----

----

| Nevada                          | 36-3207413             |
|---------------------------------|------------------------|
| (State or other jurisdiction of | (IRS Employer Id. No.) |
| incorporation or organization)  |                   |
|                            |                   |

----

----

----

----

----

----

----

|   | 1. | Psychosocial factors |
|--------|----|----------------------|

|   | a. | impact of stress on motor function of the GI tract |
|--------|----|----------------------------------------------------|

|   | b. | approximately 60% of patients seen at referral centers have psychiatric symptoms. |
|--------|----|-----------------------------------------------------------------------------------|

|   | 2. | Visceral hypersensitivity - lower threshold for abdominal pain |
|--------|----|----------------------------------------------------------------|

|   | 3. | Altered bowel motility - abnormal motility of the small intestine |
|--------|----|-------------------------------------------------------------------|

|   | 4. | Infection and inflammation |
|--------|----|----------------------------|

|   | 5. | Autonomic nervous system dysfunction |
|--------|----|--------------------------------------|

|   | a. | studies show that IBS patients have aberrant autonomic nervous system activity |
|--------|----|--------------------------------------------------------------------------------|

|   | b. | altering autonomic nervous system activity in volunteers produces symptoms of IBS. |
|--------|----|------------------------------------------------------------------------------------|

|   | 1. | Improvement with defecation |
|--------|----|-----------------------------|

|   | 2. | Onset associated with a change in frequency of stool |
|--------|----|------------------------------------------------------|

|   | 3. | Onset associated with a change in form (appearance) of stool |
|--------|----|--------------------------------------------------------------|

----

----

----

----

----

|   | (i) | Preclinical studies including pharmacology, laboratory evaluation and animal studies to test for initial safety and efficacy; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | Submission to the FDA of an Investigational New Drug (IND) Application, which must become effective before human clinical trials may commence; |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | Adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug in its intended application; |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | Submission to the FDA of a New Drug Application (NDA), which application is not automatically accepted by the FDA for consideration; and |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | (v) | FDA approval of the New Drug Application prior to any commercial sale or shipment of the drug. |
|--------|-----|------------------------------------------------------------------------------------------------|

----

----

----

----

----

|   | · | the size of the patient population, |
|--------|--------|-------------------------------------|

|   | · | the nature of the protocol (i.e., how the drug is given, and the size and frequency of the dose and use of placebo control), |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | the proximity of patients to clinical sites, and |
|--------|--------|--------------------------------------------------|

|   | · | the eligibility criteria for the clinical trial (i.e., age group, level of symptoms, concomitant diseases or medications etc.). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | injunctions; |
|--------|--------|--------------|

|   | · | criminal prosecution; |
|--------|--------|-----------------------|

|   | · | refusals to approve new products and withdrawal of existing approvals; and |
|--------|--------|----------------------------------------------------------------------------|

|   | · | enhanced exposure to product liabilities. |
|--------|--------|-------------------------------------------|

----

----

| Year ended December 31, 2010 |   | HIGH   |   |   | LOW    |   |
|------------------------------|--------|--------|--------|--------|--------|--------|
|                         |   |   |   |   |   |   |
| 4th Quarter                  |   | $      | .12    |   |   | $      | .09 |   |
| 3rd Quarter                  |   |   | .14    |   |   |   | .05 |   |
| 2nd Quarter                  |   |   | .09    |   |   |   | .06 |   |
| 1st Quarter                  |   |   | .12    |   |   |   | .07 |   |
|                         |   |   |   |   |   |   |   |   |
| Year ended December 31, 2009 |   | HIGH   |   |   | LOW    |   |
|                         |   |   |   |   |   |   |   |   |
| 4th Quarter                  |   | $      | .17    |   |   | $      | .06 |   |
| 3rd Quarter                  |   |   | .48    |   |   |   | .15 |   |
| 2nd Quarter                  |   |   | .30    |   |   |   | .06 |   |
| 1st Quarter                  |   |   | .14    |   |   |   | .03 |   |

----

----

----

----

----

----

|                            |   | December 31, 2010 |      |   | December 31, 2009 |   |
|---------------------------------|--------|-------------------|-----------|--------|-------------------|--------|
| Working capital                 |   | $                 | 3,015,068 |   |              | $      | 4,238,033 |   |
| Cash and cash equivalents       |   | $                 | 3,139,347 |   |              | $      | 4,629,486 |   |
| Convertible debenture, due 2012 |   | $                 | 1,000,000 |   |              | $      | 1,000,000 |   |

----

----

|                           |   | Payments Due by Period |      |
|--------------------------------|--------|------------------------|-----------|
|                           |   |  Total            |      |   | Less than 1 Year |   |   | 1 – 3Years |   |   | 3 – 5Years |   |   | More Than5 Years |   |   |  Undetermined |   |
| Operating Leases               |   | $                      | 25,548    |   |   | $ | 25,548 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Convertible Debenture Interest |   |                   | 183,333   |   |   |   | 100,000 |   |   |   | 83,333 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Convertible Debenture          |   |                   | 1,000,000 |   |   |   | - |   |   |   | 1,000,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total                          |   | $                      | 1,208,881 |   |   | $ | 125,548 |   |   | $ | 1,083,333 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |

|   | · | $1 million cash: Final patient enrolled in Phase 2b trial (1) |
|--------|--------|---------------------------------------------------------------|

|   | · | $2 million + 2 million shares: NDA submission |
|--------|--------|-----------------------------------------------|

|   | · | $2 million cash +2.25 million shares: FDA approval |
|--------|--------|----------------------------------------------------|

|   | · | 1 million shares: Approval to market in Europe or Japan |
|--------|--------|---------------------------------------------------------|

|   | · | 4 million shares: $100 million sales of Dextofisopam, when and if approved, in any 12-month period |
|--------|--------|----------------------------------------------------------------------------------------------------|

----

----

----

----

| Name                         | Age | Position                                                    |
|------------------------------|-----|-------------------------------------------------------------|
| Robert F. Johnston           | 74  | Executive Chairman of the Board of Directors                |
| S. Colin Neill               | 64  | President, Chief Financial Officer, Secretary and Treasurer |
| Srinivas Akkaraju, MD, Ph.D* | 42  | Director                                                    |
| Anthony B. Evnin, Ph.D*      | 69  | Director                                                    |
| Charles W. Newhall III       | 66  | Director                                                    |
| Steven Leventer, Ph.D*       | 55  | Director                                                    |

| * | Members of the Audit Committee |
|---|--------------------------------|

----

----

----

----

----

----

| Name/Principal Position   |   | Year   |   | Salary |    |   | Bonus  |   |   | StockAwards |   | OptionAwards |    |   | All OtherCompensation |    |   | TotalCompensation |   |
|---------------------------|--------|--------|--------|--------|---------|--------|--------|--------|--------|-------------|--------|--------------|---------|--------|-----------------------|---------|--------|-------------------|--------|
|                      |   |   |   |   |    |   |   |   |   |        |   |         |    |   |                  |    |   |              |   |
| S. Colin Neill            |   | 2010   |   | $      | 300,000 |   |   |   | -      |        |   |         | -  |   |                  | -       |   |              | $      | 21,967 | (1) |   | $ | 321,967 |   |
| President,                |   | 2009   |   | $      | 300,000 |   |   | $      | 80,000 |        |   |         | -  |   | $                     | 105,820 |   |              | $      | 21,967 | (1) |   | $ | 507,787 |   |
| Chief Financial Officer,  |   |   |   |   |    |   |   |   |   |        |   |         |    |   |                  |    |   |              |   |   |   |   |   |   |   |
| Secretary & Treasurer |   |   |   |   |    |   |   |   |   |        |   |         |    |   |                  |    |   |              |   |   |   |   |   |   |   |
|                      |   |   |   |   |    |   |   |   |   |        |   |         |    |   |                  |    |   |              |   |   |   |   |   |   |   |
| Robert F. Johnston        |   | 2010   |   |   | -       |   |   |   | -      |        |   |         | -  |   |                  | -       |   |              |   | - |   |   |   | - |   |
| Executive Chairman        |   | 2009   |   |   | -       |   |   | $      | 80,000 |        |   | $            | 264,000 |   |                  | -       |   |              |   | - |   |   | $ | 344,000 |   |
|                      |   |   |   |   |    |   |   |   |   |        |   |         |    |   |                  |    |   |              |   |   |   |   |   |   |   |

| (1) | In 2010, consists of $7,350 in 401k employer contribution, $5,617 in life insurance and $9,000 in automobile allowance. In 2009, consists of $7,350 in 401k employer contribution, $5,617 in life insurance and $9,000 in automobile allowance. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR-END |   |
|---------------------------------------------------|--------|
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                              |   | Option Awards |   | Stock Awards |   |
| Name                                              |   | Number of securities underlying unexercised options (#) Exercisable |   |   | Number of securities underlying unexercised options (#) Unexercisable |   |   | Equity Incentive Plan awards: Number of securities underlying unexercised Unearned Options (#) |   |   | Option Exercise Price ($) |   | Option Expiration Date |   | Number of Shares or Units of Stock That Have Not Vested |   |   | Market Value of Shares or Units of Stock That have not vested ($) |   |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| S. Colin Neill                                    |   |   | 225,000 |   |   |   | 375,000 | (1) |   |   | 600,000 |   |   | $ | 0.22 |   | 5/11/2019 |   |   |   |   |   |   |
|                                              |   |   | 89,375 |   |   |   | 40,625 | (2) |   |   | 130,000 |   |   | $ | 0.35 |   | 1/23/2018 |   |   |   |   |   |   |
|                                              |   |   | 37,500 |   |   |   | 2,500 | (3) |   |   | 40,000 |   |   | $ | 1.84 |   | 1/17/2017 |   |   |   |   |   |   |
|                                              |   |   | 90,000 |   |   |   | 0 | (4) |   |   | 90,000 |   |   | $ | 1.75 |   | 10/5/2016 |   |   |   |   |   |   |
|                                              |   |   | 441,875 |   |   |   | 418,125 |   |   |   | 860,000 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Robert F. Johnston                                |   |   | 272,222 |   |   |   | 77,778 | (5) |   |   | 350,000 |   |   | $ | 0.35 |   | 1/23/2018 |   | 750,000 |  (6) |  $ |  $67,500 |   |

----

----

----

----

----

----

|   | 1. | At the election of each Director, either (i) 20,000 fully vested ten-year stock options are granted in January and 20,000 fully vested ten-year stock options are granted on July 1, or (ii) a cash payment of $6,000 is made in January and $6,000 on July 1. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 2. | The Chairman of the Audit Committee will be granted an additional 5,000 fully vested ten-year stock options in January and 5,000 fully vested ten-year stock options on July 1; and the Chairmen of the Compensation and the Governance and Nominating Committees will each be granted an additional 2,500 fully vested ten-year stock options in January and 2,500 fully vested ten-year stock options on July 1. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Effective September 2, 2010, newly elected members of the Board of Directors shall receive a one-time grant of 350,000 ten-year stock options, one-third of which shall be immediately vested and exercisable, one-third of which shall vest on the first anniversary of grant and one-third of which shall vest on the second anniversary of grant, at an exercise price equal to the closing price of the company’s Common Stock on the trading date immediately prior to the date a new Director joins the Board; and that any Director receiving such one-time grant will not be eligible for compensation customarily awarded to Directors until the first semi-annual option grant or cash payment to Directors following the first anniversary of his or her one-time option grant. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  Name                                 |   | Fees Earned or Paid in Cash($) |   | Option Awards ($) (1) |   |   | All Other Compensation ($) |   |   |   | Total ($) |
|--------------------------------------------|--------|--------------------------------|--------|-----------------------|--------|--------|----------------------------|--------|--------|--------|-----------|
|  Srinivas Akkaraju, M.D., Ph.D.  |   |                           | 0      |                  | $      | 2,336  |                       |   | $      | -      |      |   |  $ | 2,336 |
|  Anthony B. Evnin, Ph.D.    |   |                           | 0      |                  | $      | 2.920  |                       |   | $      | -      |      |   |  $ | 2,920 |
|  Charles W. Newhall, III    |   |                           | 0      |                  | $      | 2,920  |                       |   | $      | -      |      |   |  $ | 2,920 |
|  Steven Leventer, Ph.D.               |   |                           | 0      |                  | $      | 35,069 |  (2)                  |   | $      | 20,000 |  (3) |   |  $ | 55,069 |

|   | (1) | Reflects the aggregate grant date fair value in accordance with FAS ASC Topic 718.  All options awarded to Directors in 2010 remained outstanding at fiscal year-end. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Dr Leventer was granted 350,000 ten-year options in September 2010 upon his appointment as a new board member of the Company. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Represents fees paid by the Company to PharmaNet, with whom Dr. Leventer is employed, pursuant to a consulting arrangement.  The fees consisted of $19,250 for consulting, and $750 in travel expense reimbursement. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Plan Category                                              |   | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |      |   | Weighted average exercise price of outstanding options, warrants and rights (b) |   |   | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (c) |   |
|------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|-----------|--------|--------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Equity compensation plans approved by security holders     |   |                                                                                                 | 3,498,474 |   |                                                                                 | $      | 1.97   |                                                                                                                                                |   |   | 7,580,000 |   |
| Equity compensation plans not approved by security holders |   |                                                                                                 | N/A       |   |                                                                                 |   | N/A    |                                                                                                                                                |   |   | N/A |   |
| Total                                                      |   |                                                                                                 | 3,498,474 |   |                                                                                 | $      | 1.97   |                                                                                                                                                |   |   | 7,580,000 |   |

----

|  Name and Address of Beneficial Owner                                                                                                                                                                 | Amount of Beneficial Ownership |   |    | Percentage of Total (1) |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------|--------------|-------------------------|
| Robert F. Johnston     c/o Pharmos Corporation    99 Wood Avenue South, Suite 302, Iselin, NJ 08830                                                           | 17,986,584                     |   | (2)     |  27.2%             |
| Srinivas Akkaraju, M.D., Ph.D.    c/o New Leaf Venture Partners    2500 Sand Hill Road, Suite 203, Menlo Park, CA 94025                                            | 203,750                        |   | (3)     | *                       |
| Anthony B. Evnin    c/o Venrock Associates    530 Fifth Avenue, 22nd Floor, New York, NY 10036                                                                     | 13,857,695                     |   | (4)          | 21.7%                   |
| Steven Leventerc/o Pharmos Corporation    99 Wood Avenue South, Suite 302, Iselin, NJ 08830                                                                                            | 157,778                        |   | (5)          | *                       |
| Charles W. Newhall, III c/o New Enterprise Associates1954 Greenspring Drive, Suite 600, Timonium, MD 21093                                                                                            | 22,623,150                     |   | (6)     | 33.3%                   |
| S. Colin Neill    c/o Pharmos Corporation    99 Wood Avenue South, Suite 302, Iselin, NJ 08830                                                                     | 565,000                        |   | (7)     | *                       |
|  All Current Directors and Executive Officers as a group (six persons)                                                                                                                                | 55,393,957                     |   | (8)          | 69.9%                   |
| New Enterprise Associates 10, LP    1954 Greenspring Drive, Suite 600, Timonium, MD 21093                                                                                              | 22,435,650                     |   | (9)          | 33.1%                   |
| Venrock Associates    Venrock Associates III LP    Venrock Entrepreneurs Fund III LP    530 Fifth Avenue, 22nd Floor, New York, NY 10036  | 13,665,195                     |   | (10)         | 21.4%                   |

| (1) | Based on 59,732,332 shares of common stock outstanding as of February 17, 2011, plus each individual’s warrants or options which are either currently exercisable or will be exercisable within 60 days of the date set forth above.  Assumes that no other individual will exercise any warrants and/or options. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (2) | Consists of 5,694,921 outstanding shares, 291,663 shares issuable upon exercise of currently exercisable options, and 6,000,000 outstanding shares and 6,000,000 currently exercisable warrants held by Demeter Trust. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Consists of 203,750 shares issuable upon exercise of currently exercisable options. |
|-----|-------------------------------------------------------------------------------------|

| (4) | Consists of shares beneficially owned by Venrock Associates, Venrock Associates III LP and Venrock Entrepreneurs Fund III LP and 192,500 shares issuable upon exercise of currently exercisable options. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Consists of 41,111 outstanding shares and 116,667 shares issuable upon exercise of currently exercisable options. |
|-----|-------------------------------------------------------------------------------------------------------------------|

| (6) | Consists of shares beneficially owned by New Enterprise Associates 10, LP and 187,500 shares issuable upon exercise of currently exercisable options. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Consists of 75,000 outstanding shares and 490,000 shares issuable upon exercise of currently exercisable options. |
|-----|-------------------------------------------------------------------------------------------------------------------|

| (8) | Consists of 35,911,877 outstanding shares, 1,482,080 shares issuable upon exercise of currently exercisable options and 18,000,000 shares issuable upon exercise of currently exercisable warrants. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | Consists of 14,435,650 outstanding shares and 8,000,000 shares issuable upon exercise of currently exercisable warrants. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

| (10) | Consists of 9,665,195 outstanding shares and 4,000,000 shares issuable upon exercise of currently exercisable warrants. |
|------|-------------------------------------------------------------------------------------------------------------------------|

----

----

----

| (a) | Financial Statements and Exhibits |
|-----|-----------------------------------|

| (1) | FINANCIAL STATEMENTS |
|-----|----------------------|

| Report of Independent Registered Public Accounting Firm          |   |
|------------------------------------------------------------------|--------|
| Consolidated Balance Sheets as of December 31, 2010 and 2009     |   |
| Consolidated Statements of Operations for the years ended        |   |
| December 31, 2010 and 2009                                       |   |
| Consolidated Statements of Changes in Shareholders’ Equity |   |
| for the years ended December 31, 2010 and 2009                   |   |
| Consolidated Statements of Cash Flows for the years ended        |   |
| December 31, 2010 and 2009                                       |   |
| Notes to consolidated financial statements                       |   |

| (2) | FINANCIAL STATEMENT SCHEDULES |
|-----|-------------------------------|

| (3) | EXHIBITS |
|-----|----------|

| 2 | Plan of purchase, sale, reorganization, arrangement, liquidation, or succession |
|---|---------------------------------------------------------------------------------|

|   | 2(a) | Agreement and Plan of Merger by and among Pharmos Corporation, Vela Acquisition Corporation and Vela Pharmaceuticals Inc. dated March 14, 2006 (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed March 15, 2006). |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(b) | Amendment to Agreement and Plan of Merger by and among Pharmos Corporation, Vela Acquisition Corporation and Vela Pharmaceuticals Inc. dated August 31, 2006 (incorporated by reference to Exhibit 2.1 of the registrant’s Current Report on Form 8-K filed September 5, 2006). |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(c) | Amendment No.2 to Agreement and Plan of Merger by and among Pharmos Corporation, Vela Acquisition Corporation, Vela Acquisition No.2 Corporation and Vela Pharmaceuticals Inc. dated September 29, 2006 (incorporated by reference to Exhibit 2.1 of the registrant’s Current Report on Form 8-K filed October 5, 2006). |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(d) | Amendment No. 3 to Agreement and Plan of Merger dated as of January 3, 2008 by and among Pharmos Corporation and the Representatives named therein (incorporated by reference to Exhibit 4.5 of the registrant’s Current Report on Form 8-K filed January 4, 2008). |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3 | Articles of Incorporation and By-Laws |
|---|---------------------------------------|

|   | 3(a) | Restated Articles of Incorporation (Incorporated by reference to Appendix E to the Joint Proxy Statement/Prospectus included in the Form S-4 Registration Statement of the Company dated September 28, 1992 (No. 33-52398) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(b) | Certificate of Amendment of Restated Articles of Incorporation dated January 30, 1995 (Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1994). |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(c) | Certificate of Amendment of Restated Articles of Incorporation dated January 16, 1998 (Incorporated by reference to the Company’s Current Report on Form 8-K, dated February 6, 1998). |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 3(d) | Certificate of Amendment of Restated Articles of Incorporation dated October 21, 1999 (Incorporated by reference to exhibit 4(e) to the Form S-3 Registration Statement of the Company filed September 28, 2000 (No. 333-46818)). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(e) | Certificate of Amendment of Restated Articles of Incorporation dated July 19, 2002 (Incorporated by reference to Exhibit 3 to the Company’s Report on Form 10-Q for the quarter ended June 30, 2002). |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(f) | Certificate of Amendment of Restated Articles of Incorporation dated July 7, 2004 (Incorporated by reference to Exhibit 3.1 to the Company’s Report on Form 10-Q for the quarter ended June 30, 2004). |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(g) | Certificate of Amendment to Articles of Incorporation dated September 23, 2005 (Incorporated by reference to exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005). |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(h) | Certificate of Amendment to Articles of Incorporation dated August 5, 2009 (Incorporated by reference to exhibit 3.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(i) | Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4 | Instruments defining the rights of security holders, including indentures |
|---|---------------------------------------------------------------------------|

|   | 4(a) | Form of Employee Warrant Agreement, dated April 11, 1995, between the Company and Oculon Corporation (Incorporated by reference to the Company’s Current Report on Form 8-K, dated April 11, 1995, as amended). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(b) | Form of Warrant Agreement dated as of April 30, 1995 between the Company and Charles Stolper (Incorporated by reference to Form S-3 Registration Statement of the Company dated November 14, 1995, as amended [No. 33-64289]). |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4 (c) | Form of Stock Purchase Warrant dated as of March 31, 1997 between the Company and the Investor (Incorporated by reference to Form S-3 Registration Statement of the Company dated March 5, 1998 [No. 333-47359]). |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(d) | Form of Common Stock Purchase Warrant exercisable until September 1, 2005 (Incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on September 11, 2000). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(e) | Form of placement agent warrant with Ladenburg Thalmann & Co. Inc. (Incorporated by reference to Form S-3 Registration Statement of the Company dated September 28, 2000 (No. 333-46818). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(f) | Form of placement agent warrant with SmallCaps OnLine LLC (Incorporated by reference to Form S-3 Registration Statement of the Company dated September 28, 2000 (No. 333-46818). |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(g) | Form of consulting warrant with SmallCaps OnLine LLC (Incorporated by reference to Form S-3 Registration Statement of the Company dated September 28, 2000 (No. 333-46818). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(h) | Certificate of Designation, Rights Preferences and Privileges of Series D Preferred Stock of the Company (Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on October 24, 2002). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(i) | Rights Agreement dated as of October 23, 2002 between the Company and American Stock Transfer & Trust Company, as Rights Agent (Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on October 24, 2002). |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 4(j) | Form of Investor Warrant dated March 4, 2003 (Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on March 4, 2003). |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(k) | Form of Placement Agent’s Warrant dated March 4, 2003 (Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on March 4, 2003). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(l) | Registration Rights Agreement dated as of May 30, 2003 between the Company and the purchasers. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 3, 2003). |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(m) | Form of Investor Warrant dated June 2, 2003 (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on June 3, 2003). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(n) | Securities Purchase Agreement dated as of September 26, 2003 between the Company and the purchasers identified on the signature pages thereto 2003 (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 30, 2003). |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(o) | Form of 4% convertible debenture due March 31, 2005 (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on September 30, 2003). |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(p) | Registration Rights Agreement dated as of September 26, 2003 between the Company and the purchasers signatory thereto (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on September 30, 2003). |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(q) | Form of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on September 30, 2003). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(r) | Escrow Agreement dated as of September 26, 2003 between the Company, the purchasers signatory thereto and Feldman Weinstein LLP (Incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on September 30, 2003). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(s) | Form of Placement Agent Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on September 30, 2003). |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(t) | Rights Agreement Amendment, dated October 23, 2006, between Pharmos Corporation and American Stock Transfer & Trust Co. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 27, 2006). |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(u) | Registration Rights Agreement, dated as of October 25, 2006, by and among Pharmos Corporation and the Representatives named therein (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 31, 2006). |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(v) | 10% Convertible Debenture dated as of January 3, 2008 of Pharmos Corporation (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on January 4, 2008). |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(w) | Registration Rights Agreement dated as of January 3, 2008 by and among Pharmos Corporation and the Purchasers named therein (Incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on January 4, 2008). |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(x) | Amendment No. 2 dated as of January 3, 2008 to the Rights Agreement, dated as of September 5, 2002, as amended on October 23, 2006 (the ÒRights AgreementÓ), between Pharmos Corporation and American Stock Transfer & Trust Co., as Rights Agent (Incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January 4, 2008). |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 4(y) | Amendment No. 1 to Registration Rights Agreement dated as of April 25, 2008 by and among Pharmos Corporation and the Purchasers named therein (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 1, 2008). |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(z) | Amendment No. 2 to Registration Rights Agreement by and among Pharmos Corporation and the Purchasers named therein (Incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008). |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(aa) | Form of waiver under Pharmos Corporation 10% Convertible Debentures Due November 1, 2012 (Incorporated by reference to exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008). |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(bb) | Form of waiver, dated January 15, 2009, under Pharmos Corporation 10% Convertible Debentures Due November 1, 2012 (incorporated by reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed January 22, 2009) |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(cc) | Securities Purchase Agreement dated as of April 21, 2009 by and among Pharmos Corporation and the Purchasers named therein (incorporated by reference to exhibit 4.1 to the Company’s Current Report on Form 8-K filed April 23, 2009). |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(dd) | Form of Stock Purchase Warrant dated April 21, 2009 (incorporated by reference to exhibit 4.2 to the Company’s Current Report on Form 8-K filed April 23, 2009). |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(ee) | Registration Rights Agreement dated as of April 21, 2009 by and among Pharmos Corporation and the Purchasers named therein (incorporated by reference to exhibit 4.3 to the Company’s Current Report on Form 8-K filed April 23, 2009). |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(ff) | Debenture Amendment Agreement dated April 21, 2009 among Pharmos Corporation, New Enterprise Associates 10, Limited Partnership, Venrock Associates, Venrock Associates III, L.P., Venrock Entrepreneurs Fund III, L.P. and Robert F. Johnston (incorporated by reference to exhibit 4.4 to the Company’s Current Report on Form 8-K filed April 23, 2009). |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(gg) | Amendment No. 3 dated as of April 21, 2009 to the Rights Agreement, dated as of October 23, 2002, as amended on October 23, 2006 and on January 3, 2008 (the “Rights Agreement”), between Pharmos Corporation and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated by reference to exhibit 4.5 to the Company’s Current Report on Form 8-K filed April 23, 2009). |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10 | Material Contracts |
|----|--------------------|

|   | 10(a) | Employment Agreement dated as of April 2, 2001, between Pharmos Corporation and Haim Aviv (Incorporated by reference to Exhibit 10(n) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).** |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(b) | Amendment of Employment Agreement with Haim Aviv, dated as of January 25, 2006 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).** |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(c) | Employment Agreement dated as of April 2, 2001, between Pharmos Corporation and Gad Riesenfeld (Incorporated by reference to Exhibit 10(o) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).** |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(d) | Amendment of Employment Agreement dated as of April 23, 2001, between Pharmos Corporation and Gad Riesenfeld (Incorporated by reference to Exhibit 10(p) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).** |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 10(e) | Amendment of Employment Agreement dated as of February 16, 2005 between Pharmos Corporation and Gad Riesenfeld (Incorporated by reference to Exhibit 10(w) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004).** |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(f) | Employment Agreement dated as of July 19, 2004 between Pharmos Corporation and James A. Meer (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).** |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(g) | Employment Agreement dated as of November 7, 2005, between Pharmos Corporation and Alan L. Rubino (Incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).** |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(h) | Employment Agreement between Pharmos Corporation and S. Colin Neill, dated as of October 5, 2006 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 6, 2006).** |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(i) | Retention Award Agreement dated as of September 6, 2004 between Pharmos Corporation and Dr. Haim Aviv (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 10, 2004).** |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(j) | Retention Award Agreement dated as of September 6, 2004 between Pharmos Corporation and Dr. Gad Riesenfeld (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 10, 2004).** |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(k) | Consulting Agreement between Pharmos Corporation and Dr. Georges Anthony Marcel, dated October 17, 2006 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 20, 2006).** |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(l) | Consulting Agreement between Pharmos Corporation and Dr. Lawrence F. Marshall, dated October 17, 2006 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 20, 2006).** |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(n) | Amended and Restated 2000 Incentive and Non-Qualified Stock Option Plan.** |
|--------|-------|----------------------------------------------------------------------------|

|   | 10(o) | Amendment to the 2000 Stock Option Plan (incorporated by reference to Appendix D to the Company’s Definitive Proxy Statement on Schedule 14A filed on September 10, 2007).** |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(p) | 2001 Employee Stock Purchase Plan (Incorporated by reference to Exhibit B to the Company’s Definitive Proxy Statement on Form 14A filed on June 6, 2001).** |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(q)(1) | Agreement between Avitek Ltd. (“Avitek”) and Yissum Research Development Company of the Hebrew University of Jerusalem (“Yissum”) dated November 20, 1986 (Incorporated by reference to Annual Report on Form 10-K, as amended by Form10-K/A, for year ended December 31, 1992).  (1) |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(q)(2) | Supplement to Agreement (Incorporated by reference to Annual Report on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).  (1) |
|--------|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(q)(3) | Hebrew language original executed version of Agreement (Incorporated by reference to Annual Report on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).  (1) |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 10(r)(1) | Agreement between Avitek and Yissum dated January 25, 1987 (Incorporated by reference to Annual Report on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).  (1) |
|--------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(r)(2) | Schedules and Appendixes to Agreement (Incorporated by reference to Annual Report on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).  (1) |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(r)(3) | Hebrew language original executed version of Agreement (Incorporated by reference to Annual Report on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).  (1) |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(s)(1) | Research, Development and License Agreement between Pharmos Ltd., Pharmos Corporation (“Old Pharmos”) and Yissum dated February 5, 1991 (Incorporated by reference to Annual Report on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).  (1) |
|--------|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(s)(2) | Schedules and Appendixes to Agreement (Incorporated by reference to Annual Report on Form 10-K, as amended by Form 10-K/A, for year ended December 31, 1992).  (1) |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(s)(3) | Amendment No.1 to Research, Development and License Agreement between Pharmos Corporation, Pharmos Ltd. and Yissum Research Development Company of the Hebrew University of Jerusalem, dated May 31, 2006 (incorporated by reference to exhibit 99.1 to the registrant’s Current Report on Form 8-K filed June 6, 2006). |
|--------|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(t) | License Assignment and Amendment Agreement dated as of October 9, 2001 by and among Dr. Nicholas S. Bodor, Pharmos Corporation and Bausch & Lomb Incorporated (Incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on October 16, 2001). |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(u) | Asset Purchase Agreement between Bausch & Lomb Incorporated and Pharmos Corporation dated October 9, 2001 (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 16, 2001). |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(v) | Amendment No. 1 to Asset Purchase Agreement dated as of December 28, 2001 between Bausch & Lomb Incorporated and Pharmos Corporation (Incorporated by reference to Exhibit 10(v) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001). |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(w) | Amendment No. 2 to Asset Purchase Agreement dated as of December 30, 2004 between Bausch & Lomb Incorporated and Pharmos Corporation (Incorporated by reference to Exhibit 10(v) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004). |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(x) | License Agreement dated as of December 18, 2001 between Pharmos Ltd. and Herbamed Ltd. (Incorporated by reference to Exhibit 10(p) to the Annual Report on Form 10-K for year ended December 31, 2002). |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(y) | Amendment No. 1, dated as of June 30, 2005, to the License Agreement by and between Pharmos Ltd. and Herbamed Ltd., dated as of December 18, 2001 (Incorporated by reference to exhibit 99.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005). |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(z) | Settlement Agreement between the Company and Lloyd I. Miller, III dated August 31, 2006 (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed September 5, 2006). |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(aa) | Voting Agreement and Waiver by and among the Company, Lloyd I. Miller, III, Trust A-4 - Lloyd I. Miller, Milfam II L.P. and Milfam LLC dated August 31, 2006 (incorporated by reference to Exhibit 10.2 of the registrant’s Current Report on Form 8-K filed September 5, 2006). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(bb) | Employment Agreement between Pharmos Corporation and Elkan R. Gamzu, dated as of March 20, 2007 (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed March 26, 2007). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 10(cc) | Letter of Agreement between Pharmos Corporation and Haim Aviv, dated March 20, 2007 (incorporated by reference to Exhitit 10.2 of the registrant’s Current Report on Form 8-K filed March 26, 2007. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(dd) | Securities Purchase Agreement dated as of January 3, 2008 by and among Pharmos Corporation and the Purchasers named therein (incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K filed January 4, 2008). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(ee) | Letter Agreement dated January 3, 2008 regarding Additional Debenture Investment among Pharmos Corporation, New Enterprise Associates 10, Limited Partnership, Lloyd I. Miller, III and Robert F. Johnston (incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed January 4, 2008). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(ff) | Agreement dated January 3, 2008 between Pharmos Corporation and Mony Ben Dor (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed January 4, 2008). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(gg) | Agreement dated January 3, 2008 between Pharmos Corporation and David Schlachet (incorporated by reference to Exhibit 10.2 of the registrant’s Current Report on Form 8-K filed January 4, 2008). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(hh) | Agreement dated January 3, 2008 between Pharmos Corporation and Haim Aviv (incorporated by reference to Exhibit 10.3 of the registrant’s Current Report on Form 8-K filed January 4, 2008). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(ii) | Asset Purchase Agreement, dated as of February 11, 2009, by and between Pharmos Corporation, Pharmos Ltd. and Reperio Pharmaceuticals Ltd. (Incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009) |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(jj) | Form of Pharmos Corporation Indemnification Agreement dated as of April 21, 2009 (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 23, 2009). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(kk) | 2009 Incentive Compensation Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on June 18, 2009).** |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21 | Subsidiaries of the Registrant |
|----|--------------------------------|

|   | 21(a) | Subsidiaries of the Registrant (Incorporated by reference to Annual Report on Form |
|--------|-------|------------------------------------------------------------------------------------|

|   | 10-K, as amended by Form 10-K/A, for year ended December 31, 1992). |
|--------|---------------------------------------------------------------------|

| 23 | Consents of Experts and Counsel |
|----|---------------------------------|

|   | 23(a) *** | Consent of Friedman LLP |
|--------|-----------|-------------------------|

|   | 31(a) *** | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer |
|--------|-----------|-----------------------------------------------------------------------|

|   | 31(b) *** | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|--------|-----------|-------------------------------------------------------------------|

|   | 32(a)*** | Section 1350 Certification of Principal Executive Officer and Chief Financial Officer |
|--------|----------|---------------------------------------------------------------------------------------|

| (1) | Confidential information is omitted and identified by a * and filed separately with the SEC. |
|-----|----------------------------------------------------------------------------------------------|

| (**) | This document is a management contract or compensatory plan or arrangement. |
|------|-----------------------------------------------------------------------------|

| (***) | Filed herewith |
|-------|----------------|

----

|                                                        | PHARMOS CORPORATION |                                |
|-------------------------------------------------------------|---------------------|-------------------------------------|
|                                                        |                |                                |   |
|                                                        | By:                 | /s/ Robert F. Johnston         |   |
|                                                        |                | Robert F. Johnston                  |   |
|                                                        |                | Executive Chairman                  |   |
|                                                        |                |  (Principal Executive Officer) |   |
|      Date:  February 17, 2011 |                |                                |   |

| Signature                    |  Title                                  | Date              |
|------------------------------|----------------------------------------------|-------------------|
|                         |                                         |              |
|                         |                                         |              |
| /s/ Robert F. Johnston       |                                         |              |
| Robert F. Johnston           | Executive Chairman                           | February 17, 2011 |
|                         | (Principal Executive Officer)                |              |
|                         |                                         |              |
| /s/ S. Colin Neill           |                                         |              |
| S. Colin Neill               | President and Chief Financial Officer        | February 17, 2011 |
|                         | (Principal Financial and Accounting Officer) |              |
|                         |                                         |              |
| /s/ Srinivas Akkaraju        |                                         |              |
| Srinivas Akkaraju, MD, Ph.D. | Director                                     | February 17, 2011 |
|                         |                                         |              |
|                         |                                         |              |
| /s/ Anthony B. Evnin         |                                         |              |
| Anthony B. Evnin, Ph.D.      | Director                                     | February 17, 2011 |
|                         |                                         |              |
|                         |                                         |              |
| /s/ Charles W. Newhall, III  |                                         |              |
| Charles W. Newhall, III      | Director                                     | February 17, 2011 |
|                         |                                         |              |
|  /s/ Steven Leventer    |                                         |              |
| Steven Leventer, Ph.D.       | Director                                     | February 17, 2011 |

----

| Report of Independent Registered Public Accounting Firm          |   | F-2    |
|------------------------------------------------------------------|--------|--------|
| Consolidated Balance Sheets as of December 31, 2010 and 2009     |   | F-3    |
| Consolidated Statements of Operations for the years ended        |   |   |
| December 31, 2010 and 2009                                       |   | F-4    |
| Consolidated Statements of Changes in Shareholders’ Equity |   |   |
| for the years ended December 31, 2010 and 2009                   |   | F-5    |
| Consolidated Statements of Cash Flows for the years ended        |   |   |
| December 31, 2010 and 2009                                       |   | F-6    |
| Notes to consolidated financial statements                       |   | F-7    |

----

----

| PHARMOS CORPORATION                                                                                                                                |   |         |         |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------------|--------|--------|--------|
| Consolidated Balance Sheets                                                                                                                        |   |         |         |   |   |   |
|                                                                                                                                               |   | December 31, |         |
|                                                                                                                                               |   | 2010         |         |   | 2009   |   |
| Assets                                                                                                                                             |   |         |         |   |   |   |
| Current Assets                                                                                                                                     |   |         |         |   |   |   |
| Cash and cash equivalents                                                                                                                          |   | $            | 3,139,347    |   |   | $      | 4,629,486 |   |
| Prepaid expenses and other current assets                                                                                                          |   |         | 46,833       |   |   |   | 25,678 |   |
| Total current assets                                                                                                                               |   |         | 3,186,180    |   |   |   | 4,655,164 |   |
|                                                                                                                                               |   |         |         |   |   |   |   |   |
| Fixed assets, net                                                                                                                                  |   |         | 5,613        |   |   |   | 1,379 |   |
| Other assets                                                                                                                                       |   |         | -            |   |   |   | 32,479 |   |
|                                                                                                                                               |   |         |         |   |   |   |   |   |
| Total assets                                                                                                                                       |   | $            | 3,191,793    |   |   | $      | 4,689,022 |   |
|                                                                                                                                               |   |         |         |   |   |   |   |   |
| Liabilities and Shareholders’ Equity                                                                                                         |   |         |         |   |   |   |   |   |
| Current liabilities                                                                                                                                |   |         |         |   |   |   |   |   |
| Accounts payable                                                                                                                                   |   | $            | 67,199       |   |   | $      | 73,717 |   |
| Accrued expenses                                                                                                                                   |   |         | 103,913      |   |   |   | 148,414 |   |
| Accrued wages and other compensation                                                                                                               |   |         | -            |   |   |   | 195,000 |   |
| Total current liabilities                                                                                                                          |   |         | 171,112      |   |   |   | 417,131 |   |
|                                                                                                                                               |   |         |         |   |   |   |   |   |
| Convertible debenture                                                                                                                              |   |         | 1,000,000    |   |   |   | 1,000,000 |   |
| Total liabilities                                                                                                                                  |   |         | 1,171,112    |   |   |   | 1,417,131 |   |
|                                                                                                                                               |   |         |         |   |   |   |   |   |
| Shareholders’ Equity                                                                                                                         |   |         |         |   |   |   |   |   |
| Preferred stock, $.03 par value, 1,250,000 shares authorized, none issued and outstanding                                                          |   |         | -            |   |   |   | - |   |
| Common stock, $.03 par value; 120,000,000 shares authorized,  59,585,273 and 59,291,154  issued in 2010 and 2009, respectively |   |         | 1,787,558    |   |   |   | 1,778,735 |   |
| Paid-in capital in excess of par                                                                                                                   |   |         | 211,587,386  |   |   |   | 211,301,675 |   |
| Accumulated deficit                                                                                                                                |   |         | (211,353,837 | )      |   |   | (209,808,093 | ) |
| Treasury stock, at cost, 2,838 shares                                                                                                              |   |         | (426         | )      |   |   | (426 | ) |
| Total shareholders' equity                                                                                                                         |   |         | 2,020,681    |   |   |   | 3,271,891 |   |
|                                                                                                                                               |   |         |         |   |   |   |   |   |
| Total liabilities and shareholders' equity                                                                                                         |   | $            | 3,191,793    |   |   | $      | 4,689,022 |   |
| The accompanying notes are an integral part of these consolidated financial statements.                                                            |   |

----

|                                         | Year ended December 31, |
|----------------------------------------------|-------------------------|
|                                         |                    | 2010 |   |   | 2009 |   |
| Expenses                                     |                    |   |   |   |   |   |
| Research and development, gross              |                    | $ | 497,935 |   |   | $ | 4,422,600 |   |
| Grants                                       |                    |   | (244,479 | ) |   |   | - |   |
| Research and development, net of grants      |                    |   | 253,456 |   |   |   | 4,422,600 |   |
| In-process acquired research and development |                    |   | - |   |   |   | 180,000 |   |
| General and administrative                   |                    |   | 1,187,335 |   |   |   | 1,536,470 |   |
| Depreciation and amortization                |                    |   | 1,551 |   |   |   | 8,314 |   |
| Total operating expenses                     |                    |   | 1,442,342 |   |   |   | 6,147,384 |   |
|                                         |                    |   |   |   |   |   |   |   |
| Loss from operations                         |                    |   | (1,442,342 | ) |   |   | (6,147,384 | ) |
|                                         |                    |   |   |   |   |   |   |   |
| Other income (expense)                       |                    |   |   |   |   |   |   |   |
|                                         |                    |   |   |   |   |   |   |   |
| Debt conversion expense                      |                    |   | - |   |   |   | (596,104 | ) |
| Interest income                              |                    |   | 1,520 |   |   |   | 8,412 |   |
| Interest expense                             |                    |   | (110,744 | ) |   |   | (225,335 | ) |
| Other income (expense)                       |                    |   | 5,822 |   |   |   | (8,404 | ) |
| Other (expense), net                         |                    |   | (103,402 | ) |   |   | (821,431 | ) |
|                                         |                    |   |   |   |   |   |   |   |
| Loss before income taxes                     |                    | $ | (1,545,744 | ) |   | $ | (6,968,815 | ) |
| Income tax benefit                           |                    |   | - |   |   |   | (3,914,481 | ) |
|                                         |                    |   |   |   |   |   |   |   |
|                                         |                    |   |   |   |   |   |   |   |
| Net loss                                     |                    | $ | (1,545,744 | ) |   | $ | (3,054,334 | ) |
|                                         |                    |   |   |   |   |   |   |   |
| Net loss per share                           |                    |   |   |   |   |   |   |   |
| - basic and diluted                          |                    | $ | (0.03 | ) |   | $ | (0.06 | ) |
|                                         |                    |   |   |   |   |   |   |   |
| Weighted average shares outstanding          |                    |   |   |   |   |   |   |   |
| - basic and diluted                          |                    |   | 58,529,204 |   |   |   | 47,445,014 |   |

----

|                                                               |   | Common Stock |       |   | Treasury Stock |    |      |                             |   |
|--------------------------------------------------------------------|--------|--------------|------------|--------|----------------|---------|-----------|----------------------------------|--------|
|                                                               |   |  Shares |       |   |  Amount   |    |      | Paid-in Capital in Excess of Par |   |   | AccumulatedDeficit |   |   |  Shares |   |   |  Amount |   |   | Total Stockholders’ Equity |   |
| December 31, 2008                                                  |   |         | 26,210,290 |   |           |  $ | 786,307   |                             |   |  $ | 206,309,096 |   |   |  $ | (206,753,758 | ) |   |   | 2,838 |   |   |  $ | (426 | ) |   |  $ | 341,219 |   |
|                                                               |   |         |       |   |           |    |      |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock and option issuance for employee compensation                |   |         |       |   |           |    |      |                             |   |   | 175,438 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 175,438 |   |
| April 2009 financing net                                           |   |         | 18,000,000 |   |           |    | 540,000   |                             |   |   | 1,239,777 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,779,777 |   |
| Debentures converted to equity                                     |   |         | 10,909,091 |   |           |    | 327,275   |                             |   |   | 3,268,829 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 3,596,104 |   |
| Reversal of deferred financing fees                                |   |         |       |   |           |    |      |                             |   |   | (78,382 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (78,382 | ) |
| Vela Milestone                                                     |   |         | 2,000,000  |   |           |    | 60,000    |                             |   |   | 120,000 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 180,000 |   |
| Restricted stock grant                                             |   |         | 1,200,000  |   |           |    | 36,000    |                             |   |   | (36,000 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | - |   |
| Issuance of  Common Stock for Debenture Interest payment |   |         | 971,773    |   |           |    | 29,153    |                             |   |   | 302,917 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 332,070 |   |
| Net Loss                                                           |   |         |       |   |           |    |      |                             |   |   |   |   |   |   | (3,054,335 | ) |   |   |   |   |   |   |   |   |   |   | (3,054,335 | ) |
| December 31, 2009                                                  |   |         | 59,291,154 |   |           |    | 1,778,735 |                             |   |   | 211,301,675 |   |   |   | (209,808,093 | ) |   |   | 2,838 |   |   |   | (426 | ) |   |   | 3,271,891 |   |
|  Stock and option issuance for employee compensation          |   |         |       |   |           |    |      |                             |   |   | 194,534 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 194,534 |   |
| Issuance of  Common Stock for Debenture Interest payment |   |         | 294,119    |   |           |    | 8,823     |                             |   |   | 91,177 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 100,000 |   |
| Net Loss                                                           |   |         |       |   |           |    |      |                             |   |   |   |   |   |   | (1,545,744 | ) |   |   |   |   |   |   |   |   |   |   | (1,545,744 | ) |
| December 31, 2010                                                  |   |         | 59,585,273 |   |           | $       | 1,787,558 |                             |   | $ | 211,587,386 |   |   | $ | (211,353,837 | ) |   |   | 2,838 |   |   | $ | (426 | ) |   | $ | 2,020,681 |   |
|                                                               |   |         |       |   |           |    |      |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                        |   | Year Ended December 31, |
|-----------------------------------------------------------------------------|--------|-------------------------|
|                                                                        |   | 2010                    |   |   | 2009 |   |
| Cash flows from operating activities                                        |   |                    |   |   |   |   |
| Net loss                                                                    |   | $                       | (1,545,744 | ) |   | $ | (3,054,334 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: |   |                    |   |   |   |   |   |   |
| Depreciation and amortization                                               |   |                    | 1,551 |   |   |   | 8,314 |   |
| Amortization of deferred financing fees                                     |   |                    | 10,745 |   |   |   | 32,432 |   |
| Non cash debt conversion expense                                            |   |                    | - |   |   |   | 596,104 |   |
| Share-based compensation                                                    |   |                    | 194,534 |   |   |   | 175,438 |   |
| Debenture interest paid in common stock                                     |   |                    | 100,000 |   |   |   | 130,403 |   |
| Milestone paid in common shares                                             |   |                    | - |   |   |   | 180,000 |   |
| Changes in operating assets and liabilities:                                |   |                    |   |   |   |   |   |   |
| Prepaid expenses and other current assets                                   |   |                    | 579 |   |   |   | 656,228 |   |
| Accounts payable                                                            |   |                    | (6,518 | ) |   |   | (810,249 | ) |
| Accrued expenses                                                            |   |                    | (44,501 | ) |   |   | (265,585 | ) |
| Accrued wages and other compensation                                        |   |                    | (195,000 | ) |   |   | 108,000 |   |
| Other liabilities                                                           |   |                    | - |   |   |   | (44,316 | ) |
| Net cash used in operating activities                                       |   |                    | (1,484,354 | ) |   |   | (2,287,565 | ) |
|                                                                        |   |                    |   |   |   |   |   |   |
| Cash flows from investing activities                                        |   |                    |   |   |   |   |   |   |
| Purchases of fixed assets                                                   |   |                    | (5,785 | ) |   |   | - |   |
| Proceeds from disposition of fixed assets                                   |   |                    | - |   |   |   | 367,994 |   |
| Decrease in restricted cash                                                 |   |                    | - |   |   |   | 38,998 |   |
| Net cash (used in) provided by investing activities                         |   |                    | (5,785 | ) |   |   | 406,992 |   |
|                                                                        |   |                    |   |   |   |   |   |   |
| Cash flows from financing activities                                        |   |                    |   |   |   |   |   |   |
| Proceeds from issuance of common stock and warrants, net                    |   |                    | - |   |   |   | 1,779,777 |   |
| Net cash provided by financing activities                                   |   |                    | - |   |   |   | 1,779,777 |   |
|                                                                        |   |                    |   |   |   |   |   |   |
| Net decrease in cash and cash equivalents                                   |   |                    | (1,490,139 | ) |   |   | (100,796 | ) |
|                                                                        |   |                    |   |   |   |   |   |   |
| Cash and cash equivalents at beginning of year                              |   |                    | 4,629,486 |   |   |   | 4,730,282 |   |
|                                                                        |   |                    |   |   |   |   |   |   |
| Cash and cash equivalents at end of year                                    |   | $                       | 3,139,347 |   |   | $ | 4,629,486 |   |
|                                                                        |   |                    |   |   |   |   |   |   |
|                                                                        |   |                    |   |   |   |   |   |   |
| Supplemental disclosure of non-cash investing and financing activities:     |   |                    |   |   |   |   |   |   |
| Common shares issued for accrued interest                                   |   | $                       | 100,000 |   |   | $ | 201,667 |   |
| Write off of deferred financing fees with conversion of debentures          |   |                    | - |   |   | $ | 78,382 |   |
| Conversion of debentures to common stock                                    |   |                    | - |   |   | $ | 3,000,000 |   |

----

| 1. | The Company |
|----|-------------|

| 2. | Liquidity, Business Risks and Ability to Continue as a Going Concern |
|----|----------------------------------------------------------------------|

----

| 3. | Significant Accounting Policies |
|----|---------------------------------|

|                                                               |   | 2010   |       |   | 2009   |   |
|--------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Stock options                                                      |   |   | 3,460,499  |   |   |   | 3,647,155 |   |
| Restricted stock                                                   |   |   | 750,000    |   |   |   | 1,200,000 |   |
| Convertible debenture                                              |   |   | 1,428,571  |   |   |   | 1,428,571 |   |
| Warrants                                                           |   |   | 18,000,000 |   |   |   | 18,000,000 |   |
| Total potential dilutive securities not included in loss per share |   |   | 23,639,070 |   |   |   | 24,275,726 |   |

----

| Laboratory, pilot plant and other equipment | 7 years to 14 years |
|---------------------------------------------|---------------------|
| Office furniture and fixtures               | 3 years to 17 years |
| Computer equipment                          | 3 years to 4 years  |
| Vehicles                                    | 5 years to 7 years  |

----

----

| 4. | Convertible Debentures |
|----|------------------------|

----

| 5. | Acquisition of Vela Pharmaceuticals, Inc. |
|----|-------------------------------------------|

----

| 6. | Fixed Assets |
|----|--------------|

|                                  |   | December 31, |     |
|---------------------------------------|--------|--------------|----------|
|                                  |   | 2010         |     |   | 2009 |   |
|  Leasehold improvements     |   | $            | 158,023  |   |   | $ | 158,023 |   |
|  Office furniture and fixtures   |   |         | 87,229   |   |   |   | 87,229 |   |
|  Computer equipment              |   |         | 240,324  |   |   |   | 234,538 |   |
|                                  |   |         | 485,576  |   |   |   | 479,790 |   |
|  Less - Accumulated depreciation |   |         | (479,963 | ) |   |   | (478,411 | ) |
|  Fixed Assets, net               |   | $            | 5,613    |   |   | $ | 1,379 |   |

----

| 7. | Grants for Research and Development |
|----|-------------------------------------|

| 8. | Shareholders Equity Transactions |
|----|----------------------------------|

----

| 9. | Warrants |
|----|----------|

----

| 10. | Stock Option Plans |
|-----|--------------------|

----

|                            |   | Option |      |   | Weighted Average Exercise Price |   |
|---------------------------------|--------|--------|-----------|--------|---------------------------------|--------|
|                            |   |   |      |   |                            |   |
| Options Outstanding at 12/31/08 |   |   | 2,737,106 |   |                            | $      | 3.10 |   |
|                            |   |   |      |   |                            |   |   |   |
| Granted                         |   |   | 1,050,000 |   |                            | $      | 0.22 |   |
| Cancelled                       |   |   | (139,951  | )      |                            | $      | 2.63 |   |
| Options Outstanding at 12/31/09 |   |   | 3,647,155 |   |                            | $      | 2.29 |   |
|                            |   |   |      |   |                            |   |   |   |
| Granted                         |   |   | 490,000   |   |                            | $      | 0.11 |   |
| Cancelled                       |   |   | (676,656  | )      |                            | $      | 3.09 |   |
| Options Outstanding at 12/31/10 |   |   | 3,460,499 |   |                            | $      | 1.82 |   |
|                            |   |   |      |   |                            |   |   |   |
|                            |   |   |      |   |                            |   |   |   |
| Options exercisable at 12/31/10 |   |   | 2,594,198 |   |                            | $      | 2.35 |   |
|                            |   |   |      |   |                            |   |   |   |
| Options exercisable at 12/31/09 |   |   | 2,441,814 |   |                            | $      | 3.26 |   |
|                            |   |   |      |   |                            |   |   |   |
|                            |   |   |      |   |                            |   |   |   |

|                     |          |   | Options Outstanding |   |                                        | Options Exercisable |                            |
|--------------------------|---------------|--------|---------------------|--------|---------------------------------------------|---------------------|---------------------------------|
| Range of Exercise Prices |          |   | Options             |   | Weighted Average Remaining Contractual Life |                | Weighted Average Exercise Price |   |   | Options Exercisable |   |   | Weighted Average Exercise Price |   |
| $                        | 0.06 - $0.39  |   |                |   | 2,056,000                                   |                | 8.3 years                       |   | $ | 0.23 |   |   |   | 1,196,137 |   |   | $ | 0.25 |   |
| $                        | 1.46 - $2.01  |   |                |   | 343,000                                     |                | 6.0 years                       |   | $ | 1.82 |   |   |   | 336,562 |   |   | $ | 1.82 |   |
| $                        | 2.15 - $3.95  |   |                |   | 813,200                                     |                | 4.9 years                       |   | $ | 2.37 |   |   |   | 813,200 |   |   | $ | 2.37 |   |
| $                        | 5.10 - $8.75  |   |                |   | 58,037                                      |                | 2.1 years                       |   | $ | 5.10 |   |   |   | 58,037 |   |   | $ | 5.10 |   |
| $                        | 9.38 - $21.20 |   |                |   | 190,262                                     |                | 2.3 years                       |   | $ | 15.64 |   |   |   | 190,262 |   |   | $ | 15.64 |   |
|                     |          |   |                |   | 3,460,499                                   |                | 6.8 years                       |   | $ | 1.82 |   |   |   | 2,594,198 |   |   | $ | 2.35 |   |

----

|                      |   | 2010   |       | 2009   |
|---------------------------|--------|--------|------------|--------|
| Risk-free interest rate   |   |   | 1.41-2.48% |   |   | 1.60-2.46% |
| Expected lives (in years) |   |   | 5.2        |   |   | 5.2 |
| Dividend yield            |   |   | 0%         |   |   | 0% |
| Expected volatility       |   |   | 118 -120%  |   |   | 97 -121% |
| Fair value                |   | $      | 0.09       |   | $ | 0.17 |

----

| 11. | Income Taxes |
|-----|--------------|

|                                          |   | 2010   |            |   | 2009   |   |
|-----------------------------------------------|--------|--------|-----------------|--------|--------|--------|
| Domestic NOLs                                 |   | $      | 72,029,000      |   |   | $      | 73,004,000 |   |
| Research and Development Credit Carryforwards |   |   |  6,932,000 |   |   |   |  7,380,000 |   |
| Accrued expenses, compensation and other      |   |   | 406,000         |   |   |   | 664,000 |   |
| Net Deferred Tax Assets                       |   |   | 79,367,000      |   |   |   | 81,048,000 |   |
| Valuation allowance                           |   |   | (79,367,000     | )      |   |   | (81,048,000 | ) |
|                                          |   | $      | -               |   |   | $      | - |   |

----

| 12. | Commitments and Contingencies |
|-----|-------------------------------|

| 13. | Fair Value Measurements |
|-----|-------------------------|

| 14. | Employee Benefit Plans |
|-----|------------------------|

----

| 15. | Segment and Geographic Information |
|-----|------------------------------------|

|                      |   | 2010   |       |   | 2009   |   |
|---------------------------|--------|--------|------------|--------|--------|--------|
| Net loss                  |   |   |       |   |   |   |
| United States             |   | $      | (1,544,875 | )      |   | $      | (2,913,759 | ) |
| Israel                    |   |   | (869       | )      |   |   | (140,575 | ) |
|                      |   | $      | (1,545,744 | )      |   | $      | (3,054,334 | ) |
| Total assets              |   |   |       |   |   |   |   |   |
| United States             |   | $      | 3,191,793  |   |   | $      | 4,669,681 |   |
| Israel                    |   |   | -          |   |   |   | 19,341 |   |
|                      |   | $      | 3,191,793  |   |   | $      | 4,689,022 |   |
|                      |   |   |       |   |   |   |   |   |
| Long lived assets, net    |   |   |       |   |   |   |   |   |
| United States             |   | $      | 5,613      |   |   | $      | 1,379 |   |
| Israel                    |   |   | -          |   |   |   | - |   |
|                      |   | $      | 5,613      |   |   | $      | 1,379 |   |
| Capital expenditures, net |   |   |       |   |   |   |   |   |
| United States             |   | $      | 5,785      |   |   | $      | - |   |
| Israel                    |   |   | -          |   |   |   | - |   |
|                      |   | $      | 5,785      |   |   | $      | - |   |

----

| 16. | Quarterly Information (Unaudited) |
|-----|-----------------------------------|

| Year ended                                        |   |        |       |   |        |   |       |        |   |   |        |   |
|---------------------------------------------------|--------|-------------|------------|--------|-------------|--------|------------|-------------|--------|--------|-------------|--------|
| December 31, 2010                                 |   | 1st Quarter |       |   | 2nd Quarter |   |       | 3rd Quarter |   |   | 4th Quarter |   |
| Operating Expenses                                |   | $           | 462,774    |   |        | $      | 404,039    |        |   | $      | 450,106     |   |   | $ | 125,423 |   |
| Loss from Operations                              |   |        | (462,774   | )      |        |   | (404,039   | )           |   |   | (450,106    | )      |   |   | (125,423 | ) |
| Other loss                                        |   |        | (28,603    | )      |        |   | (27,940    | )           |   |   | (20,195     | )      |   |   | (26,664 | ) |
| Net loss1                                         |   | $           | (491,377   | )      |        | $      | (431,979   | )           |   | $      | (470,301    | )      |   | $ | (152,087 | ) |
| Net loss per share - basic and diluted*           |   | $           | (.01       | )      |        | $      | (.01       | )           |   | $      | (.01        | )      |   | $ | (.00 | ) |
|                                              |   |        |       |   |        |   |       |        |   |   |        |   |   |   |   |   |
|                                              |   |        |       |   |        |   |       |        |   |   |        |   |   |   |   |   |
| Year ended                                        |   |        |       |   |        |   |       |        |   |   |        |   |   |   |   |   |
| December 31, 2009                                 |   | 1st Quarter |       |   | 2nd Quarter |   |       | 3rd Quarter |   |   | 4th Quarter |   |
| Operating Expenses2                               |   | $           | 3,531,295  |   |        | $      | 1,631,580  |        |   | $      | 1,391,610   |   |   | $ | (407,101 | ) |
| Gain or (loss) from Operations                    |   |        | (3,531,295 | )      |        |   | (1,631,580 | )           |   |   | (1,391,610  | )      |   |   | 407,101 |   |
| Other income (loss)                               |   |        | (147,157   | )      |        |   | (618,920   | )           |   |   | (25,697     | )      |   |   | (29,657 | ) |
| Net gain or (loss)1                               |   | $           | (3,678,452 | )      |        | $      | (2,250,500 | )           |   | $      | (1,417,307  | )      |   | $ | 4,291,925 |   |
| Net gain or (loss) per share - basic and diluted* |   | $           | (.14       | )      |        | $      | (.05       | )           |   | $      | (.03        | )      |   | $ | .07 |   |

|   | 1. | Includes the sale of the NJ Net Operating Losses in the fourth quarters of 2010 and 2009 of $0 and $3,914,481, respectively. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | As further described in Note 5, the Company recorded a charge for $1,000,000 relating to a Vela milestone in the first quarter of 2009. A reassessment of this milestone in the fourth quarter determined that the milestone no longer met the probability criteria to be recorded and the charge was reversed in the fourth quarter 2009. There was no impact on the full year. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----