Protalex (PRTX) 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-28385

Protalex, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	91-2003490
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

145 Union Square Drive

New Hope, PA 18938

(Address of Principal Executive Offices and Zip Code)

215-862-9720

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ  Yes   ࿠ No

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	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).  o  Yes    þ  No

Number of shares outstanding of the issuer’s Common Stock, par value $0.00001 per share, as of April 9, 2008: 28,600,464 shares.

Protalex, Inc.

FORM 10-Q

February 29, 2008

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited):
	Balance Sheets at February 29, 2008 and May 31, 2007	3
	Statements of Operations for the nine and three months ended February 29, 2008 and February 28, 2007, and the period from September 17, 1999 (inception) to February 29, 2008	4
	Statement of Changes in Stockholders’ Equity for the period from September 17, 1999 (inception) through February 29, 2008	5
	Statements of Cash Flows for the nine months ended February 29, 2008 and February 28, 2007, and the period from September 17, 1999 (inception) to February 29, 2008	9
	Notes to Unaudited Financial Statements	10
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 4.	Controls and Procedures	18
PART II.	OTHER INFORMATION
ITEM 6.	Exhibits	18
	SIGNATURES	21
	Exhibit 31.1 Section 302 Certification of the CEO
	Exhibit 31.2 Section 302 Certification of the CFO
	Exhibit 32.1 Section 906 Certification of the CEO
	Exhibit 32.2 Section 906 Certification of the CFO

2

PART I - FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS (UNAUDITED)

PROTALEX, INC.

(A Company in the Development Stage)

BALANCE SHEETS

	February 29,			May 31,
	2008			2007
	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	10,893,570		$	17,546,154
Prepaid expenses		200,013			271,051
Total current assets		11,093,583			17,817,205
PROPERTY & EQUIPMENT:
Lab equipment		692,761			692,761
Office and computer equipment		195,987			195,987
Furniture & fixtures		40,701			40,701
Leasehold improvements		89,967			89,967
		1,019,416			1,019,416
Less accumulated depreciation		(787,852	)		(647,630	)
		231,564			371,786
OTHER ASSETS:
Deposits		7,990			7,990
Intellectual technology property, net of accumulated amortization of $8,478 and $7,713 as of February 29, 2008 and May 31, 2007, respectively		11,822			12,587
Total other assets		19,812			20,577
	$	11,344,959		$	18,209,568
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,143,857		$	923,113
Payroll and related liabilities		27,380			20,661
Accrued expenses		15,000			25,000
Total current liabilities		1,186,237			968,774
OTHER LIABILITIES		2,005			2,996
Total liabilities		1,188,242			971,770
STOCKHOLDERS' EQUITY
Common stock, par value $0.00001, 100,000,000 shares authorized; 28,600,464 shares issued and outstanding		286			286
Additional paid in capital		44,948,941			44,101,059
Deficit accumulated during the development stage		(34,792,510	)		(26,863,547	)
Total stockholders’ equity		10,156,717			17,237,798
	$	11,344,959		$	18,209,568

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

3

PROTALEX, INC.

(A Company in the Development Stage)

STATEMENTS OF OPERATIONS

For the nine and three month periods ended February 29, 2008 and February 28, 2007 and

From Inception (September 17, 1999) through February 29, 2008

(Unaudited)

	Nine			Nine			Three			Three			From Inception
	Months Ended			Months Ended			Months Ended			Months Ended			Through
	February 29,			February 28,			February 29,			February 28,			February 29,
	2008			2007			2008			2007			2008
Revenues	$	—		$	—		$	—		$	—		$	—
Operating Expenses
Research and development		(5,716,415	)		(4,102,055	)		(1,954,781	)		(1,757,711	)		(22,322,116	)
Administrative		(2,180,613	)		(2,670,755	)		(724,142	)		(861,460	)		(11,530,528	)
Professional fees		(534,918	)		(451,012	)		(172,814	)		(147,735	)		(2,795,068	)
Depreciation and amortization		(3,127	)		(4,009	)		(1,019	)		(1,257	)		(158,651	)
Operating loss		(8,435,073	)		(7,227,831	)		(2,852,756	)		(2,768,163	)		(33,806,363	)
Other income (expense)
Interest income		506,110			779,634			110,072			255,168			2,095,045
Interest expense		—			—			—			—			(70,612	)
Loss on disposal of equipment		—			—			—			—			(10,580	)
Net loss	$	(7,928,963	)	$	(6,448,197	)	$	(2,742,684	)	$	(2,512,995	)	$	(34,792,510	)
Weighted average number of common shares outstanding		28,600,464			27,908,754			28,600,464			28,600,464			16,882,333
Loss per common share – basic and diluted	$	(.28	)	$	(.23	)	$	(.10	)	$	(.09	)	$	(2.06	)

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

4

PROTALEX, INC.

(A Company in the Development Stage)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

From Inception (September 17, 1999) through February 29, 2008

(Unaudited)

										Deficit
										Accumulated
					Additional		Common			During The
	Common Stock				Paid in		Stock-			Development
	Shares		Amount		Capital		Contra			Stage			Total
September 17, 1999 — initial issuance of 10,000 shares for intellectual technology license at $.03 per share		10,000	$	300	$	—	$	—		$	—		$	300
September 30, 1999 — cost of public shell acquisition over net assets acquired to be accounted for as a Recapitalization		—		—		—		(250,000	)		—			(250,000	)
October 27, 1999 — issuance of 84 shares to individual for $25,000		84		25,000		—		—			—			25,000
November 15, 1999 — reverse merger transaction with Enerdyne Corporation, net transaction amounts		8,972,463		118,547		—		(118,547	)		—			—
November 18, 1999 — February 7, 2000 — issuance of 459,444 shares to various investors at $0.36 per share		459,444		165,400		—		—			—			165,400
January 1, 2000 — issuance of 100,000 shares in exchange for legal services		100,000		15,000		—		—			—			15,000
May 1 - 27, 2000 — issuance of 640,000 shares to various investors at $1.00 per share		640,000		640,000		—		—			—			640,000
May 27, 2000 — issuance of 1,644 shares to individual in exchange for interest Due		1,644		1,644		—		—			—			1,644
Net loss for the year ended May 31, 2000		—		—		—		—			(250,689	)		(250,689	)
Balance, May 31, 2000		10,183,635		965,891		—		(368,547	)		(250,689	)		346,655
December 7, 2000 — issuance of 425,000 shares to various investors at $1.00 per share		425,000		425,000		—		—			—			425,000
May 31, 2001 — Forgiveness of debt owed to shareholder		—		—		40,000		—			—			40,000
Net loss for the year ended May 31, 2001		—		—		—		—			(553,866	)		(553,866	)
Balance, May 31, 2001		10,608,635		1,390,891		40,000		(368,547	)		(804,555	)		257,789

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

5

PROTALEX, INC.

(A Company in the Development Stage)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (continued)

From Inception (September 17, 1999) through February 29, 2008

(Unaudited)

												Deficit
												Accumulated
							Additional		Common			During The
	Common Stock						Paid in		Stock-			Development
	Shares			Amount			Capital		Contra			Stage			Total
August 13, 2001 — Contribution by Shareholders		—			—			143,569		—			—			143,569
November 7, 2001 — issuance of 881,600 Shares at $1.25 per share		881,600			1,102,000			—		—			—			1,102,000
November 26, 2001 — options issued to board member		—			—			133,000		—			—			133,000
Net loss for the year ended May 31, 2002		—			—			—		—			(1,280,465	)		(1,280,465	)
Balance, May 31, 2002		11,490,235			2,492,891			316,569		(368,547	)		(2,085,020	)		355,893
July 5, 2002 — issuance of 842,000 shares at $1.50 per share		842,000			1,263,000			—		—			—			1,263,000
July 1, 2002 - May 1, 2003 – purchase of common stock from shareholder at $.70 per share		(130,955	)		(91,667	)		—		—			—			(91,667	)
January 15, 2003 - May 15, 2003 – common stock issued to Company president		41,670			82,841			—		—			—			82,841
May 14, 2003 — common stock issued to employee		5,000			11,250			—		—			—			11,250
June 1, 2002 - May 31, 2003 – compensation related to stock options issued to board members, employees and consultants		—			—			287,343		—			—			287,343
Net loss for the year ended May 31, 2003		—			—			—		—			(1,665,090	)		(1,665,090	)
Balance, May 31, 2003		12,247,950			3,758,315			603,912		(368,547	)		(3,750,110	)		243,570
June 15, 2003, common stock issued to Company president		8,334			16,418			—		—			—			16,418
June 15, 2003, purchase of common stock from shareholder		(12,093	)		(8,333	)		—		—			—			(8,333	)
September 18, 2003 – issuance of 7,445,646 of common stock issued in private placement At $1.70 per share, net of transaction costs		7,445,646			11,356,063			—		—			—			11,356,063
September 19, 2003 – repurchase and retired 2,994,803 shares for $300,000		(2,994,803	)		(300,000	)		—		—			—			(300,000	)
December 12, 2003 – issuance of 39,399 shares to terminated employees at $2.60 per share		39,399			102,438			—		—			—			102,438
March 1, 2004 – common stock issued to employee at $2.55 per share		50,000			127,500			—		—			—			127,500
May 31, 2004 – reclassify common stock contra to common stock		—			(368,547	)		—		368,547			—			—

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

6

PROTALEX, INC.

(A Company in the Development Stage)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (continued)

From Inception (September 17, 1999) through February 29, 2008

(Unaudited)

										Deficit
										Accumulated
						Additional		Common		During The
	Common Stock					Paid in		Stock-		Development
	Shares		Amount			Capital		Contra		Stage			Total
June 1, 2003 – May 31, 2004 – compensation related to stock options issued to board members, employees and consultants		—		—			448,096		—		—			448,096
Net loss for the year ended May 31, 2004		—		—			—		—		(2,989,364	)		(2,989,364	)
Balance, May 31, 2004		16,784,433	$	14,683,854		$	1,052,008		—	$	(6,739,474	)	$	8,996,388
November 30, 2004 – adjust March 1, 2004 common stock issued to employee		—		(20,000	)				—		—			(20,000	)
January 13, 2005 – common stock issued to employee at $2.55 per share		15,000		38,250			—		—		—			38,250
February 28, 2005 – Reclass Par Value for Reincorporation into DE as of 12/1/04		—		(14,701,935	)		14,701,935		—		—			0
May 25, 2005 – issuance of 2,593,788 shares of common stock issued in private placement At $1.95 per share, net of transaction costs		2,593,788		25			4,851,168		—		—			4,851,193
June 1, 2004 – May 31, 2005 – compensation related to stock options issued to board members, employees and consultants		—		—			308,711		—		—			308,711
Net loss for the year ended May 31, 2005		—		—			—		—		(5,567,729	)		(5,567,729	)
Balance, May 31, 2005		19,393,221	$	194		$	20,913,822		—	$	(12,307,203	)	$	8,606,813
August 23, 2005 – common stock issued to employee		40,000		0			100,000		—		—			100,000
October 19, 2005 – common stock issued to employee		10,000		0			25,000		—		—			25,000
December 30, 2005 – issuance of 2,595,132 shares of common stock issued in private placement at $2.25 per share, net of transaction costs		2,595,132		26			5,510,941		—		—			5,510,967
June 1, 2005 – May 31, 2006 – warrants exercised		351,598		4			786,534		—		—			786,538
June 1, 2005– May 31, 2006 – compensation related to stock options issued to board members, employees and consultants		—		—			404,679		—		—			404,679
Net loss for the year ended May 31, 2006		—		—			—		—		(6,104,402	)		(6,104,402	)
Balance, May 31, 2006		22,389,951	$	224		$	27,740,976			$	(18,411,605	)	$	9,329,595

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

7

PROTALEX, INC.

(A Company in the Development Stage)

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (continued)

From Inception (September 17, 1999) through February 29, 2008

(Unaudited)

									Deficit
									Accumulated
					Additional		Common		During The
	Common Stock				Paid in		Stock-		Development
	Shares		Amount		Capital		Contra		Stage			Total
July 7, 2006 – issuance of 6,071,013 shares of common stock issued in private placement at $2.50 per share, net of transaction costs		6,071,013		61		14,217,660		—		—			14,217,721
June 1, 2006 – May 31, 2007 – warrants exercised		133,500		1		300,373		—		—			300,374
June 1, 2006 – May 31, 2007 – stock options exercised		6,000		0		15,200		—		—			15,200
June 1, 2006 – May 31, 2007 – share based compensation to board members, employees and consultants		—		—		1,826,850		—		—			1,826,850
Net loss for the year ended May 31, 2007		—		—		—		—		(8,451,942	)		(8,451,942	)
Balance, May 31, 2007		28,600,464	$	286	$	44,101,059	$	—	$	(26,863,547	)	$	17,237,798
June 1, 2007 – February 29, 2008 – share based compensation to board members, employees and consultants		—		—		847,882		—		—			847,882
Net loss for the nine months ended February 29, 2008		—		—		—		—		(7,928,963	)		(7,928,963	)
Balance, February 29, 2008		28,600,464	$	286	$	44,948,941	$	—	$	(34,792,510	)	$	10,156,717

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

8

PROTALEX, INC.

(A Company in the Development Stage)

STATEMENTS OF CASH FLOWS

For the nine month periods ended February 29, 2008 and February 28, 2007 and

From Inception (September 17, 1999) through February 29, 2008

(Unaudited)

	Nine			Nine			From Inception
	Months Ended			Months Ended			Through
	February 29,			February 28,			February 29,
	2008			2007			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(7,928,963	)	$	(6,448,197	)	$	(34,792,510	)
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities
Loss on disposal of equipment		—			—			10,580
Depreciation and amortization		140,987			121,112			818,851
Share based compensation expense		847,882			1,440,483			4,740,257
Non cash expenses		—			—			16,644
(Increase)/decrease in:
Prepaid expense and deposits		71,038			34			(208,003	)
Increase/(decrease) in:
Accounts payable and accrued expenses		210,744			(49,786	)		1,158,857
Payroll and related liabilities		6,719			(44,659	)		27,380
Other liabilities		(991	)		89			2,005
Net cash and cash equivalents used in operating activities		(6,652,584	)		(4,980,924	)		(28,225,939	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of intellectual technology license – fee portion		—			—			(20,000	)
Acquisition of equipment		—		��	(403,674	)		(905,936	)
Excess of amounts paid for public shell over assets acquired to be accounted for as a recapitalization		—			—			(250,000	)
Proceeds from disposal of equipment		—			—			6,000
Net cash and cash equivalents used in investing activities		—			(403,674	)		(1,169,936	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issuance, including options and warrants exercised		—			14,533,295			40,658,458
Principal payment on equipment notes payable and capital leases		—			—			(295,411	)
Contribution by shareholders		—			—			183,569
Principal payment on note payable to individuals		—			—			(225,717	)
Issuance of note payable to individuals		—			—			368,546
Acquisition of common stock		—			—			(400,000	)
Net cash and cash equivalents provided by financing activities		—			14,533,295			40,289,445
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(6,652,584	)		9,148,697			10,893,570
Cash and cash equivalents, beginning		17,546,154			9,992,545			—
Cash and cash equivalents, end	$	10,893,570		$	19,141,242		$	10,893,570
SUPPLEMENTAL SCHEDULE OF CASH
FLOW INFORMATION:
Interest paid	$	—		$	—		$	66,770
Taxes paid	$	—		$	—		$	100

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

9

PROTALEX, INC.

(A Company in the Development Stage)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

From Inception (September 17, 1999) through February 29, 2008

NOTE 1. NOTES TO INTERIM FINANCIAL STATEMENTS

The interim financial data is unaudited; however in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim period. The financial statements included herein have been prepared by Protalex, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading.

Information regarding the organization and business of the Company, accounting policies followed by the Company and other important information is contained in the notes to the Company's financial statements filed as part of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2007. This quarterly report should be read in conjunction with such annual report.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company is a development stage enterprise and does not anticipate generating operating revenue for the foreseeable future. The ability of the Company to continue as a going concern is dependent upon developing products that are regulatory approved and market accepted. There is no assurance that these plans will be realized in whole or in part. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expense, and the disclosure of contingent assets and liabilities. Estimated amounts could differ from actual results.

Loss per Common Share

The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (SFAS No. 128). SFAS No. 128 provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net loss to common shareholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities consisting of employee stock options and warrants have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. As of February 29, 2008 and February 28, 2007, the Company had potentially dilutive securities consisting of warrants and stock options totaling 10,972,206 and 10,698,317, respectively.

10

Share Based Compensation

Effective June 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised), Accounting for Share Based Payment (“SFAS No. 123R”) for employee options using the modified prospective method. Options issued to non-employees for services are accounted for in accordance with SFAS No. 123R and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or In Conjunction with Selling Goods or Services (“EITF No. 96-18”). SFAS No. 123R requires the Company to measure the cost of employee services received in exchange for equity share options granted based on the grant-date fair value of the options.  The cost is recognized as compensation expense over the requisite service period (generally the vesting period) of the options.  Under the modified prospective method, compensation cost included in operating expenses was $847,882 and $1,440,483 for the nine months ended February 29, 2008 and February 28, 2007, respectively, compared to $169,751 and $413,864 for the three months ended February 29, 2008 and February 28, 2007, respectively.  In accordance with the modified prospective application transition method of SFAS No. 123R, prior period results were not restated.  Incremental compensation cost for a modification of the terms or conditions of an award is measured by comparing the fair value of the modified award with the fair value of the award immediately before the modification.  No tax benefit was recorded as of February 29, 2008 in connection with these compensation costs due to the uncertainty regarding ultimate realization of certain net operating loss carryforwards.  The Company has also implemented the SEC interpretations in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payments, in connection with the adoption of SFAS No. 123R.

Prior to the adoption of SFAS No. 123R, the Company accounted for stock options granted to employees using the intrinsic value method under the guidance of APB No. 25, and provided pro forma disclosure as required by SFAS No. 123.  Stock options issued to non-employees were accounted for as required by SFAS No. 123.  Options to non-employees were accounted for using the fair value method, which recognizes the value of the option as an expense over the related service period with a corresponding increase to additional paid-in capital.

The Board of Directors adopted and the stockholders approved the 2003 Stock Option Plan on October 2003 and it was amended in October 2005. The plan was adopted to recognize the contributions made by the Company’s employees, officers, consultants, and directors, to provide those individuals with additional incentive to devote themselves to the Company’s future success, and to improve the Company’s ability to attract, retain and motivate individuals upon whom the Company’s growth and financial success depends. Under the plan, stock options may be granted as approved by the Board of Directors or the Compensation Committee. There are 4,500,000 shares reserved for grants of options under the plan, of which 2,213,571 have been issued. The Company has issued 2,163,255 stock options as stand alone grants, prior to the adoption of the 2003 Stock Option Plan. Stock options vest pursuant to individual stock option agreements. No options granted under the plan are exercisable after the expiration of ten years (or less in the discretion of the Board of Directors or the Compensation Committee) from the date of the grant. The plan will continue in effect until terminated or amended by the Board of Directors.

SFAS 123(R) requires the use of a valuation model to calculate the fair value of each stock-based award. The Company uses the Black-Scholes model to estimate the fair value of stock options granted based on the following assumptions:

Expected Term or Life. The expected term or life of stock options granted issued represents the expected weighted average period of time from the date of grant to the estimated date that the stock option would be fully exercised. The weighted average expected option term was determined using a combination of the “simplified method” for plain vanilla options as allowed by Staff Accounting Bulletin No. 107, Share-Based Payments (“SAB No. 107”) and as further permitted by Staff Accounting Bulletin No. 110, Share-Based Payments (“SAB No. 110”). The “simplified method” calculates the expected term as the average of the vesting term and original contractual term of the options.

Expected Volatility. Expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate. Expected volatility is based on the historical daily volatility of the price of our common shares. The Company estimated the expected volatility of the stock options at grant date.

Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our stock-based awards.

The fair value of the options is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions for grants during the periods indicated:

	Nine Months Ended February 29, 2008			Nine Months Ended February 28, 2007			From Inception through February 29, 2008
Dividends per year		0			0			0
Volatility percentage		95%-96	%		94	%		90%-131	%
Risk free interest rate		3.10%-4.13	%		4.80-4.88	%		2.07%-5.11	%
Expected life (years)		6.25-10			4			3-10
Weighted average fair value	$	1.04		$	2.08		$	2.02

11

As of February 29, 2008, there were 4,370,826 stock options outstanding.  At February 29, 2008, the aggregate fair value of the remaining compensation cost of unvested options, as determined using a Black-Scholes option valuation model was approximately $1,045,000 (net of estimated forfeitures).  During the nine and three months ended February 29, 2008, the Company granted 457,500 and 137,500 stock options, respectively. 

The following summarizes certain information regarding stock options as of and for the period ended February 29, 2008:

	Shares			Weighted  Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding at May 31, 2007		3,963,862		$	2.00		6.9
Granted		457,500		$	1.27		9.7
Exercised		0			—		—
Forfeited		(20,020	)	$	2.57		—
Expired		(30,516	)	$	2.70		—
Outstanding at February 29, 2008		4,370,826		$	1.92		6.5
Exercisable at February 29, 2008		3,802,684		$	1.91		6.5

The outstanding and exercisable stock options as of February 29, 2008 had an intrinsic value of $0 and $0, respectively.

				Total						Exercisable
Exercise Price Range		Number		Weighted Average Exercise Price		Weighted Average Remaining Life (years)		Number		Weighted Average Exercise Price		Weighted Average Remaining Life (years)
$	0.90 – 1.35		557,500	$	1.27		8.6		296,300	$	1.28		8.6
$	1.36 – 1.80		2,061,255	$	1.50		5.0		2,061,255	$	1.50		5.0
$	1.81 – 2.25		217,500	$	2.13		6.6		204,371	$	2.13		6.6
$	2.26 – 2.70		861,000	$	2.50		7.4		659,728	$	2.52		7.4
$	2.71 – 3.15		646,571	$	2.84		8.0		568,656	$	2.84		8.0
$	3.16 – 4.50		27,000	$	4.50		8.1		12,374	$	4.50		8.1
			4,370,826	$	1.92		6.5		3,802,684	$	1.91		6.5

NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141R (revised 2007) Business Combinations (“SFAS 141R”). SFAS 141R states that all business combinations (whether full, partial or step acquisitions) will result in all assets and liabilities of an acquired business being recorded at their fair values. Certain forms of contingent considerations and certain acquired contingencies will be recorded at fair value at the acquisition date. SFAS 141R also states acquisition costs will generally be expensed as incurred and restructuring costs will be expensed in periods after the acquisition date. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited.

In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 requires a company to clearly identify and present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; changes in ownership interest be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited.

12

In December 2007, the FASB ratified the Emerging Issue Task Force (“EITF”) Issue 07-01, Accounting for Collaborative Arrangements (“EITF 07-01”). EITF 07-01 clarifies the accounting for contractual arrangements wherein two or more parties come together to participate in a joint operating activity which is conducted based on provisions of a contract. EITF 07-01 provides guidance on income statement classification of revenues and expenses related to such activities, and specifies disclosures that should be made with respect to such activities. EITF 07-01 is effective for fiscal years beginning after December 15, 2008. The Company has not completed its evaluation of the potential impact, if any, of the adoption of EITF 07-01 on its financial statements.

In June 2007, the FASB ratified EITF Issue 07-03: Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-03”). EITF 07-03 provides guidance for accounting for non-refundable payments paid to conduct research and development on behalf of the reporting entity. EITF 07-03 specifies that such payments should be initially capitalized, then expensed as the goods are received or the services have been performed. If the entity does not expect to the goods to be delivered or the services to be rendered, the costs should be expensed at that time. EITF 07-03 is effective for fiscal years beginning after December 15, 2007. The Company does not expect the adoption of EITF 07-03 to have any impact on its financial statements.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”)  which provides companies with an option to measure, at specified election dates, many financial instruments and certain other items at fair value that are not currently measured at fair value. A company will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective as of the beginning of an entity's fiscal year that begins after November 15, 2007. The Company has not completed its evaluation of the potential impact, if any, of the adoption of SFAS No. 159 on its results of operations and cash flows.

In December 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-02 "Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-02") which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, "Accounting for Contingencies." Adoption of FSP EITF 00-19-02 is required for fiscal years beginning after December 15, 2006. For our private placement transactions in September 2003, May 2005, December 2005 and July 2006, the Company granted registration rights which included payment arrangements of liquidated damages under certain circumstances, as noted in each respective registration rights agreement, including in the event an effective registration statement registering the resale of shares of common stock issuable upon exercise of the warrants does not remain effective. The Company generally uses its best efforts or all commercially reasonable efforts to maintain effective registration statements.  The Company completed its evaluation, and believes that an obligation to transfer consideration under its registration payment arrangement for all registrations since inception is not probable.  Accordingly, we adopted FSP EITF 00-19-02 as of June 1, 2007 and as of the adoption date, it did not have any impact on the financial statements.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. On February 12, 2008, the FASB issued FASB Staff Position 157-2, which delayed the effective date of SFAS No. 157 for non-financial assets and liabilities, except those that are recognized or disclosed in financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. The Company does not expect the adoption of SFAS No. 157 to have a material impact on the financial statements.

In July 2006, the FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109. (“FIN 48”), which clarifies Statement 109, Accounting for Income Taxes and establishes the criterion that an individual tax position has to meet for some or all of the benefits of that position to be recognized in the Company’s financial statements. On initial application, FIN 48 must be applied to all tax positions for which the statute of limitations remains open. Only tax positions that meet the more-likely-than-not recognition threshold at the adoption date will be recognized or continue to be recognized. The cumulative effect of applying FIN 48 is to be reported as an adjustment to retained earnings at the beginning of the period in which it is adopted. The provisions of FIN 48 are effective for our fiscal year beginning June 1, 2007. We have determined that the impact of uncertain tax positions did not have a material effect on our financial position or results of operations.

13

NOTE 4. RELATED PARTIES

For the nine and three month periods ended February 29, 2008, the Company incurred $22,115 and $4,275 respectively, of expenses related to air travel to a partnership principally owned by the Chief Executive Officer of the Company. For the nine and three month periods ended February 28, 2007, the Company incurred $66,924 and $31,298, respectively, of expenses related to air travel to a partnership principally owned by the Chief Executive Officer of the Company.

The Company has an agreement with its Chairman to pay $12,500 per month as a director fee. For the nine and three month periods ended February 29, 2008, the Company incurred $112,500 and $37,500 respectively, for this director’s fee. For the nine and three month periods ended February 28, 2007, the Company incurred $112,500 and $37,500 respectively, for this director’s fee.

The Company has an agreement with Carleton A. Holstrom, Eugene A. Bauer, MD and Peter G. Tombros to pay each $1,667 per month payable on a quarterly basis in arrears as a director fee. For the nine and three month periods ended February 29, 2008, the Company incurred $45,000 and $15,000 respectively for these directors’ fees. For the nine and three month periods ended February 28, 2007, the Company incurred $45,000 and $15,000, respectively, for these directors’ fees. As of February 29, 2008, $8,334 is included within Accrued Expenses and was subsequently paid on March 14, 2008.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Company’s unaudited financial statements and related notes included in Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2007. This discussion, as well as the remainder of this Quarterly Report on Form 10-Q, may contain forward-looking statements that are not historical facts and that are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward looking statements can be identified by the use of words such as “believe,” “expect,” “may,” “will,” “should,” “intend,” “anticipate” or the negative thereof or comparable terminology, and include discussions of matters such as anticipated financial performance, liquidity and capital resources, business prospects, technological developments, new and existing products, regulatory approvals and research and development activities. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expected. Please see the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2007 and other documents filed with the Securities and Exchange Commission for additional disclosures regarding potential risk factors that may cause the Company’s actual results and experience to differ materially from those contained in such forward-looking statements.

Overview

We are a development stage company engaged in developing a class of biopharmaceutical drugs for treating autoimmune and inflammatory diseases. Our lead product, PRTX-100, has demonstrated effectiveness in pre-clinical studies in regulating the immune system with persisting effects.  However, the effectiveness of PRTX-100 shown in pre-clinical studies using animal models may not be predictive of the results that we will see in our clinical trials.  We currently have no product on the market. We are initially targeting the autoimmune diseases idiopathic thrombocytopenic purpura, or ITP, and rheumatoid arthritis, or RA.

Favorable pre-clinical safety and efficacy studies for our lead compound, PRTX-100, laid the foundation for the Investigational New Drug application, or IND, for treating RA. We submitted the IND to the United States Food and Drug Administration or FDA in March 2005 and later in March 2005 the FDA verbally disclosed to us that it had placed our IND on clinical hold, pending additional product characterization. In August 2005, we formally replied to the FDA and in September 2005, the FDA notified us that it had lifted the clinical hold on our IND and that our proposed study could proceed. We commenced with the Phase I clinical trial in December 2005 and completed the Phase I clinical trial in March 2006. This Phase I trial was performed in healthy volunteers, and was designed primarily to assess the safety and tolerability of PRTX-100. The basic safety data demonstrated that PRTX-100 was safe and well tolerated. There were no deaths or serious adverse events. The pharmacokinetic, or PK, profile was favorable and the pre-clinical PK data was confirmed by the data in this Phase I clinical trial. In May 2007, we filed an amendment to the IND with the FDA. The amendment included the final Phase I safety study report, Chemical, Manufacturing and Control, or CMC, update, and a protocol for an additional Phase I study.

In June 2007, we commenced with an additional Phase I clinical trial designed to gain more detailed information on biomarkers, including gene expression profiling and platelet functional assessments which will allow for more optimized patient selection and targeting in the upcoming Phase II study. The trial will also extend the clinical investigation of PRTX-100 tolerability, PK, and pharmacodynamics, or PD, at higher dose ranges. Dosing was completed in July 2007 and preliminary results indicate that the drug was safe and well tolerated. The final results are expected in the second calendar quarter of 2008. A Phase II randomized, placebo controlled, multi-center study in patients with active RA, is scheduled to commence enrollment in the second half of calendar 2008.

14

For the ITP clinical trial, we contracted Trident Clinical Research Pty Ltd, a leading Australian clinical research organization, to manage and monitor our first-in-patient ITP study. This study is designed to provide initial multiple dose safety and PK data as well as preliminary efficacy information. We have identified seven sites in Australia and New Zealand, all regional referral centers for treatment of chronic ITP, to conduct a repeated dose study of PRTX-100 in chronic ITP patients. We conducted the investigator’s meeting in November 2007 and we are currently screening patients into this trial.

We also expect that other clinical trial related activities will occur during the next 12 months, including drug substance manufacturing, drug product formulation, product packaging, and additional toxicology studies. Additionally, we intend to conduct pre-clinical research with PRTX-100 and other compounds in several other autoimmune indications.

In the area of intellectual property and derivative drug development, our patent application was filed in April 2002 and in May 2007 the United States Patent and Trademark Office or PTO issued patent #7,211,258 titled “Protein A Compositions and Methods of Use.” Additionally, patent applications relating to the manufacturing process of PRTX-100 and new compounds are currently in process.

Staffing plans for fiscal 2008 include hiring additional clinical and laboratory support personnel or outsourcing to qualified consultants. Continued growth in staffing is anticipated in our business plan, and specialized staffing requirements in the areas of scientific and FDA regulatory affairs will call for competitive compensation plans to attract and retain qualified personnel.

In the third fiscal quarter of 2006, we completed the expansion of our current facility in New Hope, PA and in April 2007, we extended our lease through January 31, 2009 with an option for one additional year. Additional expansion of laboratory space is anticipated with our further growth.

Critical Accounting Policies

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Note 2 to the financial statements describes the significant accounting policies and methods used in the preparation of our financial statements.

We have identified the policies below as some of the more critical to our business and the understanding of our financial position and results of operations. These policies may involve a high degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our financial statements. Although we believe our judgments and estimates are appropriate and correct, actual future results may differ from estimates. If different assumptions or conditions were to prevail, the results could be materially different from these reported results. The impact and any associated risks related to these policies on our business operations are discussed throughout this report where such policies effect our reported and expected financial results.

As part of the process of preparing our financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. In the event that we determine that we would be able to realize deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset valuation allowance would increase income in the period such determination was made.

We account for our stock option grants under the provisions of SFAS No. 123R, Share-Based Payments (“SFAS 123R”). SFAS 123R requires the recognition of the fair value of share-based compensation in the statements of operations. The fair value of our stock option awards was estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections in adopting and implementing SFAS 123R, including expected stock price volatility and the estimated life of each award. The fair value of share-based awards is amortized over the vesting period of the award and we have elected to use the straight-line method for awards granted after the adoption of SFAS 123R.

Results of Operations

Research and Development Expenses - Research and Development expenses were $5,716,415 and $4,102,055 for the nine months ended February 29, 2008 and February 28, 2007, respectively and were $1,954,781 and $1,757,711 for the three months ended February 29, 2008 and February 28, 2007, respectively. The increase of $1,614,360 or 39% for the nine month period and $197,070 or 11% for the three month period was primarily the result of increased clinical personnel and consultants, clinical trial activity, the completion of the toxicology study, along with on-going product manufacturing and formulation related costs as compared to the same periods last year.

15

There are significant risks and uncertainties inherent in the preclinical and clinical studies associated with our research and development program. These studies may yield varying results that could delay, limit or prevent a program’s advancement through the various stages of product development and significantly impact the costs to be incurred, and time involved, in bringing a program to completion. As a result, the costs to complete such programs, as well as the period in which net cash outflows from such programs are expected to be incurred, are not reasonably estimable.

Administrative Expenses - Administrative expenses were $2,180,613 and $2,670,755 for the nine months ended February 29, 2008 and February 28, 2007, respectively and were $724,142 and $861,460 for the three months ended February 29, 2008 and February 28, 2007, respectively. The decrease of $490,142 or 18% for the nine month period and $137,318 or 16% for the three month period was due to decreased stock option compensation expense as compared to the same periods last year.

Professional Fees - Professional expenses were $534,918 and $451,012 for the nine months ended February 29, 2008 and February 28, 2007, respectively and were $172,814 and $147,735 for the three months ended February 29, 2008 and February 28, 2007. The increase of $83,906 or 19% for the nine month period and $25,079 or 17% for the three month period was due to an increase in business development activities pertaining to potential partnerships as compared to the same period last year.

Interest income - Interest income was $506,110 and $779,634 for the nine months ended February 29, 2008 and February 28, 2007, respectively and was $110,072 and $255,168 for the three months ended February 29, 2008 and February 28, 2007, respectively. The decrease of $273,524, or 35% for the nine month period and $145,096 or 57% for the three month period was attributed to a decrease in interest bearing cash balances resulting from the use of cash in operations and lower interest rates as compared to the same periods last year.

Net Loss Outlook

We have not generated any product sales revenues, have incurred operating losses since inception and have not achieved profitable operations. Our deficit accumulated during the development stage through February 29, 2008 is $34,792,510, and we expect to continue to incur substantial losses in future periods. We expect that our operating losses in future periods will be the result of continued research and development expenses relating to PRTX-100, as well as costs incurred in preparation for the potential commercialization of PRTX-100.

We are highly dependent on the success of our research and development efforts and, ultimately, upon regulatory approval and market acceptance of our products under development, particularly our lead product candidate, PRTX-100. We may never receive regulatory approval for any of our product candidates, generate product sales revenues, achieve profitable operations or generate positive cash flows from operations, and even if profitable operations are achieved, they may not be sustained on a continuing basis.

Liquidity and Capital Resources

Since 1999, we have incurred significant losses, and we expect to experience operating losses and negative operating cash flow for the foreseeable future. Our primary source of cash to meet short-term and long-term liquidity needs is the sale of shares of our common stock. We issue shares in private placements at a discount to the current market price, as such the resale of privately-placed shares are restricted under the Securities Act, which reduces their liquidity and, accordingly, their value as compared to freely-tradable shares on the open market.

On September 18, 2003, we raised $12,657,599 through the sale of 7,445,646 shares of our common stock at $1.70 per share, with warrants to purchase an additional 3,164,395 shares of our common stock, at an exercise price of $2.40 per share. The warrants expire on September 19, 2008. Net of transaction costs of $1,301,536, our proceeds were $11,356,063.

On May 25, 2005, we raised $5,057,885 through the sale of 2,593,788 shares of our common stock at $1.95 per share, with warrants to purchase an additional 920,121 shares of our common stock, at an exercise price of $2.25 per share. The warrants expire on May 25, 2010. As part of this transaction, the exercise price for the warrants from the September 2003 transaction were lowered from $2.40 per share to $2.25 per share. Net of transaction costs of $206,692, our proceeds were $4,851,193.

On December 30, 2005, we raised $5,839,059 through the sale of 2,595,132 shares of our common stock at $2.25 per share, with warrants to purchase an additional 648,784 shares of our common stock, at an exercise price of $2.99 per share. We also issued warrants to purchase 227,074 shares of our common stock, at an exercise price of $2.99 per share, to the placement agent. All the warrants expire on December 30, 2010. Net of transaction costs of approximately $328,000, our proceeds were $5,510,967.

16

In the fourth fiscal quarter of 2006, existing investors exercised 351,598 warrants which resulted in $786,538 in cash proceeds.

On July 7, 2006, we raised $14,217,660, net of transaction costs of $960,000, through the sale of 6,071,013 shares of our common stock at $2.50 per share, with warrants to purchase an additional 1,517,753 shares of our common stock, at an exercise price of $3.85 per share. We also issued warrants to purchase 531,214 shares of our common stock, at an exercise price of $3.85 per share, to the placement agent. All the warrants expire on July 7, 2011.

In the first fiscal quarter of 2007, existing investors and option holders exercised 133,500 warrants and 6,000 options which resulted in $315,574 in cash proceeds.

To the extent any further warrants are exercised, we intend to use the proceeds for general working capital and corporate purposes. If all warrants are exercised in cash, our proceeds would be approximately $18.9 million.

Net Cash Used In Operating Activities and Operating Cash Flow Requirements Outlook

Our operating cash outflows for the nine months ended February 29, 2008 and February 28, 2007 have resulted primarily from research and development expenditures associated for PRTX-100. We expect to continue to use cash resources to fund operating losses. We expect to continue to incur operating losses in fiscal 2008 and beyond due to continuing research and development activities.

Net Cash Used In Investing Activities and Investing Requirements Outlook

Net cash used in investing activities for the nine months ended February 28, 2007 relates primarily to the acquisition of capital equipment for laboratory equipment, furniture and fixtures, office equipment and leasehold improvements associated with our leased facility. We expect to continue to require investments in information technology, laboratory and office equipment to support our research and development activities.

Net Cash Provided by Financing Activities and Financing Requirements Outlook

Net cash inflows provided by financing activities for the nine months ended February 28, 2007 resulted primarily from the sale of shares of common stock and the exercise of warrants and stock options.

We may never receive regulatory approval for any of our product candidates, generate product sales revenues, achieve profitable operations or generate positive cash flows from operations, and even if profitable operations are achieved, these may not be sustained on a continuing basis. We have invested a significant portion of our time and financial resources since our inception in the development of PRTX-100, and our potential to achieve revenues from product sales in the foreseeable future is dependent largely upon obtaining regulatory approval for and successfully commercializing PRTX-100, especially in the United States. We expect to continue to use our cash and investments resources to fund operating and investing activities. We believe that our existing cash and cash equivalents of $10,893,570 as of February 29, 2008 will be sufficient to fund operations into fiscal 2009 based upon our expectations of the level of research and development, and administrative activities necessary to achieve our strategic objectives.

Off Balance Sheet Arrangements and Contractual Obligations

We have entered into the following contractual obligations:

· Employee Agreements-Officers. To attract and retain qualified management personnel, we have entered into employment agreements with two executive officers: Steven H. Kane, president and chief executive officer and Marc L. Rose, CPA, vice president of finance, chief financial officer, treasurer and corporate secretary.

· Directors Agreements. To attract and retain qualified candidates to serve on the board of directors, we have entered into agreements with G. Kirk Raab, Chairman of the Board, Carleton A. Holstrom, Chairman of the Audit Committee, Eugene A. Bauer, MD and Peter G. Tombros, under which Messrs. Raab, Holstrom, Dr. Bauer and Mr. Tombros receive aggregate annual cash payments aggregating $150,000, $20,000, $20,000 and $20,000, respectively, as directors’ fees.

· Operating Lease – Office Space. We have entered into a three-year operating lease in New Hope, PA for 3,795 square feet of office and laboratory space. The lease commenced on January 9, 2004 and was originally to expire on February 28, 2007. On November 18, 2005, we modified the existing lease which added an additional 2,147 square feet and extended the lease term to January 31, 2008 and on April 30, 2007, we modified the existing lease and extended the lease term to January 31, 2009.

17

· Operating Lease – Copier. We have entered into a sixty-three month operating lease for a multi-function copier. The lease commenced on December 16, 2004 and will expire on March 16, 2010.

ITEM 4. CONTROLS AND PROCEDURES

For the quarter ended February 29, 2008, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based upon this evaluation, our President and Chief Executive Officer and our Vice President and Chief Financial Officer concluded that, as of February 29, 2008, our disclosure controls and procedures were effective.

There have not been any changes in our internal control over financial reporting during the quarter ended February 29, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS:

EXHIBIT INDEX

2.1	Stock Purchase Agreement among the Company, Don Hanosh and Enerdyne Corporation, dated December 6, 1999	Incorporated by reference, to Exhibit 2.1 to the Company’s 10-SB filing on December 6, 1999
2.2	Merger Agreement and Plan of Re-organization between the Company and Enerdyne Corporation	Incorporated by reference, to Exhibit 2.2 to the Company’s 10-SB filing on December 6, 1999
2.3	Plan of Merger and Agreement between Protalex, Inc., a New Mexico corporation and Protalex, Inc. a Delaware Corporation	Incorporated by reference, to Exhibit 2.1 to the Company’s 8-K filing on December 6, 2004
3.1	Certificate of Incorporation of the Company	Incorporated by reference, to Exhibit 3.1 to the Company’s 8-K filing on December 6, 2004
3.2	Bylaws of the Company	Incorporated by reference, to Exhibit 3.2 to the Company’s 8-K filing on December 6, 2004
3.3	State of Delaware, Certificate of Amendment of Certificate of Incorporation	Incorporated by reference, to Exhibit 3.3 to the Company 10-QSB filed on January 13, 2006
4.1	Letter Agreement with Pembroke Financial Ltd. Dated July 9, 2001	Incorporated by reference, to Exhibit 10.9 to the Company’s 10-KSB/A filed on September 24, 2003
4.2	Securities Purchase Agreement dated September 18, 2003 between the Company and certain of the Selling Stockholders	Incorporated by reference, to Exhibit 4.3 to the Company’s SB-2 filed on October 20, 2003.
4.3	Investor Rights Agreement dated September 18, 2003 between the Company and certain of the Selling Stockholders	Incorporated by reference, to Exhibit 4.3 to the Company’s SB-2 filed on October 20, 2003.
4.4	Form of Common Stock Purchase Warrant issued by the Company to the Selling Stockholders	Incorporated by reference, to Exhibit 4.4 to Company’s SB-2 filed on October 20, 2003.
4.5	Warrant and Common Stock Purchase Agreement dated May 25, 2005 among the Company and the several purchasers thereunder	Incorporated by reference to Exhibit 4.5 to the Company’s Form SB-2 filed on June 16, 2005
4.6	Registration Rights Agreement dated May 25, 2005 among the purchasers under the Warrant and Common Stock Purchase Agreement of even date therewith	Incorporated by reference to Exhibit 4.6 to the Company’s Form SB-2 filed on June 16, 2005
4.7	Addendum 1 to Subscription Agreement and Questionnaire of vSpring SBIC, LP dated May 25, 2005	Incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 10-KSB filed on August 26, 2005
4.8	Warrant and Common Stock Purchase Agreement dated December 22, 2005 among the Company and the several purchasers thereunder	Incorporated by reference, to Exhibit 4.5 to the Company’s SB-2 filed on January 27, 2006
4.9	Registration Rights Agreement dated December 22, 2005 among the purchasers under the Warrant and Common Stock Purchase Agreement of even date therewith	Incorporated by reference, to Exhibit 4.6 to the Company’s SB-2 filed on January 27, 2006

18

4.10	Form of Warrant issued by the Company to the Selling Stockholders dated December 22, 2005 of even date therewith	Incorporated by reference, to Exhibit 4.7 to the Company’s SB-2 filed on January 27, 2006
4.11	Warrant and Common Stock Purchase Agreement dated June 30, 2006 among the Company and the several purchasers thereunder	Incorporated by reference, to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 10, 2006.
4.12	Registration Rights Agreement dated June 30, 2006 among the purchasers under the Warrant and Common Stock Purchase Agreement of even date therewith	Incorporated by reference, to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 10, 2006
4.13	Form of Warrant issued by the Company to the Selling Stockholders dated June 30, 2006 of even date therewith	Incorporated by reference, to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 10, 2006
10.1	Employment offer letter executed by Steven H. Kane	Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB filed on January 13, 2006.
10.2	Board appointment executed by G. Kirk Raab	Incorporated by reference, to Exhibit 10.4 to the Company’s Annual Report on Form 10-KSB/A filed on September 24, 2003.
10.3	Form of Option Agreement	Incorporated by reference, to Exhibit 10.6 to the Company’s Annual Report on Form 10-KSB/A filed on September 24, 2003
10.4	Frame Contract between the Company and Eurogentec S.A.	Incorporated by reference, to Exhibit 10.5 to the Company’s 10-KSB/A filed on September 24, 2003
10.5	Assignment of Intellectual Property from Alex LLC to the Company	Incorporated by reference, to Exhibit 10.8 to the Company’s 10-KSB/A filed on September 24, 2003.
10.6	Assignment of Intellectual Property from Dr. Paul Mann to the Company	Incorporated by reference, to Exhibit 10.8 to the Company’s Annual Report on Form 10-KSB/A filed on September 24, 2003.
10.7	Stock Redemption Agreement dated August 15, 2003, by and between the Company, Paul L. Mann, Leslie A. McCament-Mann, Gail Stewe and Elizabeth Sarah Anne Wiley	Incorporated by reference, to Exhibit 10.10 to the Company’s Annual Report on Form 10-KSB/A filed on September 24, 2003.
10.8	Letter dated August 21, 2003 from Paul L. Mann to the Company	Incorporated by reference, to Exhibit 10.11 to the Company’s Annual Report on Form 10-KSB/A filed on September 24, 2003.
10.9	Technology License Agreement dated November 17, 1999, between the Company and Alex, LLC	Incorporated by reference, to Exhibit 10.4 to the Company’s Registration of Securities on Form 10-SB filed on December 6, 1999.
10.10	Letter Agreement, dated March 16, 2005, effective October 26, 2004, between the Company and Carleton A. Holstrom	Incorporated by reference, to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-QSB/A filed on April 14, 2005.
10.11	Description of the verbal agreement between the Company and Eugene A. Bauer, M.D.	Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 22, 2005.
10.12	Protalex, Inc. 2003 Stock Option Plan Amended and Restated as of July 29, 2005	Incorporated by reference to Appendix B to the Company’s Proxy Statement filed on September 23, 2005.
10.13	Description of the verbal agreement between the Company and Peter G. Tombros	Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 14, 2005.
10.14	Modified lease agreement with Union Square LP, dated November 18, 2005	Incorporate by reference to Exhibit 99.1 to the Company’s Current Report Form 8-K filed on November 22, 2005.
10.15	Employment offer letter executed by Marc L. Rose, CPA, Vice President, Chief Financial Officer, Treasurer and Corporate Secretary	Incorporated by reference, to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB filed on January 14, 2005.

10.16 Employment offer letter executed by Victor S. Sloan, M.D, former Senior Vice President and Chief Medical Officer Incorporated by reference, to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB filed on October 14, 2005.

19

10.17†	Clinical Study Agreement executed October 19, 2005 between the Company and PAREXEL International LLC	Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB filed on January 13, 2006.
10.18†	Service Contract with AAIPharma Inc., dated January 29, 2007	Incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-QSB filed on April 13, 2007.
10.19	Modified lease agreement with Union Square LP, dated April 30, 2007	Incorporate by reference to Exhibit 99.1 to the Company’s Current Report Form 8-K filed on May 3, 2007.
31.1	Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act	Filed herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act	Filed herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith

†Portions of the exhibit have been omitted pursuant to a request for confidential treatment.  The confidential portions have been filed with the SEC.

20

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 11, 2008	PROTALEX, INC.
	By: /s/ Steven H. Kane
	Steven H. Kane, President and Chief
	Executive Officer
Date: April 11, 2008
	By: /s/ Marc L. Rose
	Marc L. Rose, Vice President of Finance,
	Chief Financial Officer, Treasurer
	and Corporate Secretary

21