----

----

| 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 GItract |
|--------|----|--------------------------------------------------------|

|   | 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 ofstool |
|--------|----|----------------------------------------------------------|

|   | 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 andefficacy; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------|

|   | (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 31,2009 |   | HIGH   |   |   | LOW    |   |
|-----------------------------|--------|--------|--------|--------|--------|--------|
|                        |   |   |   |   |   |   |
| 4th      Quarter            |   | $      | .17    |   |   | $      | .06 |   |
| 3rd      Quarter            |   |   | .48    |   |   |   | .15 |   |
| 2nd      Quarter            |   |   | .30    |   |   |   | .06 |   |
| 1st      Quarter            |   |   | .14    |   |   |   | .03 |   |
|                        |   |   |   |   |   |   |   |   |
| Year ended December 31,2008 |   | HIGH   |   |   | LOW    |   |
|                        |   |   |   |   |   |   |   |   |
| 4th      Quarter            |   | $      | .20    |   |   | $      | .08 |   |
| 3rd      Quarter            |   |   | .39    |   |   |   | .16 |   |
| 2nd      Quarter            |   |   | .53    |   |   |   | .36 |   |
| 1st      Quarter            |   |   | .94    |   |   |   | .32 |   |

----

----

|                                                                               |   | Year      Ended December 31, |       |
|------------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                               |   | 2009                         |       |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Revenues                                                                           |   |                         | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Operating      expenses                                                            |   | $                            | (6,147,384 | ) |   | $ | (11,100,184 | ) |   | $  | (17,579,259 | )        |   | $ | (37,542,519 | ) (1) |   | $ | (15,708,888 | )  |
| Other      income (expense), net                                                   |   |                         | (821,431   | ) |   |   | (193,348 | )  |   |   | 997,652 |   |   |   | 1,792,775 |   |   |   | 12,288,382 |        (2) |
| Loss      before income taxes                                                      |   |                         | (6,968,815 | ) |   |   | (11,293,532 | ) |   |   | (16,581,607 | )  |   |   | (35,749,744 | )  |   |   | (3,420,506 | )  |
| Net      loss                                                                      |   |                         | (3,054,334 | ) |   |   | (10,089,406 | )   |   |   | (15,625,825 | ) |   |   | (35,136,969 | ) |   |   | (2,929,872 | )  |
| Net      loss applicable to common shareholders                                    |   | $                            | (3,054,334 | )      (3) |   | $ | (10,089,406 | )(3) |   | $ | (15,625,825 | ) (3) |   | $ | (35,136,969 | )      (3) |   | $ | (2,929,872 | )  (3) |
| Net      loss per share applicable to common shareholders - basic and      diluted |   | $                            | (0.06      | ) |   | $ | (0.39 | ) |   | $ | (0.61 | ) |   | $ | (1.74 | )  |   | $ | (0.15 | )  |
| Total      assets                                                                  |   | $                            | 4,689,022  |   |   | $ | 5,972,164 |   |   | $ | 12,374,959 |   |   | $ | 28,393,338 |   |   | $ | 48,990,772 |   |
| Long      term obligations                                                         |   | $                            | 1,000,000  |   |   | $ | 4,044,316 |   |   | $ | 410,594 |   |   | $ | 1,388,306 |   |   | $ | 1,125,551 |   |
| Cash      dividends declared                                                       |   |                         | —    |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |
| Average      shares outstanding - basic and diluted                                |   |                         | 47,445,014 |   |   |   | 25,934,973 |   |   |   | 25,591,660 |   |   |   | 20,249,714 |   |   |   | 18,974,175 |   |

|   | 1. | The      Company acquired in-process research and development in the Vela      acquisition in October 2006. Vela results are consolidated from October      26, 2006 forward. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Includes      a $10.7 million milestone payment received in 2005 related to the sale of      the ophthalmic product line in October2001. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Includes      benefit of sales of Pharmos NJ Net Operating Loss in 2009, 2008, 2007,      2006 and 2005 of $3,914,481, $1,204,126, $955,782, $612,775 and $490,634,      respectively. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

|                           |   | December 31, 2009 |      |   | December 31, 2008 |   |
|--------------------------------|--------|-------------------|-----------|--------|-------------------|--------|
| Working      capital           |   | $                 | 4,238,033 |   |              | $      | 4,232,549 |   |
| Cash      and cash equivalents |   | $                 | 4,629,486 |   |              | $      | 4,730,282 |   |
| Convertible      debentures    |   | $                 | 1,000,000 |   |              | $      | 4,000,000 |   |

----

----

|                                |   | Payments      Due by Period |      |
|-------------------------------------|--------|-----------------------------|-----------|
|                                |   |  Total                 |      |   | Less      than 1 Year |   |   | 1 –      3Years |   |   | 3 –      5Years |   |   | More      Than5 Years |   |   |  Undetermined |   |
| Operating      Leases               |   | $                           | 45,945    |   |   | $ | 45,945 |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Convertible      Debenture Interest |   |                        | 283,333   |   |   |   | 100,000 |   |   |   | 183,333 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Convertible      Debenture          |   |                        | 1,000,000 |   |   |   | - |   |   |   | 1,000,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Total                               |   | $                           | 1,329,278 |   |   | $ | 145,945 |   |   | $ | 1,183,333 |   |   | $ | - |   |   | $ | - |   |   | $ |  - |   |

|   | · | $1      million cash + 2 million shares of Pharmos common stock: Final patient      enrolled in Phase 2b trial (1) |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

|   | · | $2      million cash + 2.25 million shares: Successful completion of Phase 2b      (milestone not met) |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | $2      million + 2 million shares: NDAsubmission |
|--------|--------|---------------------------------------------------|

|   | · | $2      million cash +2.25 million shares: FDAapproval |
|--------|--------|--------------------------------------------------------|

|   | · | 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           | 73  | Executive      Chairman of the Board of Directors                |
| S.      Colin Neill               | 63  | President,      Chief Financial Officer, Secretary and Treasurer |
| Srinivas      Akkaraju, MD, Ph.D* | 41  | Director                                                         |
| Anthony      B. Evnin, Ph.D*      | 68  | Director                                                         |
| Charles      W. Newhall III       | 65  | Director                                                         |

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

----

----

----

----

----

| Name/Principal Position         | Year   |   | Salary |    |   |   | Bonus  |   |   |   | OptionAwards |   |   | All      OtherCompensation |   |   |   | TotalCompensation |   |
|---------------------------------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------------|--------|--------|----------------------------|--------|--------|--------|-------------------|--------|
|                            |   |   |   |    |   |   |   |   |   |   |         |   |   |                       |   |   |   |              |   |
| S.      Colin Neill (1)         | 2009   |   | $      | 300,000 |   |   |   | $      | 80,000 |   |         |   | $      | 56,383                     |   |   | $      | 21,967            |   | (3) |   | $ | 458,350 |   |
| President,                      | 2008   |   | $      | 300,000 |   |   |   |   | -      |   |         |   | $      | 38,426                     |   |   | $      | 21,517            |   | (3) |   | $ | 359,943 |   |
| Chief      Financial Officer,   | 2007   |   | $      | 265,000 |   |   |   | $      | 75,000 |   |  (2)    |   | $      | 31,036                     |   |   | $      | 20,712            |   | (3) |   | $ | 391,748 |   |
| Secretary      & Treasurer  |   |   |   |    |   |   |   |   |   |   |         |   |   |                       |   |   |   |              |   |   |   |   |   |   |
|                            |   |   |   |    |   |   |   |   |   |   |         |   |   |                       |   |   |   |              |   |   |   |   |   |   |
| Elkan      R. Gamzu, Ph.D,      | 2009   |   |   | -       |   |   |   |   | -      |   |         |   |   | -                          |   |   |   | -                 |   |   |   |   | - |   |
| Former      Director and former | 2008   |   |   | -       |   |   |   |   | -      |   |         |   |   | -                          |   |   |   | -                 |   |   |   |   | - |   |
| Chief      Executive Officer    | 2007   |   | $      | 452,500 |   | (4)    |   |   |   |   |         |   | $      | 18,346                     |   |   | $      | 6,750             |   | (5) |   | $ | 477,596 |   |
|                            |   |   |   |    |   |   |   |   |   |   |         |   |   |                       |   |   |   |              |   |   |   |   |   |   |
| Robert      F. Johnston         | 2009   |   |   | -       |   |   |   | $      | 80,000 |   |         |   | $      | 61,685                     |   |   |   | -                 |   |   |   | $ | 141,685 |   |
| Executive      Chairman         | 2008   |   |   | -       |   |   |   |   | -      |   |         |   | $      | 27,681                     |   |   |   | -                 |   |   |   | $ | 27,681 |   |
|                            | 2007   |   |   | -       |   |   |   |   | -      |   |         |   |   | -                          |   |   |   | -                 |   |   |   |   | - |   |
|                            |   |   |   |    |   |   |   |   |   |   |         |   |   |                       |   |   |   |              |   |   |   |   |   |   |

| (1) | Mr.      Neill joined Pharmos Corporation in October 2006. He became President in      January 2008. |
|-----|------------------------------------------------------------------------------------------------------|

| (2) | Consists      of $50,000 in cash and 75,000 shares of common stock valued at      $25,000. |
|-----|--------------------------------------------------------------------------------------------|

| (3) | In      2009, consists of $7,350 in 401k employer contribution, $5,617 in life      insurance and $9,000 in automobile allowance. In 2008, consists of $6,900      in 401k employer contribution, $5,617 in life insurance and $9,000 in      automobile allowance.  In 2007, consists of $6,750 in 401k      employer contribution, $4,962 in life insurance and $9,000 in automobile      allowance. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Dr.      Gamzu served as Chief Executive Officer from March 2007 to January      2008.  Dr. Gamzu’s compensation consists of $252,500 in salary      and $200,000 in employment contract severance  payments. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Consists      of 401k employer contribution. |
|-----|----------------------------------------------|

|   | GRANTS      OF PLAN-BASED AWARDS IN 2009 |
|--------|------------------------------------------|

|                        |            |                                                                      |                                                     |                                                           |
|-----------------------------|-----------------|---------------------------------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------------|
| Name                        | Grant      Date | All      other Option Awards: Number of Securities Underlying Options (#) | Exercise      or Base Price of Option Awards      ($/Sh) | Grant      Date Fair Value of Stock and Option Awards      ($) |
|                        |            |                                                                      |                                                     |                                                           |
| S.      Colin Neill (1)     | 5/11/2009       |         600,000                                                 | $0.22                                                    | $105,820                                                       |
| Robert      F. Johnston (2) | 5/11/2009       | 1,200,000                                                                 | $0.22                                                    | $264,000                                                       |

----

|   OPTION      EXERCISES AND STOCK VESTED IN 2009 |
|------------------------------------------------------------|
|                                                       |   |   |   |   |   |
|                                                       | Option Awards |   | Stock Awards |
|                                                       |   |   |   |   |   |
| Name                                                       | Number      of Shares Acquired on Exercise      (#) | Value      Realized on Exercise    ($) |   | Number      of Shares Acquired on Vesting      (#) | Value      Realized on Vesting($) |
| None                                                       | - | $      - |   | - | - |
|                                                       |   |   |   |   |   |

| OUTSTANDING      EQUITY AWARDS AT 2009 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                                    |   |   | 0 |   |   |   | 600,000 | (1) |   |   | 600,000 |   |   | $ | 0.22 |   | 5/11/2019 |   |   |
|                                                   |   |   | 56,875 |   |   |   | 73,125 | (2) |   |   | 130,000 |   |   | $ | 0.35 |   | 1/23/2018 |   |   |
|                                                   |   |   | 27,500 |   |   |   | 12,500 | (3) |   |   | 40,000 |   |   | $ | 1.84 |   | 1/17/2017 |   |   |
|                                                   |   |   | 75,000 |   |   |   | 15,000 | (4) |   |   | 90,000 |   |   | $ | 1.75 |   | 10/5/2016 |   |   |
|                                                   |   |   | 159,375 |   |   |   | 700,625 |   |   |   | 860,000 |   |   |   |   |   |   |   |   |
|                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Robert      F. Johnston (6)                            |   |   | 194,444 |   |   |   | 155,556 | (5) |   |   | 350,000 |   |   | $ | 0.35 |   | 1/23/2018 | 1,200,000 | $264,000 |

----

----

----

----

----

----

----

|   | 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;and |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 July1. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  Name                                      |   | Fees      Earned or Paid in Cash($) |   |   | Option      Awards ($) (1) |   |   | Total      ($) |   | Number      of Shares |
|-------------------------------------------------|--------|-------------------------------------|--------|--------|----------------------------|--------|--------|----------------|--------|-----------------------|
|  Srinivas      Akkaraju, M.D., Ph.D.  |   |                                | 0      |   |                       | $      | 15,728 |  (2)      |   | $                     | 15,728 |   | 140,000 |
|  Anthony      B. Evnin, Ph.D.    |   |                                | 0      |   |                       | $      | 15,071 |           |   | $                     | 15,071 |   | 52,500 |
|  Charles      W. Newhall, III    |   |                                | 0      |   |                       | $      | 14,060 |           |   | $                     | 14,060 |   | 47,500 |

|  (1) | Reflects      the dollar amount recognized for financial statement reporting purposes      for the fiscal year ended December 31, 2009 in accordance with FAS ASC      Topic 718, and thus includes amounts from awards granted in and prior to      2009.  All options awarded to Directors in 2009 remained      outstanding at fiscal year-end. |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | In      addition to his regular compensation for service on the Board of      Directors, Dr Akkaraju was granted 100,000 ten-year options in May 2009      for providing special service and advice to the Board in his capacity as a      Director. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 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     |   |                                                                                                           |  3,685,130 |   |                                                                                           | $      | 2.42      |                                                                                                                                                               |   |   | 8,872,568 |   |
| Equity      compensation plans not approved by security holders |   |                                                                                                           |  N/A       |   |                                                                                           |   |  N/A |                                                                                                                                                               |   |   | N/A |   |
| Total                                                           |   |                                                                                                           | 3,685,130       |   |                                                                                           | $      | 2.42      |                                                                                                                                                               |   |   | 8,872,568 |   |

----

|  Name and Address of Beneficial      Owner                                                                                                                                |   | Amount      of Beneficial Ownership |       |   |   | Percentage      of Total (1) |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|--------|--------|------------------------------|--------|
| Robert      F. Johnston c/o      Pharmos Corporation99      Wood Avenue South, Suite 311, Iselin, NJ 08830                                                                |   |                                | 18,025,118 |   | (2     | )                       |   | 27.5 | % |
| Srinivas      Akkaraju, M.D., Ph.D.c/o      Panorama Management, LLC2440      Sand Hill Road, Suite 302, Menlo Park, CA 94025                                                  |   |                                | 116,250    |   | (3     | )                       |   | * |   |
| Anthony      B. Evninc/o      Venrock Associates530      Fifth Avenue, 22nd      Floor, New York, NY 10036                                                                     |   |                                | 13,656,886 |   | (4     | )                            |   | 21.5 | % |
| Charles      W. Newhall, III c/o      New Enterprise Associates1119      St. Paul Street, Baltimore, MD 21202                                                             |   |                                | 22,422,341 |   | (5     | )                       |   | 33.2 | % |
| S.      Colin Neillc/o      Pharmos Corporation99      Wood Avenue South, Suite 311, Iselin, NJ 08830                                                                          |   |                                | 257,499    |   | (6     | )                       |   | * |   |
| All      Current Directors andExecutive      Officers as a group (five persons)                                                                                                |   |                                | 54,478,094 |   | (7     | )                            |   | 69.6 | % |
|  New      Enterprise Associates 10, LP1119      St. Paul Street, Baltimore, MD  21202                                                                                |   |                                | 22,288,591 |   | (8     | )                            |   | 33.1 | % |
|  Venrock      Assoicates Venrock Associates III      LP Venrock Entrepreneurs Fund      III LP 530 Fifth Avenue, 22nd      Floor, New York, NY 10036  |   |                                | 13,518,136 |   | (9     | )                            |   | 21.3 | % |

| (1) | Based      on 59,438,213 shares of common stock outstanding as of March 3, 2010, 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 5,811,230 outstanding shares, 213,888 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 116,250 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 138,750 shares issuable upon      exercise of currently exercisableoptions. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Consists      of shares beneficially owned by New Enterprise Associates 10, LP and      133,750 shares issuable upon exercise of currently exercisable      options. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Consists      of 75,000 outstanding shares and 182,499 shares issuable upon exercise of      currently exercisable options. |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

| (7) | Consists      of 35,692,957 outstanding shares, 785,137 shares issuable upon exercise of      currently exercisable options and 18,000,000 shares issuable upon exercise      of currently exercisable warrants. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | Consists      of 14,288,591 outstanding shares and 8,000,000 shares issuable upon      exercise of currently exercisablewarrants. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|

| (9) | Consists      of 9,518,136 outstanding shares and 4,000,000 shares issuable upon      exercise of currently exercisablewarrants. |
|-----|----------------------------------------------------------------------------------------------------------------------------------|

----

----

----

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

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

| Reports      of Independent Registered Public Accounting Firms        |   |
|-----------------------------------------------------------------------|--------|
| Consolidated      balance sheets as of December 31, 2009 and 2008     |   |
| Consolidated      statements of operations for the years ended        |   |
| December 31, 2009, 2008 and      2007                                 |   |
| Consolidated      statements of changes in shareholders’ equity |   |
| for the years ended December      31, 2009, 2008 and 2007             |   |
| Consolidated      statements of cash flows for the years ended        |   |
| December 31, 2009, 2008, and      2007                                |   |
| 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(m) | 1997      Incentive and Non-Qualified Stock Option Plan (Annexed as Appendix B to      the Proxy Statement on Form 14A filed November 5,  1997).** |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 PricewaterhouseCoopersLLP |
|--------|----------|-------------------------------------------|

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

| 31 | Rule      13a-14(a)/15d-14(a) Certifications |
|----|----------------------------------------------|

|   | 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 | Section      1350 Certifications |
|----|----------------------------------|

|   | 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 |
|-------|---------------------|

----

| Signature                        |  Title                                       | Date                    |
|----------------------------------|---------------------------------------------------|-------------------------|
|                             |                                              |                    |
|                             |                                              |                    |
|                             |                                              |                    |
| /s/ S. Colin Neill               |                                              |                    |
| S.      Colin Neill              | President      and Chief Financial Officer        | March      3, 2010      |
|                             | (Principal      Financial and Accounting Officer) |                    |
|                             |                                              |                    |
| /s/ Srinivas Akkaraju            |                                              |                    |
| Srinivas      Akkaraju, MD, Ph.D | Director                                          | March      3, 2010      |
|                             |                                              |                    |
|                             |                                              |                    |
| /s/ Anthony B. Evnin             |                                              |                    |
| Anthony      B. Evnin, Ph.D      | Director                                          | March      3, 2010      |
|                             |                                              |                    |
|                             |                                              |                    |
| /s/ Charles W. Newhall, III      |                                              |                    |
| Charles      W. Newhall, III     | Director                                          | March      3, 2010 |
|                             |                                              |                    |

----

| Reports      of Independent Registered Public Accounting Firms        |   | F-2    |
|-----------------------------------------------------------------------|--------|--------|
| Consolidated      balance sheets as of December 31, 2009 and 2008     |   | F-4    |
| Consolidated      statements of operations for the years ended        |   |   |
| December      31, 2009, 2008 and 2007                                 |   | F-5    |
| Consolidated      statements of changes in shareholders’ equity |   |   |
| for      the years ended December 31, 2009, 2008 and 2007             |   | F-6    |
| Consolidated      statements of cash flows for the years ended        |   |   |
| December      31, 2009, 2008, and 2007                                |   | F-7    |
| Notes      to consolidated financial statements                       |   | F-8    |

----

----

----

| PHARMOS      CORPORATION                                                                                                                                                         |   |              |         |   |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------------|--------|--------|--------|
| Consolidated      Balance Sheets                                                                                                                                                 |   |              |         |   |   |   |
|                                                                                                                                                                             |   | December      31, |         |
|                                                                                                                                                                             |   | 2009              |         |   | 2008   |   |
| Assets                                                                                                                                                                           |   |              |         |   |   |   |
| Current      Assets                                                                                                                                                              |   |              |         |   |   |   |
| Cash      and cash equivalents                                                                                                                                                   |   | $                 | 4,629,486    |   |   | $      | 4,730,282 |   |
| Restricted      cash                                                                                                                                                             |   |              | -            |   |   |   | 38,998 |   |
| Prepaid      expenses and other current assets                                                                                                                                   |   |              | 25,678       |   |   |   | 1,049,898 |   |
| Total      current assets                                                                                                                                                        |   |              | 4,655,164    |   |   |   | 5,819,178 |   |
|                                                                                                                                                                             |   |              |         |   |   |   |   |   |
| Fixed      assets, net                                                                                                                                                           |   |              | 1,379        |   |   |   | 9,692 |   |
| Other      assets                                                                                                                                                                |   |              | 32,479       |   |   |   | 143,294 |   |
|                                                                                                                                                                             |   |              |         |   |   |   |   |   |
| Total      assets                                                                                                                                                                |   | $                 | 4,689,022    |   |   | $      | 5,972,164 |   |
|                                                                                                                                                                             |   |              |         |   |   |   |   |   |
| Liabilities      and Shareholders’ Equity                                                                                                                                  |   |              |         |   |   |   |   |   |
| Current      liabilities                                                                                                                                                         |   |              |         |   |   |   |   |   |
| Accounts      payable                                                                                                                                                            |   | $                 | 73,717       |   |   | $      | 883,966 |   |
| Accrued      expenses                                                                                                                                                            |   |              | 148,414      |   |   |   | 615,663 |   |
| Accrued      wages and other compensation                                                                                                                                        |   |              | 195,000      |   |   |   | 87,000 |   |
| Total      current liabilities                                                                                                                                                   |   |              | 417,131      |   |   |   | 1,586,629 |   |
|                                                                                                                                                                             |   |              |         |   |   |   |   |   |
| Other      liability                                                                                                                                                             |   |              | -            |   |   |   | 44,316 |   |
| Convertible      debentures                                                                                                                                                      |   |              | 1,000,000    |   |   |   | 4,000,000 |   |
| Total      liabilities                                                                                                                                                           |   |              | 1,417,131    |   |   |   | 5,630,945 |   |
|                                                                                                                                                                             |   |              |         |   |   |   |   |   |
| Shareholders’      Equity                                                                                                                                                  |   |              |         |   |   |   |   |   |
| Preferred      stock, $.03 par value, 1,250,000 shares authorized, none issued and      outstanding                                                                              |   |              | -            |   |   |   | - |   |
| Common      stock, $.03 par value; 120,000,000 and 60,000,000 shares      authorized,  59,291,154 and 26,210,290  issued in 2009      and 2008, respectively |   |              | 1,778,735    |   |   |   | 786,307 |   |
| Paid-in      capital in excess of par                                                                                                                                            |   |              | 211,301,675  |   |   |   | 206,309,096 |   |
| Accumulated      deficit                                                                                                                                                         |   |              | (209,808,093 | )      |   |   | (206,753,758 | ) |
| Treasury      stock, at cost, 2,838 shares                                                                                                                                       |   |              | (426         | )      |   |   | (426 | ) |
| Total      shareholders' equity                                                                                                                                                  |   |              | 3,271,891    |   |   |   | 341,219 |   |
|                                                                                                                                                                             |   |              |         |   |   |   |   |   |
| Total      liabilities and shareholders' equity                                                                                                                                  |   | $                 | 4,689,022    |   |   | $      | 5,972,164 |   |
|  The      accompanying notes are an integral part of these consolidated financial      statements.                                                                          |   |

----

|                                              | Year      ended December 31, |
|---------------------------------------------------|------------------------------|
|                                              |                         | 2009 |   |   | 2008 |   |   | 2007 |   |
| Expenses                                          |                         |   |   |   |   |   |   |   |   |
| Research      and development, gross              |                         | $ | 4,422,600 |   |   | $ | 9,028,705 |   |   | $ | 11,457,566 |   |
| Grants                                            |                         |   | - |   |   |   | - |   |   |   | (812,042 | ) |
| Research      and development, net of grants      |                         |   | 4,422,600 |   |   |   | 9,028,705 |   |   |   | 10,645,524 |   |
| In-process      acquired research and development |                         |   | 180,000 |   |   |   | - |   |   |   | - |   |
| General      and administrative                   |                         |   | 1,536,470 |   |   |   | 1,965,243 |   |   |   | 6,698,601 |   |
| Depreciation      and amortization                |                         |   | 8,314 |   |   |   | 106,236 |   |   |   | 235,134 |   |
| Total      operating expenses                     |                         |   | 6,147,384 |   |   |   | 11,100,184 |   |   |   | 17,579,259 |   |
|                                              |                         |   |   |   |   |   |   |   |   |   |   |   |
| Loss      from operations                         |                         |   | (6,147,384 | ) |   |   | (11,100,184 | ) |   |   | (17,579,259 | ) |
|                                              |                         |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense)                       |                         |   |   |   |   |   |   |   |   |   |   |   |
|                                              |                         |   |   |   |   |   |   |   |   |   |   |   |
| Debt      conversion expense                      |                         |   | (596,104 | ) |   |   | - |   |   |   | - |   |
| Interest      income                              |                         |   | 8,412 |   |   |   | 255,751 |   |   |   | 938,312 |   |
| Interest      expense                             |                         |   | (225,335 | ) |   |   | (490,537 | ) |   |   | - |   |
| Change      in value of warrants                  |                         |   | - |   |   |   | - |   |   |   | 11,435 |   |
| Other      income (expense)                       |                         |   | (8,404 | ) |   |   | 41,438 |   |   |   | 47,905 |   |
| Other      (expense) income, net                  |                         |   | (821,431 | ) |   |   | (193,348 | ) |   |   | 997,652 |   |
|                                              |                         |   |   |   |   |   |   |   |   |   |   |   |
| Loss      before income taxes                     |                         | $ | (6,968,815 | ) |   | $ | (11,293,532 | ) |   | $ | (16,581,607 | ) |
| Income      tax benefit                           |                         |   | (3,914,481 | ) |   |   | (1,204,126 | ) |   |   | (955,782 | ) |
|                                              |                         |   |   |   |   |   |   |   |   |   |   |   |
|                                              |                         |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                     |                         | $ | (3,054,334 | ) |   | $ | (10,089,406 | ) |   | $ | (15,625,825 | ) |
|                                              |                         |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss per share                           |                         |   |   |   |   |   |   |   |   |   |   |   |
| -      basic and diluted                          |                         | $ | (0.06 | ) |   | $ | (0.39 | ) |   | $ | (0.61 | ) |
|                                              |                         |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding          |                         |   |   |   |   |   |   |   |   |   |   |   |
| -      basic and diluted                          |                         |   | 47,445,014 |   |   |   | 25,934,973 |   |   |   | 25,591,660 |   |

----

|                                                                                              |   | Common      Stock |       |   |         |   |      |                                     |   |   |        Treasury      Stock |   |   |         |         |
|---------------------------------------------------------------------------------------------------|--------|-------------------|------------|--------|--------------|--------|-----------|------------------------------------------|--------|--------|---------------------------------|--------|--------|--------------|--------------|
|                                                                                              |   |  Shares      |       |   |  Amount |   |      | Paid-in      Capital in Excess of    Par |   |   | AccumulatedDeficit              |   |   |  Shares |         |   |  Amount |   |   | Total      Stockholders’ Equity |   |
| December      31, 2006                                                                            |   |              | 25,565,784 |   |         | $      | 766,973   |                                     |   | $      | 204,700,030                     |   |   | $            | (181,038,527 | ) |   |   | 2,838 |   |   | $ | (426 | ) |   | $ | 24,428,050 |   |
|                                                                                              |   |              |       |   |         |   |      |                                     |   |   |                            |   |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock      and option issuance for employee compensation and amortization of      retention award |   |              |       |   |         |   |      |                                     |   |   |   1,182,440                |   |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   1,182,440 |   |
| Issuance      of Retention Award Shares                                                           |   |              | 37,975     |   |         |   | 1,139     |                                     |   |   | (1,139                          | )      |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Loss                                                                                     |   |              |       |   |         |   |      |                                     |   |   |                            |   |   |         | (15,625,825  | ) |   |   |   |   |   |   |   |   |   |   | (15,625,825 | ) |
| December      31, 2007                                                                            |   |              | 25,603,759 |   |         |   | 768,112   |                                     |   |   | 205,881,331                     |   |   |         | (196,664,352 | ) |   |   | 2,838 |   |   |   | (426 | ) |   |   | 9,984,665 |   |
|                                                                                              |   |              |       |   |         |   |      |                                     |   |   |                            |   |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock      and option issuance for employee compensation                                          |   |              | 160,716    |   |         |   | 4,821     |                                     |   |   | 281,561                         |   |   |         |         |   |   |   |   |   |   |   |   |   |   |   | 286,382 |   |
| Issuance      of  Common Stock for Debenture Interest payment                           |   |              | 445,815    |   |         |   | 13,374    |                                     |   |   | 146,204                         |   |   |         |         |   |   |   |   |   |   |   |   |   |   |   | 159,578 |   |
| Net      Loss                                                                                     |   |              |       |   |         |   |      |                                     |   |   |                            |   |   |         | (10,089,406  | ) |   |   |   |   |   |   |   |   |   |   | (10,089,406 | ) |
| 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 |   |
| Debenture      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 |   |
|                                                                                              |   |              |       |   |         |   |      |                                     |   |   |                            |   |   |         |         |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                  |   | Year      Ended December 31, |       |
|---------------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                                  |   | 2009                         |       |   | 2008 |   |   | 2007 |   |
| Cash      flows from operating activities                                             |   |                         |       |   |   |   |   |   |   |
| Net      loss                                                                         |   | $                            | (3,054,334 | ) |   | $ | (10,089,406 | ) |   | $ | (15,625,825 | ) |
| Adjustments      to reconcile net loss to net cash used in operating      activities: |   |                         |       |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                    |   |                         | 8,314      |   |   |   | 106,236 |   |   |   | 235,134 |   |
| Provision      for severance pay                                                      |   |                         | -          |   |   |   | (358,706 | ) |   |   | (961,918 | ) |
| Change      in the value of warrants                                                  |   |                         | -          |   |   |   | - |   |   |   | (11,435 | ) |
| Amortization      of deferred financing fees                                          |   |                         | 32,432     |   |   |   | - |   |   |   | - |   |
| Non      cash debt conversion expense                                                 |   |                         | 596,104    |   |   |   | - |   |   |   | - |   |
| Share-based      compensation                                                         |   |                         | 175,438    |   |   |   | 286,382 |   |   |   | 1,182,441 |   |
| Debenture      interest paid in common stock                                          |   |                         | 130,403    |   |   |   | 159,578 |   |   |   | - |   |
| Milestone      paid in common shares                                                  |   |                         | 180,000    |   |   |   | - |   |   |   | - |   |
| Gain      on disposition of fixed assets                                              |   |                         | -          |   |   |   | (213,677 | ) |   |   | (12,383 | ) |
| Changes      in operating assets and liabilities:                                     |   |                         |       |   |   |   |   |   |   |   |   |   |
| Research      and development grants receivable                                       |   |                         | -          |   |   |   | 3,859 |   |   |   | 294,006 |   |
| Prepaid      expenses and other current assets                                        |   |                         | 656,228    |   |   |   | (454,713 | ) |   |   | 199,473 |   |
| Other      assets                                                                     |   |                         | -          |   |   |   | (6,806 | ) |   |   | (111,474 | ) |
| Accounts      payable                                                                 |   |                         | (810,249   | ) |   |   | 115,198 |   |   |   | 105,576 |   |
| Accrued      expenses                                                                 |   |                         | (265,585   | ) |   |   | 210,726 |   |   |   | (484,846 | ) |
| Accrued      wages and other compensation                                             |   |                         | 108,000    |   |   |   | (718,995 | ) |   |   | (196,577 | ) |
| Other      liabilities                                                                |   |                         | (44,316    | ) |   |   | (7,572 | ) |   |   | (25,794 | ) |
| Net      cash used in operating activities                                            |   |                         | (2,287,565 | ) |   |   | (10,967,896 | ) |   |   | (15,413,622 | ) |
|                                                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities                                             |   |                         |       |   |   |   |   |   |   |   |   |   |
| Purchases      of fixed assets                                                        |   |                         | -     |   |   |   | (1,730 | )  |   |   | (176,592 | )  |
| Proceeds      from disposition of fixed assets                                        |   |                         | 367,994    |   |   |   | 153,937 |   |   |   | 122,839 |   |
| Purchase      of short-term investments                                               |   |                         | -          |   |   |   | - |   |   |   | (6,933,488 | )  |
| Proceeds      from sale of short-term investments                                     |   |                         | -          |   |   |   | 3,686,568 |   |   |   | 16,419,593 |   |
| Severance      pay funding                                                            |   |                         | -          |   |   |   | 264,934 |   |   |   | 710,876 |   |
| Decrease      (increase) in restricted cash                                           |   |                         | 38,998     |   |   |   | 112,728 |   |   |   | (4,878 | )  |
| Net      cash provided by investing activities                                        |   |                         | 406,992    |   |   |   | 4,216,437 |   |   |   | 10,138,350 |   |
|                                                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities                                             |   |                         |       |   |   |   |   |   |   |   |   |   |
| Proceeds      from issuance of common stock and warrants net                          |   |                         | 1,779,777  |   |   |   | - |   |   |   | - |   |
| Proceeds      from issuance of convertible debentures                                 |   |                         | -          |   |   |   | 4,000,000 |   |   |   | - |   |
| Net      cash provided by financing activities                                        |   |                         | 1,779,777  |   |   |   | 4,000,000 |   |   |   | - |   |
|                                                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |
| Net      decrease in cash and cash equivalents                                        |   |                         | (100,796   | ) |   |   | (2,751,459 | ) |   |   | (5,275,272 | ) |
|                                                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at beginning of year                                   |   |                         | 4,730,282  |   |   |   | 7,481,741 |   |   |   | 12,757,013 |   |
|                                                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at end of year                                         |   | $                            | 4,629,486  |   |   | $ | 4,730,282 |   |   | $ | 7,481,741 |   |
|                                                                                  |   |                         |       |   |   |   |   |   |   |   |   |   |
| Supplemental      information:                                                        |   |                         |       |   |   |   |   |   |   |   |   |   |
| Interest      paid                                                                    |   |                         | -          |   |   | $ | 53,201 |   |   |   | - |   |
| Supplemental      disclosure of non-cash investing and financing activities:          |   |                         |       |   |   |   |   |   |   |   |   |   |
| Common      shares issued for accrued interest as of December 2008                    |   | $                            | 201,667    |   |   |   | - |   |   |   | - |   |
| Common      stock issued for 2009 debenture interest                                  |   | $                            | 130,403    |   |   |   | - |   |   |   | - |   |
| 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      and Business Risks |
|----|-----------------------------------|

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

----

|                                                                       |   | 2009   |       |   | 2008   |   |
|----------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|
| Stock      options                                                         |   |   | 3,647,155  |   |   |   | 2,737,106 |   |
| Restricted      stock                                                      |   |   | 1,200,000  |   |   |   | - |   |
| Convertible      debenture                                                 |   |   | 1,428,571  |   |   |   | 5,714,286 |   |
| Warrants                                                                   |   |   | 18,000,000 |   |   |   | - |   |
| Total      potential dilutive securities not included in loss per    share |   |   | 24,275,726 |   |   |   | 8,451,392 |   |

----

| Laboratory,      pilot plant and other equipment | 7      years to 14 years |
|--------------------------------------------------|--------------------------|
| Leasehold      improvements                      | 5      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. |
|----|------------------------------------------------|

----

|   | · | $1      million cash + 2 million shares of Pharmos common stock: Final patient      enrolled in Phase 2b trial (1) |
|--------|--------|--------------------------------------------------------------------------------------------------------------------|

|   | · | $2      million cash + 2.25 million shares: Successful completion of Phase 2b      (milestone not met) |
|--------|--------|--------------------------------------------------------------------------------------------------------|

|   | · | $2      million + 2 million shares: NDAsubmission |
|--------|--------|---------------------------------------------------|

|   | · | $2      million cash +2.25 million shares: FDAapproval |
|--------|--------|--------------------------------------------------------|

|   | · | 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 |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

----

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

|                                       |   | December      31, |     |
|--------------------------------------------|--------|-------------------|----------|
|                                       |   | 2009              |     |   | 2008 |   |
|  Leasehold      improvements     |   | $                 | 158,023  |   |   | $ | 158,023 |   |
|  Office      furniture and fixtures   |   |              | 87,229   |   |   |   | 87,229 |   |
|  Computer      equipment              |   |              | 234,538  |   |   |   | 234,538 |   |
|                                       |   |              | 479,790  |   |   |   | 479,790 |   |
|  Less      - Accumulated depreciation |   |              | (478,411 | ) |   |   | (470,098 | ) |
|  Fixed      Assets, net               |   | $                 | 1,379    |   |   | $ | 9,692 |   |

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

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

----

----

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

|                                  | Warrants         |   | Weighted      Average Exercise Price |   |
|---------------------------------------|------------------|--------|--------------------------------------|--------|
|                                  |             |   |                                 |   |
| Warrants      Outstanding at 12/31/06 | 424,769          |   | $                                    | 7.02   |   |
| Cancelled                             | (127,030         | )      | $                                    | 7.10   |   |
| Warrants      Outstanding at 12/31/07 | 297,739          |   | $                                    | 6.99   |   |
| Cancelled                             | (297,739         | )      | $                                    | 7.10   |   |
| Warrants      Outstanding at 12/31/08 | -                |   |                                 | -      |   |
| Issued                                | 18,000,000  |   | $                                    | 0.12   |   |
| Cancelled                             |  -          |   | $                                    | -      |   |
| Warrants      Outstanding at 12/31/09 | 18,000,000       |   | $                                    | 0.12   |   |
|                                  |             |   |                                 |   |   |
| Warrants      Exercisable at 12/31/09 | 18,000,000       |   | $                                    | 0.12   |   |
|                                  |             |   |                                 |   |   |
| Warrants      Exercisable at 12/31/08 | -                |   |                                 | -      |   |
|                                  |             |   |                                 |   |   |
| Warrants      Exercisable at 12/31/07 | 297,739          |   | $                                    | 6.99   |   |

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

----

|                                 |   | Option |      |   | Weighted      Average Exercise Price |   |
|--------------------------------------|--------|--------|-----------|--------|--------------------------------------|--------|
|                                 |   |   |      |   |                                 |   |   |   |
| Options      Outstanding at 12/31/06 |   |   | 1,924,622 |   |                                 | $      | 5.62 |   |
|                                 |   |   |      |   |                                 |   |   |   |
| Granted                              |   |   | 870,000   |   |                                 | $      | 1.70 |   |
| Cancelled                            |   |   | (374,236  | )      |                                 | $      | 7.06 |   |
| Options      Outstanding at 12/31/07 |   |   | 2,420,386 |   |                                 | $      | 3.99 |   |
|                                 |   |   |      |   |                                 |   |   |   |
| Granted                              |   |   | 854,000   |   |                                 | $      | 0.36 |   |
| Cancelled                            |   |   | (537,280  | )      |                                 | $      | 2.76 |   |
| 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 |   |
|                                 |   |   |      |   |                                 |   |   |   |
|                                 |   |   |      |   |                                 |   |   |   |
| Options      exercisable at 12/31/09 |   |   | 2,441,814 |   |                                 | $      | 3.26 |   |
|                                 |   |   |      |   |                                 |   |   |   |
| Options      exercisable at 12/31/08 |   |   | 2,244,735 |   |                                 | $      | 3.63 |   |
|                                 |   |   |      |   |                                 |   |   |   |
| Options      exercisable at 12/31/07 |   |   | 1,606,763 |   |                                 | $      | 5.12 |   |

----

|                          |               |   | Options      Outstanding |   |                                             | Options      Exercisable |                                 |
|-------------------------------|--------------------|--------|--------------------------|--------|--------------------------------------------------|--------------------------|--------------------------------------|
| Range      of Exercise Prices |               |   | Options                  |   | Weighted      Average Remaining Contractual Life |                     | Weighted      Average Exercise Price |   |   | Options      Exercisable |   |   | Weighted      Average Exercise Price |   |
| $                             | 0.14      - $0.39  |   |                     |   | 1,801,000                                        |                     | 8.5      years                       |   | $ | 0.27 |   |   |   | 647,693 |   |   | $ | 0.32 |   |
| $                             | 1.46      - $2.01  |   |                     |   | 526,000                                          |                     | 5.0      years                       |   | $ | 1.83 |   |   |   | 474,123 |   |   | $ | 1.83 |   |
| $                             | 2.15      - $3.95  |   |                     |   | 1,000,510                                        |                     | 4.9      years                       |   | $ | 2.41 |   |   |   | 1,000,353 |   |   | $ | 2.41 |   |
| $                             | 5.10      - $8.75  |   |                     |   | 65,127                                           |                     | 3.1      years                       |   | $ | 5.10 |   |   |   | 65,127 |   |   | $ | 5.10 |   |
| $                             | 9.38      - $21.20 |   |                     |   | 254,518                                          |                     | 2.8      years                       |   | $ | 16.26 |   |   |   | 254,518 |   |   | $ | 16.26 |   |
|                          |               |   |                     |   | 3,647,155                                        |                     | 6.5      years                       |   | $ | 2.28 |   |   |   | 2,441,814 |   |   | $ | 3.26 |   |

|                           | 2009           |   | 2008          |   | 2007          |
|--------------------------------|----------------|--------|---------------|--------|---------------|
| Risk-free      interest rate   | 1.60-2.46%     |   | 2.48-3.30%    |   | 4.20-4.75%    |
| Expected      lives (in years) | 5.2            |   | 5.2           |   | 6.16          |
| Dividend      yield            | 0      %       |   | 0      %      |   | 0      %      |
| Expected      volatility       | 97      -121 % |   | 80      -83 % |   | 79      -80 % |
| Fair      value                | $0.17          |   | $0.36         |   | $1.28         |

----

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

|                                               |   | 2009   |            |   | 2008   |   |
|----------------------------------------------------|--------|--------|-----------------|--------|--------|--------|
| Domestic      NOLs                                 |   | $      | 73,004,000      |   |   | $      | 79,876,000 |   |
| Israeli      NOLs                                  |   |   | -               |   |   |   | 827,000 |   |
| Research      and Development Credit Carryforwards |   |   |  7,380,000 |   |   |   | 6,990,000 |   |
| Accrued      expenses, compensation and other      |   |   | 664,000         |   |   |   | 1,322,000 |   |
| Net      Deferred Tax Assets                       |   |   | 81,048,000      |   |   |   | 89,015,000 |   |
| Valuation      allowance                           |   |   | (81,048,000     | )      |   |   | (89,015,000 | ) |
|                                               |   | $      | -               |   |   | $      | - |   |

----

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

|       |             |    |
|------------|------------------|---------|
|       | LeaseCommitments |    |
|  2010 |  $          | 45,945  |   |
|  2011 |             | -       |   |
|  2012 |             | -       |   |
|  2013 |             | -  |   |
|  2014 |             | -  |   |
|       | $                | 45,945  |   |

----

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

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

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

|                           |   | 2009    |       |    | 2008   |   |        | 2007   |   |
|--------------------------------|--------|---------|------------|---------|--------|--------|-------------|--------|--------|
| Net      loss                  |   |    |       |    |   |   |        |   |   |
| United      States             |   | $       | (2,913,759 | )       |   | $      | (10,286,538 | )      |   | $ | (15,553,864 | ) |
| Israel                         |   |    | (140,575   | )  |   |   | 197,132     |   |   |   | (71,961 | ) |
|                           |   |  $ | (3,054,334 | )       |   | $      | (10,089,406 | )      |   | $ | (15,625,825 | ) |
| Total      assets              |   |    |       |    |   |   |        |   |   |   |   |   |
| United      States             |   |  $ | 4,669,681  |    |   | $      | 5,417,338   |   |   | $ | 10,827,747 |   |
| Israel                         |   |    | 19,341     |    |   |   | 554,826     |   |   |   | 1,547,212 |   |
|                           |   |  $ | 4,689,022  |    |   | $      | 5,972,164   |   |   | $ | 12,374,959 |   |
| Long      lived assets, net    |   |    |       |    |   |   |        |   |   |   |   |   |
| United      States             |   |  $ | 1,379      |    |   | $      | 9,692       |   |   | $ | 18,280 |   |
| Israel                         |   |    | -          |    |   |   | -           |   |   |   | 406,178 |   |
|                           |   |  $ | 1,379      |    |   | $      | 9,692       |   |   | $ | 424,458 |   |
| Capital      expenditures, net |   |    |       |    |   |   |        |   |   |   |   |   |
| United      States             |   |  $ | -          |    |   | $      | 1,730       |   |   | $ | 9,100 |   |
| Israel                         |   |    | -          |    |   |   | -           |   |   |   | 167,492 |   |
|                           |   |  $ | -          |    |   | $      | 1,730       |   |   | $ | 176,592 |   |

----

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

| 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       | )                |   | $      | (.02             | )      |   | $ | .07 |   |
|                                                   |   |             |       |   |             |   |       |             |   |   |             |   |   |   |   |   |
|                                                   |   |             |       |   |             |   |       |             |   |   |             |   |   |   |   |   |
| Year      ended                                        |   |             |       |   |             |   |       |             |   |   |             |   |   |   |   |   |
| December      31, 2008                                 |   | 1st      Quarter |       |   | 2nd      Quarter |   |       | 3rd      Quarter |   |   | 4th      Quarter |   |
| Operating      Expenses                                |   | $                | 3,609,710  |   |             | $      | 2,613,967  |             |   | $      | 2,760,493        |   |   | $ | 2,116,014 |   |
| Loss      from Operations                              |   |             | (3,609,710 | )      |             |   | (2,613,967 | )                |   |   | (2,760,493       | )      |   |   | (2,116,014 | ) |
| Other      income (loss)                               |   |             | 14,827     |   |             |   | (53,591    | )                |   |   | (83,859          | )      |   |   | (70,725 | ) |
| Net      loss1                                         |   | $                | (3,594,883 | )      |             | $      | (2,667,558 | )                |   | $      | (2,844,352       | )      |   | $ | (982,613 | ) |
| Net      loss per share - basic and diluted*           |   | $                | (.14       | )      |             | $      | (.10       | )                |   | $      | (.11             | )      |   | $ | (.04 | ) |

|   | 1. | Includes      the sale of the NJ Net Operating Losses in the fourth quarters of 2009 and      2008 of $3,914,481 and $1,204,126,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. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----