    
                    
                    
                    35,511,107
                    
                    
                    
                    35,549,028
                    
                    
                    
                    35,549,028
                    
                    
                    
                    25,080,177
 
 The
accompanying notes are an integral part of the consolidated financial
statements.
  Page
4
  PROLOR
BIOTECH, INC. AND SUBSIDIARY
 (A
development stage company)
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 For the six months ended
                          June 30,
                        
                        
                        Period from
                          May 31, 2005
                          (date of inception)
                          to June 30,2009
                        
                        
                        2008
                        
                        
                        2009Cash flows from operating
      activitiesNet
      (loss)
                        
                        $
                        (3,935,093
                        )
                        
                        $
                        (2,961,904
                        )
                        
                        $
                        (23,475,200
                        )Adjustments
      to reconcile net (loss) to net cash (used  in) operating
      activities:Depreciation
                        
                        
                        38,165
                        
                        
                        
                        26,537
                        
                        
                        
                        158,598In-process
      research and development write-off
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,222,831Stock
      based compensation
                        
                        
                        416,711
                        
                        
                        
                        548,764
                        
                        
                        
                        6,884,155Increase
      in accrued severance pay, net
                        
                        
                        (2,189
                        )
                        
                        
                        (1,465
                        )
                        
                        
                        14,768Decrease
      (increase) in accounts receivable and prepaid expenses
                        
                        
                        (679,411
                        )
                        
                        
                        361,420
                        
                        
                        
                        (1,091,649
                        )Increase
      in trade payables
                        
                        
                        156,415
                        
                        
                        
                        254,164
                        
                        
                        
                        302,350Increase
      (decrease) in related party payables
                        
                        
                        (4,373
                        )
                        
                        
                        20,466
                        
                        
                        
                        47,001Increase
      (decrease) in accrued expenses and other liabilities
                        
                        
                        327,648
                        
                        
                        
                        (67,461
                        )
                        
                        
                        395,292Net
      cash (used in) operating activities
                        
                        
                        (3,682,127
                        )
                        
                        
                        ( 1,819,479
                        )
                        
                        
                        (13,541,854
                        )Cash flows from investing
      activitiesPurchase
      of property and equipment
                        
                        
                        (33,233
                        )
                        
                        
                        ( 156,746
                        )
                        
                        
                        (449,483
                        )Payment
      for the acquisition of ModigeneTech
      Ltd.
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (474,837
                        )Long
      term deposit
                        
                        
                        57
                        
                        
                        
                        -
                        
                        
                        
                        (1,837
                        )Restricted
      cash
                        
                        
                        2,719
                        
                        
                        
                        ( 39,818
                        )
                        
                        
                        (88,359
                        )Net
      cash (used in) investing activities
                        
                        
                        (30,457
                        )
                        
                        
                        ( 196,564
                        )
                        
                        
                        (1,014,516
                        )Cash flows from financing
      activitiesShort
      term bank credit
                        
                        
                        -
                        
                        
                        
                        ( 1,866
                        )
                        
                        
                        (2,841
                        )Proceeds
      from loans
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (173,000
                        )Principal
      payment of loans
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        173,000Proceeds
      from issuance of shares
                        
                        
                        -
                        
                        
                        
                        2,000,000
                        
                        
                        
                        18,311,859Net
      cash provided by financing activities
                        
                        
                        -
                        
                        
                        
                        1,998,114
                        
                        
                        
                        18,309,018(Decrease)
      increase in cash and cash equivalents
                        
                        
                        (3,712,584
                        )
                        
                        
                        ( 17,929
                        )
                        
                        
                        3,752,648Cash
      and cash equivalents at the beginning of the period
                        
                        
                        7,465,232
                        
                        
                        
                        11,455,807
                        
                        
                        
                        -Cash
      and cash equivalents at the end of the period
                        
                        $
                        3,752,648
                        
                        
                        $
                        11,437,878
                        
                        
                        $
                        3,752,648Non
      cash transactions:Employee
      options exercised into shares
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        140Issuance
      of common stock in reverse acquisition
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        73Additional
      information:Cash
      paid for income taxes
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        -Cash
      paid for interest expense
                        
                        
                        46
                        
                        
                        
                        578
                        
                        
                        $
                        296,015
 
 The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
  Page
5
  PROLOR
BIOTECH, INC. AND SUBSIDIARY
 (A
development stage company)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 
 (Unaudited)
  NOTE
      1:-
              GENERAL
 
 PROLOR
Biotech Inc. (“the Company”) was formed on August 22, 2003 under the laws of the
state of Nevada.  The Company is engaged in the development of
therapeutic proteins with extended half-lifes, through its subsidiaries,
Modigene Inc., a Delaware corporation (“Modigene Delaware”), and ModigeneTech
Ltd., an Israeli based subsidiary (“ModigeneTech”).
 On June
12, 2009 the Company changed its name from Modigene Inc. to PROLOR Biotech
Inc.
 
 The
Company is devoting substantially all of its efforts toward conducting 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 $23,475,200 through June 30, 2009. 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 of
additional financing.
 On July
23, 2009, the Company closed on an issuance of preferred shares for a total
consideration of $2 million. See note 6b.
 
 NOTE
      2:-
              SIGNIFICANT
      ACCOUNTING POLICIES
 
 a.
              Basis
      of presentation:
 The
accompanying unaudited financial statements of the Company are presented in
accordance with the requirements for 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 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
December 31, 2008 financial statements and the notes thereto included in the
Company’s Report on Form 10-K filed March 16, 2009.
  Page
6
  PROLOR
BIOTECH, INC. AND SUBSIDIARY
 (A
development stage company)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 
 (Unaudited)
 
 NOTE
      2:-
              SIGNIFICANT
      ACCOUNTING POLICIES (continued)
 
 b.
              Principles
      of consolidation:
 The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries Modigene Delaware Inc. and ModigeneTech. Intercompany
transactions and balances have been eliminated upon consolidation.
 
 c.
              Loss
      per share:
 Basic
and diluted losses per
share are presented in accordance with FASB issued SFAS no. 128 “Earnings per
share” (“SFAS 128”).
 Outstanding
share options and warrants have been excluded from the calculation of the
diluted loss per share because all such securities are antidilutive. Securities
excluded from the calculation for the three months periods ended June 30, 2009
and 2008, were 9,164,362 and 7,923,881, respectively. Securities excluded from
the calculation for the six months ended June 30, 2009 and 2008, were 9,092,037
and 7,297,555, respectively. Securities excluded from the calculation for the
period from May 31, 2005 (date of inception) to June 30, 2009, were
4,949,437.
  NOTE
      3:-
              EMPLOYEES’
      STOCK OPTION PLANS
  The
Company has issued stock options to purchase shares of common stock under its
2005 Stock Incentive Plan (the “2005 Plan”) and 2007 Equity Incentive Plan (the
“2007 Plan”). The Company accounts for stock based compensation using the fair
value recognition provisions of SFAS No. 123R (revised 2004), “Share Based
Payment.” The fair value of each stock option is estimated based upon grant date
fair value using the Black-Scholes option-pricing model.
 The
following weighted average assumptions were used for the options granted during
the year 2009: (i) annual dividends of $0.00, (ii) expected volatility of
116.72%, (iii) risk-free
interest rate of 0.51%, and (iv) expected average option lives of 5
years.
 On
May 22, 2009, the Company approved an amendment to the 2007 Equity
Incentive Plan, which increased the number of shares authorized for issuance
under the 2007 Plan from 3,000,000 shares to 6,000,000 shares. The Amendment
became effective on May 28, 2009.
  Page
7
 
 PROLOR
BIOTECH, INC. AND SUBSIDIARY
 (A
development stage company)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 
 (Unaudited)
 
 NOTE
      3:-
              EMPLOYEES’
      STOCK OPTION PLANS (continued)
  The
following is a summary of the stock options granted under the 2005 and 2007
Plans:
 
 June 30, 2009Number
                        of Options
                      
                      
                      Weighted
                        Average
                        Exercise PriceOutstanding
      at the beginning of the period
                      
                      
                      4,432,292
                      
                      
                      $
                      1.14Issued
      under the 2005 Plan
                      
                      
                      175,500
                      
                      
                      $
                      0.65Issued
      under the 2007 Plan
                      
                      
                      200,000
                      
                      
                      $
                      0.65Forfeited
                      
                      
                      ( 2,353
                      )
                      
                      $
                      1.49Outstanding
      at the end of the period
                      
                      
                      4,805,439
                      
                      
                      $
                      1.10Options
      exercisable
                      
                      
                      2,721,397
                      
                      
                      $
                      1.19
 
 The
options outstanding as of June 30, 2009, have been separated into exercise
prices, as follows:
  Options
                      
                      
                      Remaining Weighted
                        average
                      
                      
                      OptionsExercise Price
                      
                      
                      Outstanding
                      
                      
                      contractual life (years)
                      
                      
                      Exercisable$
                      0.65
                      
                      
                      
                      375,500
                      
                      
                      
                      9.60
                      
                      
                      
                      0$
                      0.879
                      
                      
                      
                      1,265,474
                      
                      
                      
                      6.73
                      
                      
                      
                      1,265,474$
                      0.90
                      
                      
                      
                      1,950,000
                      
                      
                      
                      8.67
                      
                      
                      
                      487,500$
                      0.93
                      
                      
                      
                      25,000
                      
                      
                      
                      8.68
                      
                      
                      
                      8,333$
                      1.32
                      
                      
                      
                      435,146
                      
                      
                      
                      3.67
                      
                      
                      
                      435,146$
                      1.50
                      
                      
                      
                      130,500
                      
                      
                      
                      8.82
                      
                      
                      
                      40,958$
                      2.00
                      
                      
                      
                      475,000
                      
                      
                      
                      7.86
                      
                      
                      
                      341,667$
                      2.50
                      
                      
                      
                      148,819
                      
                      
                      
                      3.76
                      
                      
                      
                      142,3194,805,439
                      
                      
                      
                      7.55
                      
                      
                      
                      2,721,397
  Weighted
average fair value at grant date of options outstanding as of June 30, 2009
$0.71.
 Stock
based compensation expense for the three months ended June 30, 2009 and 2008,
were $180,032 and $312,595 respectively. Stock based compensation expenses for
the six months ended June 30, 2009 and 2008 were $416,711 and $548,757
respectively. Stock based compensation expenses for the period from May 31, 2005
(date of inception) through June 30, 2009 were $6,884,155, of which $3,876,960
were expensed in acquisition of a subsidiary and on behalf of deferred
compensation on restricted shares.
  Page
8
 
 PROLOR
BIOTECH, INC. AND SUBSIDIARY
 (A
development stage company)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 
 (Unaudited)
 
 NOTE
      4:-
              RECENT ACCOUNTING
      PRONOUNCEMENTS
  The FASB issuedSFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, on
June 29, 2009 and, in doing so, authorized the Codification as the sole source
for authoritative U.S. GAAP. The objective of this Statement is to replaceSFAS 162and to establish the FASB Accounting
Standards Codification (Codification) as the source of authoritative U.S.
generally accepted accounting principles (U.S. GAAP) recognized by the FASB to
be applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative U.S. GAAP for SEC registrants. On the
effective date of this Statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All accounting
literature not included in the Codification will become nonauthoritative. This
Statement is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  The Company is currently
evaluating the impact of SFAS 168, but does not expect the adoption of the
pronouncement will have a material impact on its financial position, results of
operation, or cash flows.
  NOTE
      5:-
              LINE
      OF CREDIT
  On March
25, 2008, the Company entered into a Credit Agreement with a group of investors.
Under this line of credit, the Company may, at its discretion, borrow up to
$10,000,000, which proceeds may be used for working capital or general corporate
purposes of the Company, as approved by Company’s board of directors (the
“Board”). The maturity date for the line of credit was March 25, 2009, unless
(i) the Company has borrowed any funds under the line of credit prior to March
25, 2009, or (ii) the Company elects to extend the line of credit. In either of
such events the maturity date will be extended until March 25, 2013. In March
2009, the lending investors agreed to grant the Company until April 30, 2009 to
elect whether to extend the line of credit. On April 23, 2009, the Company
entered into a second letter agreement, pursuant to which investors agreed to
grant the Company until May 29, 2009 to elect whether to extend the line of
credit. Upon the maturity date, as the same may be extended, the Company would
become obligated to repay any outstanding borrowings, together with any accrued
interest, and the line of credit would terminate. Interest on any outstanding
borrowings under the line of credit would accrue at a 10% annual rate. In the
event the Company determined to draw on the line of credit, or the Company
elected to extend the maturity date until March 25, 2013, the Company would be
obligated to issue the investors five-year warrants to purchase an aggregate of
1,500,000 shares of the Company’s unregistered common stock, having an exercise
price of $0.99 per share.
  Page
9
  PROLOR
BIOTECH, INC. AND SUBSIDIARY
 (A
development stage company)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 
 (Unaudited)
 
 NOTE
      6:-
              SUBSEQUENT
      EVENTS
 
 a.
              Termination
      of Line of Credit:
 On July
22, 2009 the parties to the credit agreement discussed in Note 5 above entered a
Termination of Credit Agreement and Cancellation and Termination of Note and
Security Agreement, under which the agreement terminated and thereafter was of
no further force or effect.
 
 b.
              Preferred
      Securities Purchase Agreement
 On July
22, 2009, the Company entered into a securities purchase agreement (the
“Purchase Agreement”) with certain private investors (the “Investors”), pursuant
to which the Investors agreed to purchase an aggregate of up to 5,000,000 shares
of the Company’s newly-designated 10.0% Series B Cumulative Convertible
Preferred Stock, par value $0.00001 per share (“Series B Preferred Stock”), at a
purchase price of $2.00 per share. On July 23, 2009, the Company closed on the
issuance of 1,000,000 shares for aggregate consideration of $2.0 million. Under
the Purchase Agreement, the Company may elect, in its sole discretion, to close
on the sale and issuance of up to an additional $8 million of Series B Preferred
Stock, at a purchase price of $2.00 per share, on any date on or prior to March
25, 2013, subject to providing the Investors thirty days prior written notice of
such closing date. The Company must issue a minimum of $2 million of Series B
Preferred Stock in any such future closing; however, the Company is not
obligated to effect any such future closings.
  Page
10
  ITEM
      2.
              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.
  Note Regarding Forward-Looking
Statements
  Our disclosure and
analysis in this Quarterly Report on Form 10-Qcontains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. 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). In the normal course of
business, PROLOR Biotech, Inc. (“Prolor” or the “Company”), in an effort to help
keep its stockholders and the public informed about the Company, may, from time
to time, issue such forward-looking statements, either orally or in writing.
Generally, these statements relate to business plans, strategies or
opportunities, and/or projected or anticipated benefits or other consequences of
such plans, strategies, or opportunities, including anticipated revenues or
earnings. Prolor bases the forward-looking statements on its current
expectations, estimates and projections. Prolor cautions you that these
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that Prolor cannot predict. In addition, Prolor
has based many of these forward-looking statements on assumptions about future
events that may prove to be inaccurate. Therefore, the actual results of future
events described in such forward-looking statements in this Management’s
Discussion and Analysis, or elsewhere, could differ materially from those stated
in such forward-looking statements.
  Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
 
 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.
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.
 
 Historical
Note
 
 On May 9, 2007, Modigene Inc., a
Delaware corporation (“Modigene Delaware”), Modigene Acquisition Corp., a
wholly-owned subsidiary of the Company (the “Acquisition Subsidiary”) and the
Company entered into an Agreement and Plan of Merger and Reorganization (the
“Merger Agreement”). Pursuant to the Merger Agreement, the Acquisition
Subsidiary merged (the “Merger”) with and into Modigene Delaware, with Modigene
Delaware remaining as the surviving entity and a wholly-owned subsidiary of the
Company. The Company acquired the business of Modigene Delaware pursuant to the
Merger and continued the existing business operations of Modigene Delaware as a
publicly-traded company under the name Modigene Inc. In the Merger, the
stockholders of Modigene Delaware received Common Stock of the Company in
exchange for their shares of common stock of Modigene Delaware. Pursuant to the
Merger Agreement the Company became the holding company of Modigene Delaware and
ModigeneTech Ltd., an Israeli company (“ModigeneTech”). On June 10, 2009, we
changed our name from Modigene Inc. to PROLOR Biotech, Inc. On June 12, 2009,
and in connection with the name change, shares of our common stock began trading
on the OTC Bulletin Board under the symbol PBTH.
  Page
11
  Results
of Operation
 
 Accounting
Policies
 
 The
historical financial statements of the Company included with this Quarterly
Report have been prepared in accordance with accounting principles generally
accepted in the United States. 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 generally accepted
accounting principles 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 United
States Dollars: The functional currency
of the Company is, and of Modigene Delaware prior to the Merger has been, the
U.S. dollar, as the U.S. dollar is the primary currency of the economic
environment in which Modigene Delaware has operated and in which the Company
expects to continue to operate in the foreseeable future. The majority of
ModigeneTech’s operations are currently conducted in Israel, and most of the
Israeli expenses are paid in new Israeli schekels; however, most of the expenses
are denominated and determined in U.S. dollars. Financing and investing
activities, including loans and equity transactions, are made in U.S.
dollars.
 
 Accordingly,
monetary accounts maintained in currencies other than the U.S. dollar are
remeasured into U.S. dollars in accordance with SFAS No. 52 of the Financial
Accounting Standards Board (“FASB”), “Foreign Currency Translation.” 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.
 
 Principles of Consolidation:
The consolidated financial statements include the accounts of Modigene Delaware
and its wholly-owned subsidiary, ModigeneTech. Intercompany transactions and
balances have been eliminated upon consolidation.
 
 Cash Equivalents: Cash
equivalents include short-term liquid investments that are readily convertible
to cash with original maturities of three months or less.
 
 Property and Equipment:
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is calculated by the straight-line method over the estimated useful
lives of the assets. The annual depreciation rates are as follows:
  %Office
      furniture and equipment
                    
                    
                    6Laboratory
      equipment
                    
                    
                    15Computers
      and electronic equipment
                    
                    
                    33Leasehold
      improvements
                    
                    
                    25
 
 The
Company’s long-lived assets have been reviewed for impairment in accordance with
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the future
undiscounted cash flows expected to be generated by the assets. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets.
  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 is recognized
as a reduction of expenses as the related costs are incurred.
  Page
12
  Cash and
cash equivalents are invested in major banks in Israel and the United States.
Such deposits with balances greater than $250,000 in the United States and
Israel are not insured. All cash balances in the United States are held in money
market funds, and management believes that the Israeli financial institutions
that hold the Company’s investments are financially sound. Accordingly,
management believes that 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
development of approved projects are recognized as a reduction of expenses as
the related costs are incurred. Funding is recognized at the time ModigeneTech
is entitled to such grants, on the basis of the costs incurred.
 
 Research
and development grants received by ModigeneTech during the three month periods
ended June 30, 2009 and 2008 and the period from May 31, 2005 (date of
inception) to June 30, 2009 amounted to $181,449, $102,846 and $1,507,592,
respectively. Research and development grants received by ModigeneTech
during the six month periods ended June 30, 2009 and 2008 amounted to $389,429
and $499,106, respectively.
 
 Loss per Share: Basic and
diluted losses per share are presented in accordance with Statement of Financial
Accounting Standard No. 128 “Earnings per Share.” Outstanding share options and
warrants have been excluded from the calculation of the diluted loss per share
because all such securities are antidilutive. The total weighted average number
of ordinary shares related to outstanding options and warrants excluded from the
calculations of diluted loss per share were 9,164,362, 7,923,881 and
4,949,437for
the three month periods ended June 30, 2009 and 2008 and the period from May 31,
2005 (date of inception) to June 30, 2009, respectively. The total weighted
average number of ordinary shares related to outstanding options and warrants
excluded from the calculations of diluted loss per share for the six month
periods ended June 30, 2009 and 2008 were 9,092,037 and 7,297,555,
respectively.
 
 Revenue
 
 The
Company has not generated any revenue 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,
the Company could generate revenue from sales of its products.
  Research
and Development Expense
 
 The
Company expects its research and development expense to increase as it continues
to develop its product candidates. Research and development expense consists
of:
 
 ·
              internal
      costs associated with research and development
  activities;
 
 ·
              payments
      made to third party contract research organizations, contract
      manufacturers, investigative sites, and
  consultants;
 
 ·
              manufacturing
      development costs;
 
 ·
              personnel-related
      expenses, including salaries, benefits, travel, and related costs for the
      personnel involved in the research and
  development;
 
 ·
              activities
      relating to the advancement of product candidates through preclinical
      studies and clinical trials;
and
  Page
13
  
 ·
              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 most
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. In the
three month periods ended June 30, 2009 and 2008 and the
period from May 31, 2005 (date of inception) to June 30, 2009, the Company
incurred net research and development expense in the aggregate of
$304,701, $1,355,447 and $10,435,838, respectively. In the six month
periods ended June 30, 2009 and 2008 the Company incurred net research and
development expense in the aggregate of $2,890,403, $2,095,957,
respectively. The increase resulted primarily from significant
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, the Company cannot reasonably estimate or know
the nature, timing and costs of the efforts that will be necessary to complete
the remainder of the development of, or the period, if any, in which material
net cash inflows may commence from the Company’s product candidates or any of
the Company’s other development efforts. This 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 the research and
      development efforts; and
 
 ·
              the
      results of clinical trials.
 
 The
Company’s expenditures are subject to additional uncertainties, including the
terms and timing of regulatory approvals, and the expense 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.
  Page
14
  General
and Administrative Expense
  General
and administrative expense consists 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 expense includes facility-related costs not otherwise included in
research and development expense, and professional fees for legal and accounting
services. The Company expects that its general and administrative expenses will
increase as it adds additional personnel and continues to be subject to the
reporting obligations applicable to public companies in the United States. In
the three month periods ended June 30, 2009 and 2008 and the period from May 31,
2005 (date of inception) to June 30, 2009, the Company incurred general and
administrative expenses in the aggregate of $494,308, $612,628 and
$10,290,616, respectively. In the six month periods ended June 30, 2009 and
2008, the Company incurred general and administrative expenses in the aggregate
of $973,042 and $1,221,431, respectively.
  Financial
Expense and Income
 
 Financial
expense and income consists of the following:
 
 ·
              interest
      earned on the Company’s cash and cash
  equivalents;
 
 ·
              interest
      expense on short term bank credit and loan;
and
 
 ·
              expense
      or income resulting from fluctuations of the New Israeli Shekel, which a
      portion of the Company’s assets and liabilities are denominated in,
      against the United States Dollar and other foreign
    currencies.
 
 In the three month
periods ended June 30, 2009 and 2008 and the period from May 31, 2005
(date of inception) to June 30, 2009, the Company incurred net financial
income/(expense) in the aggregate of ($17,206), $120,402 and $474,085,
respectively. In the six month periods ended June 30, 2009 and 2008, the Company
incurred net financial income/(expense) in the aggregate of ($71,648) and
$355,484, respectively. The decrease resulted primarily from the lower balance
of cash and cash equivalents held by the Company, as well as currency
fluctuations on deposits in Israeli Shekels.
  Stock-based
Compensation
 
 On
January 1, 2006, the Company adopted Statement of Financial Accounting Standard
No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), 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 plan, based on estimated fair values. SFAS 123R superseded
the Company’s previous accounting under Accounting Principles Board Opinion No.
25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning
in fiscal 2006.
 
 SFAS 123R
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.
Prior to the adoption of SFAS 123R, the Company accounted for equity-based
awards to employees and directors using the intrinsic value method, in
accordance with APB 25, as allowed under Statement of Financial Accounting
Standard No. 123, “Accounting for Stock-Based Compensation (“SFAS
123”).
  The
Company adopted SFAS 123R using the modified prospective transition method,
which requires the application of the accounting standard as of January 1, 2006.
Under this transition method, compensation cost recognized in the year ended
December 31, 2006 includes: (a) compensation cost for all stock-based payments
granted prior to, but not yet vested as of January 1, 2006, based on the grant
date fair value estimated in accordance with the original provisions of SFAS
123, and (b) compensation cost for all stock-based payments granted subsequent
to January 1, 2006, based on the grant date fair value estimated in accordance
with the provisions of SFAS 123R. As required by the modified prospective
method, results for prior periods have not been restated.
  Page
15
  The
Company recognized compensation expense for the value of these awards, based on
the straight line method over the requisite service period of each
award.
 
 The
Company estimates the fair value of stock options granted using the
Black-Scholes-Merton option-pricing model. For the three month periods ended
June 30, 2009 and 2008 and the period from May 31, 2005 (date of inception) to
June 30, 2009, the Company incurred stock-based compensation expenses in the
aggregate of $180,032 $312,595and
$6,884,155, respectively. For the six month periods ended June 30, 2009 and 2008
the Company incurred stock-based compensation expenses in the aggregate of
$416,711 and $548,757 respectively.
  The
Company applies SFAS 123 and EITF 96-18, “Accounting for Equity Instruments that
are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services” (“EITF 96-18”) with respect to options and warrants
issued to non-employees.
 
 SFAS 123
and EITF 96-18 require the use of an option valuation model to measure the fair
value of the options at the grant date.
  Cash Flows
 
 In the
three month periods ended June 30, 2009 and 2008 and the period
from May 31, 2005 (date of inception) to June 30, 2009, net cash used in
operations was approximately $1,763,312, $1,297,075 and $13,541,854,
respectively. In the six month periods ended June 30, 2009 and 2008 net cash
used in operations was approximately $3,682,127 and $1,819,479, respectively.
The increase resulted primarily from significant manufacturing expenses
associated with the production of large quantities of non-GMP and GMP hGH-CTP,
as well as long-term tox studies in rats and primates.
 
 In the
three month periods ended June 30, 2009 and 2008 and the period
from May 31, 2005 (date of inception) to June 30, 2009, net cash from investing
activities was approximately $(39,083), $(95,064) and $(1,014,516),
respectively. In the six month periods ended June 30, 2009 and 2008, net cash
from investing activities was approximately $(30,457) and $(196,564),
respectively. The difference resulted primarily from a decrease in equipment
purchases and lab buildup.
 
 In the
three month periods ended June 30, 2009 and 2008 and the period from
May 31, 2005 (date of inception) to June 30, 2009, net cash provided by
financing activities was approximately $0, $20 and $18,309,018, respectively. In
the six month periods ended June 30, 2009 and 2008, net cash provided by
financing activities was approximately $0 and $1,998,114, respectively. The
difference resulted from no proceeds from issuance of shares to investors,
compared with issuance of preferred shares during March 2008.
 
 Funding
Requirements
 
 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.
  Page
16
  On March
25, 2008, we entered into a line of credit with The Frost Group, LLC (“TFG”), a
Florida limited liability company whose members include Frost Gamma Investments
Trust (the “Frost Trust”), Jane Hsiao, M.B.A., Ph.D., and Steven D. Rubin.
Dr.Phillip Frost, the Chairman of our board of directors, is the sole trustee of
the Frost Trust. Frost Gamma, L.P. is the sole and exclusive beneficiary of the
Frost Trust, and Dr. Frost is one of two limited partners of Frost Gamma, L.P.
The general partner of Frost Gamma, L.P. is Frost Gamma, Inc. and the sole
stockholder of Frost Gamma, Inc. is Frost-Nevada Corporation. Dr.Frost is the
sole stockholder of Frost-Nevada Corporation. Dr. Hsiao and Mr. Rubin are also
directors of the Company.
 
 Under
this line of credit, we were able, at our discretion, to borrow up to
$10,000,000, which proceeds may be used for working capital or general corporate
purposes, as approved by our board of directors. The maturity date for the line
of credit was March 25, 2009, unless (i) we have borrowed any funds under the
line of credit prior to March 25, 2009, or (ii) we elect to extend the line of
credit. In either of such events, the maturity date would be extended until
March 25, 2013. Upon the maturity date, we would be obligated to repay to TFG
all outstanding borrowings, together with any accrued interest, and the line of
credit will terminate. We would be obligated to pay interest on outstanding
borrowings under the line of credit at a 10% annual rate. If we determined
to draw on the line of credit, or if we elected to extend the maturity date
until March 25, 2013, we would issue to TFG 5-year warrants to purchase
1,500,000 shares of our common stock, having an exercise price of $0.99 per
share. On March 11, 2009, the Company entered into a letter agreement with TFG,
as the lender under the line of credit between the Company and TFG, pursuant to
which TFG agreed to grant the Company until April 30, 2009 to elect whether to
extend the line of credit. On April 23, 2009, the Company entered into a second
letter agreement with TFG, pursuant to which TFG agreed to grant the Company
until May 29, 2009 to elect whether to extend the line of credit. On July 22,
2009 the parties entered a Termination of Credit Agreement and Cancellation and
Termination of Note and Security Agreement, under which the agreement terminated
and became of no further force or effect.
 
 On July
22, 2009, the Company entered into a securities purchase agreement (the
“Purchase Agreement”) with certain private investors (the “Investors”), pursuant
to which the Investors agreed to purchase an aggregate of up to 5,000,000 shares
of the Company’s newly-designated 10.0% Series B Cumulative Convertible
Preferred Stock, par value $0.00001 per share (“Series B Preferred Stock”), at a
purchase price of $2.00 per share. On July 23, 2009, the Company closed on the
issuance of 1,000,000 shares for aggregate consideration of $2.0 million. Under
the Purchase Agreement, the Company may elect, in its sole discretion, to close
on the sale and issuance of up to an additional $8 million of Series B Preferred
Stock, at a purchase price of $2.00 per share, on any date on or prior to March
25, 2013, subject to providing the Investors thirty days prior written notice of
such closing date. The Company must issue a minimum of $2 million of Series B
Preferred Stock in any such future closing; however, the Company is not
obligated to effect any such future closings. Among the Investors party to the
Purchase Agreement are Frost Gamma Investments Trust, a trust controlled by Dr.
Phillip Frost, the Company’s Chairman of the Board and its largest beneficial
stockholder, Hsu Gamma Investment, L.P., the general partner of which is Dr.
Jane Hsiao, a director, and Steven D. Rubin, a director.
  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 or 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. In the absence of
additional funding, 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. Except for the Purchase Agreement described above, we currently do
not have any commitments for future external funding. We may need to raise
additional funds more quickly if one or more of our assumptions proves to be
incorrect or if we choose to expand our product development efforts more rapidly
than we presently anticipate, and we may decide to raise additional funds even
before we need them if the conditions for raising capital are favorable. We may
seek to sell additional equity or debt securities or obtain a bank credit
facility. The sale of additional equity or debt securities may result in
dilution to our shareholders. The incurrence of indebtedness would result in
increased fixed obligations and could also result in covenants that would
restrict our operations. Additional equity or debt financing, grants, or
corporate collaboration and licensing arrangements may not be available on
acceptable terms, if at all. If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate our research and development
programs, reduce our planned commercialization efforts or obtain funds through
arrangements with collaborators or others that may require us to relinquish
rights to certain product candidates that we might otherwise seek to develop or
commercialize independently.
  Page
17
  Effects
of Inflation and Currency Fluctuations
 
 Inflation
generally affects the Company by increasing its cost of labor and clinical trial
costs. The Company does not believe that inflation has had a material effect on
its results of operations during the three month
periods ended June 30, 2009 and 2008.
 
 Currency
fluctuations could affect the Company by increased or decreased costs mainly for
goods and services acquired in Israel. The Company does not believe currency
fluctuations have had a material effect on its results of operations during the
three month periods ended June 30, 2009 and 2008.
 
 Arrangements
 
 The
Company had no off-balance sheet arrangements as of June 30, 2009 and
2008.
  ITEM
      3.
              Quantitative
      and Qualitative Disclosures About Market
Risk
 
 Not
Applicable.
 
 ITEM
      4T.
              Controls
      and Procedures.
 
 Evaluation of Disclosure
Controls and Procedures
  Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, is responsible for
evaluating the effectiveness of the Company’s disclosure controls and procedures
as of the end of the period covered by this report. As defined by the rules of
the SEC, disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in the
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time period specified in the SEC’s rules and
forms and include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in the reports filed or
submitted under the Exchange Act is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure. As of the end of the period
covered by this report, we carried out an evaluation, under the supervision and
with the participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures.
Pursuant to this evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective at June 30, 2009.
 
 Changes in Internal Control
over Financial Reporting
  There
were no changes in our internal control over financial reporting identified in
connection with our evaluation of these controls as required by paragraph (d) of
§2401.13a-15 or §2401.13a-15 that occurred during our fiscal quarter ended June
30, 2009 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
  Page
18
  PART
II – OTHER INFORMATION
  ITEM
      1.
                Legal
      Proceedings.
 
 Not
Applicable.
 
 ITEM
      1A.
              Risk
      Factors.
 
 Not
Applicable.
 
 ITEM
      2.
              Unregistered
      Sales of Equity Securities and Use of
Proceeds.
 
 Not
Applicable.
 
 ITEM
      3.
              Defaults
      Upon Senior Securities.
 
 Not
Applicable.
 
 ITEM
      4.
              Submission
      of Matters to a Vote of Security
Holders.
 
 At our Annual Meeting of Shareholders
held on May 21, 2009, the following matters were voted on by our shareholders:
(1) the election of eight directors; (2) the amendment of our articles of
incorporation to change the name of the Company from “Modigene Inc.” to “PROLOR
Biotech, Inc.”; (3) the amendment of our 2007 Equity Incentive Plan to increase
the number of shares of common stock reserved for issuance thereunder from
3,000,000 to 6,000,000; and (4) the ratification of the appointment by the Board
of Directors of Yarel + Partners as our independent registered accounting firm
for the fiscal year ending December 31, 2009. The results of such shareholder
vote are as follows:
 
 (1)           Election
of Directors
  For
                                      
                                      
                                      WithheldFuad
      Fares
                                      
                                      
                                      21,115,365
                                      
                                      
                                      
                                      1,105,054Phillip
      Frost
                                      
                                      
                                      21,115,365
                                      
                                      
                                      
                                      1,105,054Marian
      Gorecki
                                      
                                      
                                      21,116,365
                                      
                                      
                                      
                                      1,104,054Abraham
      (Avri) Havron
                                      
                                      
                                      21,108,934
                                      
                                      
                                      
                                      1,111,485Jane
      H. Hsiao
                                      
                                      
                                      22,161,267
                                      
                                      
                                      
                                      1,110,485Shai
      Novik
                                      
                                      
                                      21,115,365
                                      
                                      
                                      
                                      1,105,054Steven
      D. Rubin
                                      
                                      
                                      21,115,365
                                      
                                      
                                      
                                      1,105,054Adam
      Stern
                                      
                                      
                                      21,115,365
                                      
                                      
                                      
                                      1,105,054
  (2)           Approval
of the amendment of our articles of incorporation to change the name of the
Company from “Modigene Inc.” to “PROLOR Biotech, Inc.”
 
 Number
      of votes cast for the proposal
                            
                            
                            22,032,366Number
      of votes cast against the proposal
                            
                            
                            1,372,880Number
      of abstentions
                            
                            
                            11,576
 
 (3)           Approval
of the amendment of our 2007 Equity Incentive Plan to increase the number of
shares of common stock reserved for issuance thereunder from 3,000,000 to
6,000,000
 
 Number
      of votes cast for the proposal
                        
                        
                        15,565,586Number
      of votes cast against the proposal
                        
                        
                        1,717,705Number
      of abstentions
                        
                        
                        387,113
  Page
19
  (4)           Approval
of the ratification of the appointment by the Board of Directors of Yarel +
Partners as our independent registered accounting firm for the fiscal year
ending December 31, 2009
 
 Number
      of votes cast for the proposal
                            
                            
                            23,157,228Number
      of votes cast against the proposal
                            
                            
                            46,576Number
      of abstentions
                            
                            
                            0
 
 ITEM
      5.
              Other
      Information.
 
 Not
Applicable.
  ITEM
      6.
              Exhibits.
  3.1
                                  Articles of Incorporation of
      PROLOR Biotech, Inc., as amended (Filed
  herewith)
 31.1
                                  Certification of Chief Executive
      Officer pursuant to Item 601(b)(31) of Regulation S-K (Filed
      herewith).
 31.2
                                  Certification of Chief Financial
      Officer pursuant to Item 601(b)(31) of Regulation S-K (Filed
      herewith).
 32.1
                                  Certification of Chief Executive
      Officer pursuant to Item 601(b)(32) of Regulation S-K (Filed
      herewith).
 32.2
                                  Certification of Principal
      Financial Officer pursuant to Item 601(b)(32) of Regulation S-B (Filed
      herewith).
  Page
20
 
 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.August
      14, 2009
                      /s/
      Abraham HavronDate
                      Abraham
      HavronChief
      Executive
Officer
  Page
21