SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

               Quarterly Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                    FOR THE QUARTER ENDED SEPTEMBER 30, 2003

                         COMMISSION FILE NUMBER 0-11550


                               PHARMOS CORPORATION
                               -------------------
             (Exact name of registrant as specified in its charter)

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

                         99 WOOD AVENUE SOUTH, SUITE 311
                                ISELIN, NJ 08830
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (732) 452-9556



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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X.



As of November 12, 2003 the Registrant had outstanding  73,963,541 shares of its
$.03 par value Common Stock.


<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1   FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

PHARMOS CORPORATION
(UNAUDITED)
CONSOLIDATED BALANCE SHEETS
========================================================================================

                                                          SEPTEMBER 30,     DECEMBER 31,
                                                              2003             2002
                                                         =============    =============
<S>                                                    <C>                  <C>
ASSETS
   Cash and cash equivalents                             $  16,447,392    $  19,579,287
   Other receivables                                           505,099          698,800
   Restricted cash                                           9,692,308        2,199,999
   Debt issuance costs                                       1,219,623                -
   Prepaid expenses and other current assets                   327,943          323,991
                                                         -------------    -------------
        TOTAL CURRENT ASSETS                                28,192,365       22,802,077

   Fixed assets, net                                         1,343,534        1,792,322
   Restricted cash                                          11,367,692           60,000
   Debt issuance costs                                         142,925                -
   Other assets                                                 42,533           32,283
                                                         -------------    -------------

        TOTAL ASSETS                                     $  41,089,049    $  24,686,682
                                                         =============    =============


LIABILITIES AND SHAREHOLDERS' EQUITY
   Accounts payable                                      $   2,414,594    $   3,742,460
   Accrued expenses                                          3,409,158        3,241,581
   Warrant Liability                                         1,576,590                -
   Accrued wages and other compensation                      1,004,228          999,647
   Convertible debentures, net                              14,985,775        3,446,658
                                                         -------------    -------------
        TOTAL CURRENT LIABILITIES                           23,390,345       11,430,346

   Other liability                                              10,000           10,000
   Convertible debentures, net                               2,543,383                -
                                                         -------------    -------------
        TOTAL LIABILITIES                                   25,943,728       11,440,346
                                                         -------------    -------------

   Commitments and contingencies

   SHAREHOLDERS' EQUITY
   Preferred stock, $.03 par value,
   1,250,000 shares authorized,
   none issued and outstanding
   Common stock, $.03 par value;
   110,000,000 shares  authorized,
   71,372,231 and 56,574,849 issued and outstanding
    in 2003 and 2002, respectively                           2,141,168        1,697,246
   Deferred compensation                                       (79,992)        (119,988)
   Paid in capital                                         128,604,965      114,187,558
   Accumulated deficit                                    (115,520,394)    (102,518,054)
   Treasury stock, 14,189 shares held in 2003 and 2002            (426)            (426)
                                                         -------------    -------------
        TOTAL SHAREHOLDERS' EQUITY                          15,145,321       13,246,336
                                                         -------------    -------------


        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $  41,089,049    $  24,686,682
                                                         =============    =============
</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       2

<PAGE>

<TABLE>
<CAPTION>

PHARMOS CORPORATION
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------------------

                                                          THREE MONTHS ENDED SEPTEMBER 30,
                                                               2003           2002
                                                          ------------    ------------
<S>                                                        <C>              <C>
REVENUES                                                             -               -

EXPENSES
    Research and development, net                           $2,598,758      $4,148,848
    Selling, general and administrative                        931,066       1,076,057
    Depreciation and amortization                              165,293         170,063
                                                          ------------    ------------

       TOTAL OPERATING EXPENSES                              3,695,117       5,394,968
                                                          ------------    ------------

LOSS FROM OPERATIONS                                        (3,695,117)     (5,394,968)

OTHER INCOME (EXPENSE)
    Interest income                                             52,629         127,496
    Other (expense) income, net                                (19,625)          5,346
    Derivative loss                                           (457,090)              -
    Interest expense                                           (69,813)       (186,438)
                                                          ------------    ------------
    OTHER EXPENSE, NET                                        (493,899)        (53,596)
                                                          ------------    ------------

NET LOSS                                                   ($4,189,016)    ($5,448,564)
                                                          ============    ============

NET LOSS PER SHARE
    - BASIC AND DILUTED                                          ($.06)          ($.10)
                                                          ============    ============


Weighted average shares outstanding - basic and diluted     71,083,346      56,583,958
                                                          ============    ============
</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       3
<PAGE>


<TABLE>
<CAPTION>

PHARMOS CORPORATION
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------

                                                           NINE MONTHS ENDED SEPTEMBER 30,
                                                              2003            2002
                                                          ------------    ------------
<S>                                                        <C>             <C>
REVENUES                                                             -               -

EXPENSES
    Research and development, net                           $8,955,387     $10,016,149
    Selling, general and administrative                      2,535,997       2,907,645
    Depreciation and amortization                              505,486         516,787
                                                          ------------    ------------

       TOTAL OPERATING EXPENSES                             11,996,870      13,440,581
                                                          ------------    ------------

LOSS FROM OPERATIONS                                       (11,996,870)    (13,440,581)

OTHER INCOME (EXPENSE)
    Interest income                                            948,045         442,276
    Other (expense) income, net                                (44,346)          3,148
    Derivative loss                                         (1,529,636)              -
    Interest expense                                          (379,533)       (772,499)
                                                          ------------    ------------
    OTHER EXPENSE, NET                                      (1,005,470)       (327,075)
                                                          ------------    ------------

NET LOSS                                                  ($13,002,340)   ($13,767,656)
                                                          ============    ============

NET LOSS PER SHARE
    - BASIC AND DILUTED                                          ($.20)          ($.24)
                                                          ============    ============


Weighted average shares outstanding - basic and diluted     64,789,797      56,534,870
                                                          ============    ============
</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       4
<PAGE>



<TABLE>
<CAPTION>

PHARMOS CORPORATION
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------
                                                                         NINE MONTHS ENDED SEPTEMBER 30,
                                                                             2003            2002
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
Cash flows from operating activities
  Net loss                                                               ($13,002,340)   ($13,767,656)
   Adjustments to reconcile net loss to net
    cash used in operating activities
       Depreciation and amortization                                          505,486         516,787
       Reversal of beneficial conversion feature                             (786,000)              -
       Change in the value of warrants                                      1,529,636               -
       Amortization of debt discount and issuance costs                       111,929         285,721
       Amortization of fair value of change in convertible debt                68,808         317,006
       Amortization of stock options issuances below fair market value         39,996          39,649
       Non-cash compensation charge - consultant compensation                  32,472          63,537
  Changes in operating assets and liabilities
       Other receivables                                                      193,701         (45,685)
       Prepaid expenses and other current assets                               (3,952)        600,809
       Other assets                                                           (10,250)        (10,250)
       Accounts payable                                                    (1,327,866)       (657,826)
       Accrued expenses                                                       167,577         390,439
       Accrued wages and other compensation                                     4,581        (208,746)
       Other liability                                                              -          10,000
                                                                         ------------    ------------

  Net cash flows used in operating activities                             (12,476,222)    (12,466,215)
                                                                         ------------    ------------

Cash flows from investing activities
      Purchases of fixed assets                                               (56,698)       (502,537)
      (Increase) decrease in restricted cash                              (18,800,001)      3,543,299
                                                                         ------------    ------------

  Net cash flows used in investing activities                             (18,856,699)      3,040,762
                                                                         ------------    ------------

Cash flows from financing activities
      Proceeds from issuance of common stock and exercise of
      warrants, net                                                        12,080,090          18,104
      Fees related to refinancing convertible debt                                  -        (163,000)
      Proceeds from issuance of convertible debentures
      and warrants, net                                                    19,620,936               -
      Repayment of convertible debentures, net                             (3,500,000)     (2,000,000)
                                                                         ------------    ------------

Net cash provided by financing activities                                  28,201,026       1,398,403
                                                                         ------------    ------------

Net decrease in cash and cash equivalents                                  (3,131,895)    (11,570,349)

Cash and cash equivalents at beginning of year                             19,579,287      35,269,114
                                                                         ------------    ------------

Cash and cash equivalents at end of period                                $16,447,392     $23,698,765
                                                                         ============    ============

Supplemental information:
  Interest paid                                                              $525,448        $175,165
Supplemental disclosure of non-cash financing activities:
  Conversion of convertible debt and interest to equity                             -      $2,617,593
  Issuance of warrants in connection with the private placement              $393,707               -
</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       5
<PAGE>



PHARMOS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     1. INTERIM FINANCIAL STATEMENTS
     The interim Financial  Statements of Pharmos  Corporation (the "Company" or
     "Pharmos") have been prepared in accordance  with the  instructions to Form
     10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
     information and  disclosures  necessary for a presentation of the Company's
     financial  position,  results of  operations,  and cash flows in conformity
     with  generally  accepted   accounting   principles.   In  the  opinion  of
     management, these financials statements reflect all adjustments, consisting
     only of normal recurring accruals, necessary for a fair presentation of the
     Company's  financial  position,  results of operations,  and cash flows for
     such  periods.  The results of operations  for any interim  periods are not
     necessarily  indicative of the results for the full year.  The December 31,
     2002 Balance Sheet data was derived from audited financial statements,  but
     does not include all disclosures  required by generally accepted accounting
     principles.  These financial  statements should be read in conjunction with
     the  financial  statements  and notes  thereto  contained in the  Company's
     Annual Report on Form 10-K for the year ended December 31, 2002.

     Certain  reclassifications  have been made to the financial  statements for
     the three and nine months  ended  September  30,  2002 to conform  with the
     current period's presentation.


     2. THE COMPANY

     Pharmos  Corporation  (the "Company" or "Pharmos") is a  bio-pharmaceutical
     company  that  discovers  and  develops  new  drugs  to  treat a  range  of
     inflammatory,  pain and neurological  disorders.  Although Pharmos does not
     currently have any approved  products,  the Company has a portfolio of drug
     candidates  under  development,  as  well  as  discovery,  preclinical  and
     clinical  capabilities.  The Company has executive  offices in Iselin,  New
     Jersey and  conducts  research  and  development  through its wholly  owned
     subsidiary, Pharmos, Ltd., in Rehovot, Israel.

     3. LIQUIDITY AND BUSINESS RISKS

     The Company incurred  operating losses since its inception through the year
     ended  December 31, 2000 and was not profitable in 2002 and the first three
     quarters of 2003.  During 2001, the Company  recorded net income due to the
     nonrecurring  sale of its  ophthalmic  product line. At September 30, 2003,
     the Company has an accumulated deficit of $115.5 million.  Such losses have
     resulted  principally  from costs incurred in research and  development and
     from  general  and  administrative  expenses.  The  Company  has funded its
     operations  through the use of cash obtained  principally  from third party
     financing.  Management  believes  that cash and cash  equivalents  of $16.4
     million and restricted cash of $5.0 million  (released from restricted cash
     in October  2003) as of September  30, 2003,  will be sufficient to support
     the Company's continuing operations into the fourth quarter 2004.

     The Company is  continuing  to actively  pursue  various  funding  options,
     including  additional  equity  offerings,  strategic  corporate  alliances,
     business combinations and the establishment of product related research and
     development  limited  partnerships,   to  obtain  additional  financing  to
     continue  the  development  of its  products  and bring them to  commercial
     markets.  Should the Company be unable to raise  adequate  financing in the
     future, long-term operations will need to be scaled back or discontinued.


     4. SIGNIFICANT ACCOUNTING POLICIES

     REVENUE RECOGNITION

     The Company earns license fees from the transfer of drug technology and the
     related  preclinical  research data. License fee revenue is recognized when
     all  performance  obligations  are completed and the amounts are considered
     collectible.  The Company had no product  sale  revenues  for the three and
     nine month  periods  ending  September 30, 2003 and 2002 due to the sale of
     its  ophthalmic  product line in October  2001 and does not expect  product
     sale  revenues for the next few years.  Further  product  sales revenue may
     never  materialize  if  products  currently  under  development  fail to be
     ultimately approved or commercialized.

                                       6
<PAGE>
     EQUITY BASED COMPENSATION

     The Company accounts for its employee stock option plans in accordance with
     the provisions of Accounting  Principles Board Opinion No. 25,  "Accounting
     for Stock  Issued to  Employees",  and  related  interpretations.  As such,
     compensation  expense  related to employee stock options is recorded if, on
     the date of grant, the fair value of the underlying stock equals or exceeds
     the  option  exercise  price.  The  Company  adopted  the   disclosure-only
     requirements of SFAS No. 123, " Accounting for  Stock-Based  Compensation",
     which allows  entities to continue to apply the  provisions  of APB Opinion
     No. 25 for  transactions  with  employees  and provide pro forma  operating
     results and pro forma per share disclosures for employee stock grants as if
     the fair-value-based  method of accounting in SFAS No. 123 has been applied
     to these transactions. Options issued to non-employees are valued using the
     fair value methodology under SFAS 123.

     In  December  2002,  the FASB  issued  Statement  of  Financial  Accounting
     Standards No. 148, Accounting for Stock-Based Compensation,  Transition and
     Disclosure,  an  amendment  of FASB  Statement  No.  123 (SFAS  148).  This
     statement  provides  alternative  methods of transition  for an entity that
     voluntarily  changes to the fair value based method of accounting for stock
     based compensation. It also amends the disclosure provisions of SFAS 123 to
     require  prominent  disclosure about the effects on reported net loss of an
     entity's  accounting policy decisions with respect to stock-based  employee
     compensation.  Further, SFAS 148 amends Accounting Principles Board Opinion
     No. 28, Interim  Financial  Reporting,  to require  disclosure  about those
     effects in interim financial information.

     The  following  table  illustrates  the  effect  on  loss  from  continuing
     operations  and loss per share if the  Company  had  applied the fair value
     recognition   provisions   of  SFAS  No.   123  to   stock-based   employee
     compensation.  The estimated fair value of each option is calculated  using
     the Black-Scholes option-pricing model.
<TABLE>
<CAPTION>

                                                   Three months ended                Nine months ended
                                                      September 30,                    September 30,
                                                  2003            2002             2003              2002
                                                  ----            ----             ----              ----
<S>                                           <C>              <C>               <C>             <C>
         Net (loss) as reported               ($4,189,016)     ($5,448,564)      ($13,002,340)   ($13,767,656)
         Add: Stock-based employee
         compensation expense included in            13,332          13,343             39,996          39,649
         reported net income
         Deduct: Total stock-based employee
         compensation expense determined
         under fair value based method for
         all awards                               (260,027)       (293,060)          (758,429)       (823,044)
                                               ------------    ------------      -------------   -------------
         Pro forma net (loss)                  ($4,435,711)    ($5,728,281)      ($13,720,773)   ($14,551,051)
                                               ============    ============      =============   =============
         Earnings per share:
         Basic and diluted - as reported             ($.06)          ($.10)             ($.20)          ($.24)
         Basic and diluted - pro forma               ($.06)          ($.10)             ($.21)          ($.26)
</TABLE>


     For  disclosure  purposes under SFAS No. 123, the fair value of each option
     grant was  estimated  on the date of grant using the  Black-Scholes  option
     valuation model with the following weighted-average assumption:
<TABLE>
<CAPTION>

                                            Three months ended                          Nine months ended
                                               September 30                               September 30
                                        2003                 2002                2003                  2002
                                        ----                 ----                ----                  ----
<S>                                    <C>                  <C>              <C>                   <C>
    Risk-interest rate                 3.15 %               4.39 %           2.88 - 3.15%          4.34 - 4.39%
    Expected lives (in years)            5                    5                   5                     5
    Dividend yield                       0 %                 0 %                 0 %                    0 %
    Expected volatility                 75 %                 75 %                75 %                  75 %

</TABLE>

                                       7
<PAGE>

PHARMOS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     In May 2003, the Financial  Accounting Standards Board issued Statement No.
     150  ("FAS  150"),   Accounting  for  Certain  Financial  Instruments  with
     Characteristics  of Both  Liabilities  and Equity.  FAS 150 specifies  that
     instruments  within its scope embody obligations of the issuer and that the
     issuer must  classify  them as  liabilities.  SFAS 150 requires  issuers to
     classify as liabilities the following three types of freestanding financial
     instruments:   (1)  mandatorily  redeemable  financial   instruments;   (2)
     obligations to repurchase the issuer's equity shares by transferring assets
     and (3) certain  obligations to issue a variable number of shares. SFAS 150
     defines a  "freestanding  financial  instrument" as a financial  instrument
     that (1) is entered  into  separately  and apart  from any of the  entity's
     other financial  instruments or equity  transactions or (2) is entered into
     in conjunction with some other  transaction and can be legally detached and
     exercised on a separate basis. For all financial  instruments  entered into
     or modified after May 31, 2003, SFAS 150 is effective immediately.  For all
     other  instruments  of public  companies,  SFAS 150 went into effect at the
     beginning of the first interim  period  beginning  after June 15, 2003. The
     adoption  of SFAS No. 150 did not have a material  impact on the  Company's
     financial   statements  for  the  third  quarter  of  2003.  The  Financial
     Accounting  Standards  Board is  expected to defer the  effective  date for
     selected  provisions  of SFAS No. 150,  limited to  mandatorily  redeemable
     non-controlling  interests associated with finite-lived  subsidiaries.  The
     deferral of those  selected  provisions  is not expected to have a material
     impact on the Company's financial statements.

     In April 2003, the FASB issued SFAS No. 149,  Amendment of Statement 133 on
     Derivative  Instruments and Hedging  Activities  ("SFAS No. 149"). SFAS No.
     149  clarifies  under what  circumstances  a contract  with an initial  net
     investment  meets the  characteristics  of a  derivative  as  discussed  in
     Statement No. 133. It also specifies when a derivative contains a financing
     component that warrants special reporting in the Consolidated  Statement of
     Cash Flows.  SFAS No. 149 amends certain other existing  pronouncements  in
     order to improve consistency in reporting these types of transactions.  The
     new guidance is effective for contracts entered into or modified after June
     30, 2003,  and for hedging  relationships  designated  after June 30, 2003.
     This standard did not have a material impact on the Company's  consolidated
     financial statements.

     In  January  2003,  the FASB  issued  FIN 46,  "Consolidation  of  Variable
     Interest  Entities,  an  Interpretation  of ARB No. 51". FIN 46 requires an
     investor to consolidate a variable interest entity if it is determined that
     the  investor  is a primary  beneficiary  of that  entity,  subject  to the
     criteria  set forth in FIN 46.  Assets,  liabilities,  and  non-controlling
     interests  of  newly  consolidated   variable  interest  entities  will  be
     initially   measured  at  fair  value.  After  initial   measurement,   the
     consolidated  variable  interest  entity  will be  accounted  for under the
     guidance  provided by Accounting  Research  Bulletin No. 51,  "Consolidated
     Financial  Statements." FIN 46 is effective for variable  interest entities
     created or entered  into after  January 31,  2003.  For  variable  interest
     entities created or acquired before February 1, 2003, FIN 46 applies in the
     first fiscal year or interim period  beginning after December 15, 2003. The
     Company  does not believe that the  adoption of this  standard  will have a
     material impact on its consolidated financial statements.

     In November 2002, the FASB issued FASB  Interpretation  No. 45, Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of Indebtedness of Others (`FIN 45"), which clarifies disclosure
     and recognition/measurement requirements related to certain guarantees. The
     disclosure requirements are effective for financial statements issued after
     December  15,  2002  and  the   recognition/measurement   requirements  are
     effective on a prospective  basis for  guarantees  issued or modified after
     December 31, 2002. The Company  typically  grants its customers a warranty,
     which guarantees that the Company's products will substantially  conform to
     the Company's current specifications for ninety days from the delivery date
     as well as  indemnification  for customers  from third party  claims.  This
     standard  did not have a  material  impact  on the  Company's  consolidated
     financial statements.

     5. NET LOSS PER COMMON SHARE

     Basic and diluted net loss per common  share was  computed by dividing  the
     net loss for the period by the weighted  average number of shares of common
     stock  issued and  outstanding.  In  accordance  with the  requirements  of
     Statement  of  Financial   Accounting   Standards  No.  128,  common  stock
     equivalents have been excluded from the calculation of diluted net loss per
     common share, as their inclusion would be antidilutive.

                                       8
<PAGE>

PHARMOS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The  following  table  summarized  the  equivalent  number of common shares
     assuming the related  securities that were  outstanding as of September 30,
     2003 and 2002 had been converted.

                                                             2003         2002
                                                         ----------   ----------
     Stock options                                        3,960,955    3,104,030
     Warrants                                            11,254,529    2,297,277
     Shares issuable upon exercise of convertible debt    5,198,023    1,373,243
                                                         ----------   ----------
     Total potential dilutive securities assuming the
     Company was in an income position                   20,413,507    6,774,550
                                                         ==========   ==========


     6. COLLABORATIVE AGREEMENTS

     In  June  1995,  the  Company  entered  into  a  marketing  agreement  (the
     "Marketing Agreement") with Bausch & Lomb Pharmaceuticals,  Inc. ("Bausch &
     Lomb"), a shareholder of the Company, to market Lotemax(R) and Alrex(R), on
     an exclusive basis in the United States following  receipt of FDA approval.
     The  Marketing  Agreement  also  covered the  Company's  other  loteprednol
     etabonate based product, LE-T. Under the Marketing Agreement, Bausch & Lomb
     purchased  the  active  drug  substance  (loteprednol  etabonate)  from the
     Company.  A second  agreement,  covering Europe,  Canada and other selected
     countries,  was signed in December 1996 ("the New Territories  Agreement").
     In October 2001,  the Company sold its ophthalmic  product line,  including
     the Company's rights under the above agreements to Bausch & Lomb.

     SALE OF OPHTHALMIC PRODUCT LINE

     In  October  2001,  Bausch & Lomb  purchased  all  rights to the  Company's
     loteprednol  etabonate (LE) ophthalmic product line for cash and assumption
     of certain  ongoing  obligations.  The Company  received  gross proceeds of
     approximately  $25  million  in  cash  for its  rights  to  Lotemax(R)  and
     Alrex(R),  prescription  products  that were  manufactured  and marketed by
     Bausch & Lomb under the 1995 Marketing Agreement with the Company. Bausch &
     Lomb also acquired future  extensions of LE formulations  including LE-T, a
     product  candidate that has completed a Phase III clinical trial.  Bausch &
     Lomb will pay the  Company  additional  fees  depending  on the date of FDA
     marketing  approval as follows:  If the earlier of (a) commercial launch or
     (b) 6 months after FDA approval of LE-T (the  "Triggering  Event") occurred
     before  January 1, 2002 the Company was initially to receive $15.4 million.
     That amount has been reducing by $90,000 for each month of 2002 and 2003 to
     a minimum  amount  of $13.3  million  (if the  Triggering  Event  occurs on
     December 31, 2003). If the Triggering Event occurs after December 31, 2003,
     then the  Company and Bausch & Lomb will  negotiate  in good faith to agree
     upon the amount of additional consideration that Bausch & Lomb will pay the
     Company  but not to  exceed  $13.3  million.  The  patent  owner of LE-T is
     entitled  to 11% of the  additional  fees that the  Company  receives  as a
     result  of the  contingent  payment.  The  Triggering  Event  has  not  yet
     occurred, and there is no assurance that FDA approval will be obtained.

     Upon FDA  approval,  Pharmos  will receive an  additional  fee of up to $10
     million  if the  following  occurs:  (a) net  sales of LE-T in the first 12
     months after commercial  launch are at least $7.5 million and (b) net sales
     of LE-T in the second twelve consecutive months after commercial launch (i)
     exceed  $15.0  million  and (ii) are  greater  than net sales in (a) above.
     Future  payments  will  be  included  in  the  Company's  income  when  all
     contingencies  are resolved.  The patent owner is also entitled to 14.3% of
     the  additional  fees  that  the  Company  receives  as a  result  of these
     contingent payments.  The Company's only future obligation to Bausch & Lomb
     after the sale is to pay up to $3.75  million in research  and  development
     cost  relating  to LE-T,  of which  $600,000  was  withheld  from the sales
     proceeds.  The entire  $3.75  million  was netted  against the gain on sale
     recorded.  The Company has a passive role as a member of a joint  committee
     overseeing the development of LE-T. In July 2003, the Company paid Bausch &
     Lomb $1.5 million of its  liability for LE-T  development.  As of September
     30,  2003,  Pharmos owes an  additional  $1.6 million as its share of these
     research and development related LE-T expenses.  This amount is included as
     part of accounts payable at September 30, 2003.

                                       9
<PAGE>

PHARMOS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     As a result  of this  transaction,  the  Company  recorded  a gain of $16.3
     million in the fourth quarter of 2001. The Company incurred transaction and
     royalty costs of approximately $2 million. The Company also compensated the
     LE patent owner  approximately $2.7 million ($1.5 million paid upon closing
     and $1.2 million was paid in October 2002) from the proceeds of the sale of
     Lotemax and Alrex in return for his consent to the Company's  assignment of
     its rights under the license agreement to Bausch & Lomb.

     7. COMMON STOCK TRANSACTIONS

     On May 30, 2003, the Company  completed a private  placement to sell common
     shares and warrants to ten  investors,  generating  total gross proceeds of
     $8.0  million.  The  Company  filed  a  registration   statement  with  the
     Securities and Exchange Commission to permit resales of the common stock by
     the  investors.  The private  placement  offering was  completed by issuing
     9,411,765   shares  of  common   stock  at  a  price  of  $0.85  per  share
     (representing  an approximate 20% discount to a ten-day trailing average of
     the closing price of the stock ending May 28, 2003) and 3,573,529  warrants
     at an exercise price of $1.40 per share,  which includes 441,177  placement
     agent  warrants.  Issuance  costs  of  approximately  $525,000  in cash and
     $240,000 for the value of the placement  agent  warrants were recorded as a
     debit to additional  paid in capital.  The Company  calculated the value of
     the warrants,  including the placement agent warrants,  being approximately
     $1,773,000  under the  Black-Scholes  option  pricing  method  (assumption:
     volatility  75%,  risk free  rate  3.15% and zero  dividend  yield).  As of
     September  30, 2003,  one of the twelve (ten  investors  and two  placement
     agent) warrant holders have exercised their warrants totaling approximately
     $124,000.


     On March 4, 2003, the Company  completed a private placement to sell common
     shares and warrants to eight investors,  generating total gross proceeds of
     $4.3 million under a shelf registration. The private placement offering was
     completed by issuing  5,058,827  shares of common stock at a price of $0.85
     per share (the fair market value on March 4, 2003) and  1,141,182  warrants
     at an exercise price of $1.25 per share,  which includes 129,412  placement
     agent  warrants.  Issuance  costs  of  approximately  $150,000  in cash and
     $45,000 for the value of the  placement  agent  warrants were recorded as a
     debit to additional  paid in capital.  As of September 30, 2003, two of the
     nine  (eight  investors  and one  placement  agent)  warrant  holders  have
     exercised their warrants totaling approximately $265,000.

     According to EITF 00-19,  the issued warrants meet the  requirements of and
     will be  accounted  for as a  liability  since  registered  shares  must be
     delivered upon settlement. The Company calculated the value of the warrants
     at the date of the  transaction,  including the placement  agent  warrants,
     being approximately $394,000 under the Black-Scholes  option-pricing method
     (assumption: volatility 75%, risk free rate 2.88% and zero dividend yield).
     The value of the warrants is being marked to market each  reporting  period
     until  exercised or  expiration  and has a value of $1,576,590 at September
     30, 2003.

     During 2003,  the Company  issued  26,789 shares of common stock with gross
     proceeds of $33,133 pursuant to the Pharmos Corporation 2001 Employee Stock
     Purchase Plan.

     8. PRIVATE PLACEMENT

     On September 26, 2003,  Pharmos completed a $21.0 million  convertible debt
     financing with six investors. $5.0 million of the proceeds will be used for
     working  capital  purposes,  and $16.0  million  will be  available to fund
     acquisitions  upon the  approval  of the  investors.  Pharmos  also  issued
     warrants   exercisable   into  shares  of  common  stock  as  part  of  the
     transaction.

     The acquisition  facility may be used to assist Pharmos' ongoing efforts to
     expand its pipeline beyond its existing product in late-stage  development.
     The financing also  addresses a possible  concern  Nasdaq  recently  raised
     informally relating to a violation of one of Nasdaq's corporate  governance
     rules.  Specifically,  Nasdaq expressed a concern that the May 2003 private
     placement,  when  aggregated  with Pharmos' March 2003  registered  private
     placement, would have resulted in the possible issuance of more than 20% of
     Pharmos'  outstanding  securities at a price less than the applicable  fair
     market value for such shares.  Completion of the $21.0 million  convertible
     debt financing had the effect of resolving any such Nasdaq concerns.



                                       10
<PAGE>

PHARMOS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The convertible debentures are convertible into common stock of the Company
     at a fixed  price of $4.04,  205% above the  closing bid price of the stock
     for the five days preceding the closing date. The debentures, which bear an
     interest  rate of 4%, will be redeemed in 13  substantially  equal  monthly
     increments  beginning  March 31,  2004.  Amounts  converted  into shares of
     Pharmos common stock will reduce the monthly  redemption  amount in inverse
     order of maturity.  The $16.0 million  earmarked for  acquisition  activity
     will be held in escrow until used or repaid.  At September  30, 2003,  $5.0
     million  was held in escrow,  which was  released to the Company in October
     2003. In connection with the financing,  the Company also issued  5,514,705
     three-year   warrants  (including  514,705  placement  agent  warrants)  to
     purchase  shares of common  stock at an exercise  price of $2.04 per share.
     The issuance costs related to the convertible  debentures of  approximately
     $1,017,000  in cash  and  $485,000  for the  value of the  placement  agent
     warrants  were  capitalized  and are being  amortized  over the life of the
     debt.  The Company  calculated the value of the warrants at the date of the
     transaction,  including the placement agent warrants,  being  approximately
     $4,652,877  under  the  Black-Scholes  option-pricing  method  (assumption:
     volatility 75%, risk free rate 1.59% and zero dividend yield).  The Company
     allocated  the $21.0  million in gross  proceeds  between  the  convertible
     debentures  and the  warrants  based on their fair  values.  The Company is
     reporting the debt discount as a direct reduction to the face amount of the
     debt in accordance  with APB 21. The discount will accrete over the life of
     the outstanding debentures. The issuance costs allocated to the convertible
     debentures  are being  deferred and amortized to interest  expense over the
     life of the debt.  APB 21 also requires the Company to allocate the warrant
     costs between the convertible  debentures and the transaction warrants. The
     issuance  costs  allocated  to the  warrants  were  recorded  as a debit to
     additional paid in capital.

     If after the effective  date,  November 4, 2003, the closing prices for ten
     out of any  twenty  consecutive  trading  days  exceeds  $5.50,  subject to
     adjustment  for reverse and forward stock splits,  stock  dividends,  stock
     combinations and other similar  transactions of the Common Stock that occur
     after the  original  issue date,  the Company may on one  occasion,  within
     three  trading  days of any such  period,  deliver  notice to the holder to
     cause the  holder to  immediately  convert  all or part of up to 50% of the
     original  aggregate  principal  amount of the  debenture..  If the  Company
     elects  to  exercise  its  right  to a $5.50  forced  conversion,  it shall
     exercise such right ratably among all holders of  debentures.  In addition,
     if after the effective  date,  November 4, 2003, the closing prices for ten
     out of any twenty  consecutive  trading days exceeds $6.50, the Company may
     deliver  notice to the holder to  immediately  convert all or part of up to
     the  remaining  50% of  the  original  aggregate  principal  amount  of the
     debentures.

     In September 2000, the Company completed a private placement of Convertible
     Debentures,  common stock and  warrants to purchase  shares of common stock
     with institutional investors, generating gross proceeds of $11 million. The
     Convertible Debentures,  which generated gross proceeds of $8 million, were
     due in February 2002 and carried a 6% interest payable semiannually in cash
     or  common  stock.  In  connection  with  the  Convertible  Debenture,  the
     institutional  investors also received warrants for the purchase of 276,259
     common  shares  with a relative  fair value of  $725,000.  The  Convertible
     Debentures  were  convertible  into  common  shares of the  Company  at the
     conversion  price of $3.83 per share (or 2,088,775  common shares) and were
     convertible beginning October 31, 2000. Under certain limited anti-dilutive
     conditions,  the conversion price could change. Until converted into common
     stock or the outstanding  principal is repaid, the terms of the Convertible
     Debentures required the Company to deposit $4 million in an escrow account.
     The escrowed  capital is shown as Restricted Cash on the Company's  balance
     sheet and was  released  to the  Company  in  proportion  to the  amount of
     Convertible  Debentures  converted into common shares or upon the repayment
     of the debt.  The  issuance  costs  related  to the  Private  Placement  of
     approximately  $1.4 million were capitalized and amortized over the life of
     the debt.

     The holders of the Convertible  Debentures and the Company agreed to modify
     the repayment and  conversion  terms in December  2001. The holders of $5.8
     million  convertible  debt (book  value on  December  31,  2001,  including
     accrued  interest)  extended the maturity date to June 30, 2003 in exchange
     for a reduction in the conversion price from $3.83 to $2.63 for half of the
     outstanding  balance  and $ 2.15  for the  other  half  of the  outstanding
     balance.  The  convertible  debt  with a  maturity  date  of  June  2003 is
     convertible  beginning  December  31,  2001.  The  holder of the  remaining
     outstanding debt of $1.9 million  (including  accrued interest) changed the
     maturity  date from  February  28, 2002 to January 31, 2002 in exchange for
     lowering the conversion  price for the other holders.  As the  modification
     was not  significant  in accordance  with EITF 96-19 the change in the fair
     value between the original  convertible  debt and the modified  convertible
     debt was be accreted over the remaining term of the convertible debt with a
     corresponding  charge interest  expense.  During the first quarter of 2002,
     the Company issued 1,217,485 shares of its common stock upon the conversion
     of $2.5 million  principal of the 2000 Convertible  Debenture  offering and
     repaid $2 million of the Convertible  Debentures.  During the first quarter

                                       11
<PAGE>

PHARMOS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     of 2003,  the  remaining  balance  of the $3.5  million  was  redeemed  for
     approximately $4.0 million, which included accrued interest.

     Emerging  Issues  Task Force Issue No.  98-5,  Accounting  for  Convertible
     Securities with Beneficial  Conversion Features or Contingently  Adjustable
     Conversion   Ratios,   required  the  Company  to  compute  the  Beneficial
     Conversion  Feature  ("BCF")  of the  convertible  debt  from  the  private
     placement of September 2000. The BCF must be capitalized and amortized from
     the closing date until the earliest date that the investors  have the right
     to convert the debt into  common  shares.  The BCF in 2000 was  computed at
     approximately $1.8 million, all of which has been amortized and included as
     interest  expense in the year ending  December 31,  2000.  Two of the eight
     investors  of the March 2003  private  placement  were also  holders of the
     remaining $3.5 million September 2000 Convertible Debenture offering, which
     was  ultimately  redeemed for  approximately  $4.0 million,  which includes
     accrued  interest.  The Convertible  Debenture holders chose not to convert
     the existing debt to common  equity.  Instead,  the  Convertible  Debenture
     holders  opted  to be  repaid  early  and  participate  in a new  round  of
     financing. For the two investors, the sale of the common stock and warrants
     reduced the conversion price of the outstanding  debt, which resulted in an
     additional  BCF  charge of  approximately  $2.7  million  during  the first
     quarter ending March 31, 2003. The total related BCF charge since inception
     of the debt of $3.5  million was  redeemed  this quarter as a result of the
     debt being repaid. The impact of the reversal of the total BCF charge since
     inception  of the debt  resulted  in a net credit of  $786,000  recorded as
     interest  income  during the first  quarter  ending  March 31,  2003.  This
     accounting treatment is in accordance with EITF 00-27.

     9. SEGMENT AND GEOGRAPHIC INFORMATION

     The  Company  is active in one  business  segment:  designing,  developing,
     selling  and  marketing  pharmaceutical  products.  The  Company  maintains
     development  operations  in the United  States and  Israel.  The  Company's
     selling operations are maintained in the United States.

     Geographic  information for the three and nine months ending  September 30,
2003 and 2002 are as follows:
<TABLE>
<CAPTION>

                                    THREE MONTHS ENDED SEPTEMBER 30,        NINE MONTHS ENDED SEPTEMBER 30,
                                    --------------------------------        -------------------------------

                                        2003              2002                 2003               2002
                                        ----              ----                 ----               ----
<S>                                 <C>                <C>                <C>                <C>
         NET LOSS
           United States            ($ 4,051,336)      ($ 4,762,042)      ($ 12,581,944)     ($ 12,779,033)
           Israel                       (137,680)          (686,522)           (420,396)          (988,623)
                                    -------------      -------------      --------------     --------------
                                    ($ 4,189,016)      ($ 5,448,564)      ($ 13,002,340)     ($ 13,767,656)
                                    =============      =============      ==============     ==============
</TABLE>

10.      SUBSEQUENT EVENT

     On November 5, 2003,  Bausch & Lomb and Pharmos jointly  announced that the
     FDA accepted for review the New Drug Application for LE-T. In 2001,  Bausch
     & Lomb acquired the rights to the loteprednol etabonate ophthalmic business
     of Pharmos. As part of the acquisition, Bausch & Lomb agreed to make future
     payments  to Pharmos  for  certain  future  extensions  of the  loteprednol
     etabonate  formulation,  with the  payments  based  on the  date of  market
     introduction.  Pending FDA approval, Bausch & Lomb expects to introduce the
     new combination medication in 2004.

     On  November  6, 2003,  the  Company  terminated  its listing on the NASDAQ
     Europe market. The request to delist was prompted by the decision by NASDAQ
     Europe shareholders at an extraordinary  shareholders'  meeting on June 26,
     2003 to close the markets operated by NASDAQ Europe.



                                       12
<PAGE>



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

This  discussion  and  analysis  of  our  financial  condition  and  results  of
operations   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  We have based these  forward-looking  statements  on our current
expectations  and  projections of future  events.  Such  statements  reflect our
current  views with respect to future  events and are subject to unknown  risks,
uncertainty  and other factors that may cause results to differ  materially from
those  contemplated  in  such  forward  looking  statements.  In  addition,  the
following  discussion  should  be  read in  conjunction  with  the  consolidated
financial  statements and the related notes thereto  included  elsewhere in this
report.

Through the end of the third  quarter of 2001,  the Company  generated  revenues
from  product  sales but  continues  to be dependent  upon  external  financing,
interest income,  and research and development  contracts to pursue its intended
business activities.  The Company had not been profitable from inception through
2000,  was not  profitable in 2002 and the first three quarters of 2003, and has
incurred a cumulative net loss of $115.5 million through  September 30, 2003. In
2001, the Company recorded a profit due the sale of the ophthalmic  product line
to Bausch & Lomb.  Losses  have  resulted  principally  from costs  incurred  in
research and  development  activities  aimed at  identifying  and developing the
Company's  product  candidates,  clinical  research  studies,  the  write-off of
purchased research and development, and general and administrative expenses. The
Company  expects to incur  additional  losses over the next several years as the
Company's  research and  development and clinical trial programs  continue.  The
Company's ability to achieve profitability, if ever, is dependent on its ability
to develop and obtain regulatory approvals for its product candidates,  to enter
into  agreements for product  development and  commercialization  with strategic
corporate   partners  and  contract  to  develop  or  acquire  the  capacity  to
manufacture and sell its products. See "Management's  Discussion and Analysis of
Financial   Condition  and  Results  of  Operations  --  Liquidity  and  Capital
Resources."

RESULTS OF OPERATIONS

QUARTERS ENDED SEPTEMBER 30, 2003 AND 2002

Total operating expenses decreased $1,699,851 or 32%, from $5,394,968 in 2002 to
$3,695,117  in 2003.  Last  year at this  time the  Company  was  preparing  its
Investigational  New Drug (IND)  submission  to the FDA to commence its study of
dexanabinol as a treatment for traumatic brain injury, which submission required
significant  outside help from  consultants  and other  experts.  The  Company's
operating  expenses also decreased due to the implementation of the company wide
cost  cutting  program.  The  decrease  offset the rising costs of the Phase III
clinical  trial of  dexanabinol  for severe  traumatic  brain  injury due to the
increasing number of centers and patients involved.

The company considers major research & development projects to be those projects
that have reached at least Phase II level of clinical development. The Company's
major projects are the development of dexanabinol for the treatment of traumatic
brain  injury,  which is  currently  involved  in Phase III testing in the U.S.,
Europe,  Australia and Israel, and the cognitive impairment that can result from
coronary  surgery  under  cardiopulmonary  bypass  operations.  During the third
quarter of 2003,  the gross cost of the traumatic  brain injury project was $2.5
million.  Total gross costs since the  traumatic  brain injury  project  entered
Phase II  development  in 1996  through  September  30, 2003 are $33.0  million.
Enrollment  in the current  Phase III trial is  expected  to continue  until the
first quarter of 2004. Fifteen U.S. trauma centers have joined the 65 centers in
Europe,  Israel and Australia already  participating in the study. The principal
costs of completing  the project  include  patient  enrollment,  collection  and
evaluation  of the data,  production  of the drug  substance  and drug  product,
commercial scale-up, and management of the project. The primary uncertainties in
the completion of the project are the time required to enroll sufficient numbers
of patients in the study, the results of the study upon its conclusion,  and the
Company's ability to produce or secure production of finished drug product under
current Good  Manufacturing  Practice  conditions for sale in countries in which
marketing  approval  has been  obtained,  as well as the  resources  required to
generate sales in such countries.  Should the uncertainties  delay completion of
the project on the current  timetable,  the  Company may  experience  additional
costs that cannot be accurately estimated. If the Phase III trial of dexanabinol

                                       13
<PAGE>

for the  treatment of  traumatic  brain injury is  successfully  completed,  the
Company may begin to earn  revenues  upon  marketing  approval as early as 2005;
however,  should our product candidate  experience  setbacks or should a product
fail  to  achieve  FDA or  other  regulatory  approvals,  or  fail  to  generate
commercial sales, it would have a material adverse affect on our business.

In addition,  a Phase IIa trial of dexanabinol as a preventive agent against the
cognitive  impairment  that can follow  coronary  surgery under  cardiopulmonary
bypass  (CS-CPB)   operations  is  currently   underway  by  the  Company.   The
exploratory,  Phase IIa trial will enroll up to 200 patients  undergoing CS-CPB.
Gross expenses directly related to this project were $241,798 in the quarter.

Gross  expenses for other  research & development  projects in earlier stages of
development  for the third quarters of 2003 and 2002 were $308,755 and $364,086,
respectively. Total net research and development expenses for the third quarters
of 2003 and 2002 were  $2,598,758  and  $4,148,846,  respectively.  The  Company
received from the Office of the Chief Scientist of Israel's Ministry of Industry
and Trade grant money of $866,986 and $843,049 during the third quarters of 2003
and 2002,  respectively,  which  reduced  the  gross  research  and  development
expenses.

Selling,  general and administrative expenses decreased by $144,991 or 13%, from
$1,076,057 in 2002 to $931,066 in 2003. Beginning in 2003, the Company increased
its resources to research and  development  and therefore,  a greater portion of
shared  costs was  allocated to research  and  development  compared to selling,
general and  administrative  expenses  for  facilities  related  expenses.  As a
result,  salaries,  insurance, and office expenses decreased by $24,419, $2,742,
and $9,708,  respectively,  in the third quarter  compared to the same period in
2002.  As part of the cost cutting  measures  enacted by the Company  during the
first quarter of 2003,  consultants and investor relations decreased by $23,791,
and $78,818,  respectively  in the third quarter  compared to the same period in
2002. Professional fees decreased by $16,522 in the third quarter of 2003 due to
a reduced need for legal and accounting services.

Depreciation and amortization expenses decreased by $4,770, or 3%, from $170,063
in 2002 to $165,293 in 2003.  The decrease is due to some fixed assets  becoming
fully depreciated.

Other  expense,  net,  increased by $440,303 to $493,899 in 2003 from $53,596 in
2002.  The  warrants  issued in the March 2003  private  placement  offering are
subject to the  requirements  under EITF 00-19 and are currently being accounted
for as a  liability.  The value of the  warrants are being marked to market each
reporting period until exercised or expiration. The charge associated with these
warrants amounted to approximately $457,000 during the quarter. Interest expense
decreased by $116,625 in the third  quarter of 2003 due to the early  redemption
of the September  2000  Convertible  Debentures.  The lower average cash balance
during the third quarter of 2003 than in 2002 resulted in a decrease in interest
income of $74,867.

NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

Total operating expenses  decreased  $1,443,711 or 11%, from $13,440,581 in 2002
to $11,996,870  in 2003. The decrease was primarily due to the lower  consultant
and professional  fees. Last year at this time the Company was preparing its IND
submission  to the FDA to commence its study of  dexanabinol  as a treatment for
traumatic  brain  injury  in the U.S.,  which  submission  required  significant
outside help from consultants and other experts.

The company considers major research & development projects to be those projects
that have reached at least Phase II level of clinical development. The Company's
major projects are the development of dexanabinol for the treatment of traumatic
brain  injury,  which is  currently  involved  in Phase III testing in the U.S.,
Europe,  Australia  and Israel,  and the  cognitive  impairment  that can follow
coronary surgery under cardiopulmonary bypass operations. During the nine months
of 2003, the gross cost of the traumatic  brain injury project was $8.1 million.


                                       14
<PAGE>

Total gross costs since the  traumatic  brain injury  project  entered  Phase II
development in 1996 through September 30, 2003 are $33.0 million.  Enrollment in
the current  Phase III trial is expected to continue  until the first quarter of
2004. The principal costs of completing the project include patient  enrollment,
collection and evaluation of the data, production of the drug substance and drug
product,  commercial  scale-up,  and  management  of the  project.  The  primary
uncertainties  in the  completion of the project are the time required to enroll
sufficient  numbers of patients in the study,  the results of the study upon its
conclusion,  and the  Company's  ability  to  produce  or secure  production  of
finished drug product under current Good Manufacturing  Practice  conditions for
sale in countries in which marketing approval has been obtained,  as well as the
resources required to generate sales in such countries. Should the uncertainties
delay  completion  of the  project on the  current  timetable,  the  Company may
experience  additional costs that cannot be accurately  estimated.  If the Phase
III  trial of  dexanabinol  for the  treatment  of  traumatic  brain  injury  is
successfully  completed,  the Company may begin to earn revenues upon  marketing
approval  as early as 2005;  however,  should our product  candidate  experience
setbacks or should a product fail to achieve FDA or other regulatory  approvals,
or fail to generate commercial sales, it would have a material adverse affect on
our business.

In addition,  a Phase IIa trial of dexanabinol as a preventive agent against the
cognitive  impairment  that can follow  coronary  surgery under  cardiopulmonary
bypass  (CS-CPB)   operations  is  currently   underway  by  the  Company.   The
exploratory,  Phase IIa trial will enroll up to 200 patients  undergoing CS-CPB.
Gross expenses  directly  related to this project were $571,820 during the first
nine months of 2003.

Gross  expenses for other  research & development  projects in earlier stages of
development  for the first  nine  months of 2003 and 2002  were  $1,174,558  and
$1,352,955,  respectively.  Total net research and development  expenses for the
first  nine  months  of  2003  and  2002  were   $8,955,387   and   $10,016,149,
respectively.  The Company  received  from the Office of the Chief  Scientist of
Israel's Ministry of Industry and Trade grant money of $2,271,838 and $2,031,891
during the first nine months of 2003 and 2002,  respectively,  which reduced the
gross research and development expenses.

Selling,  general and administrative expenses decreased by $371,648 or 13%, from
$2,907,645  in 2002 to  $2,535,997  in  2003.  Beginning  in 2003,  the  Company
increased its resources to research and  development  and  therefore,  a greater
portion of shared costs was  allocated to research and  development  compared to
selling, general and administrative expenses for facilities related expenses. As
a result,  salaries,  insurance,  and  office  expenses  decreased  by  $94,853,
$23,492,  and $33,028,  respectively,  in the first nine months  compared to the
same period in 2002. As part of the cost cutting measures enacted by the Company
during the first quarter of 2003,  consultants and investor relations  decreased
by  $62,039,  and  $123,796,  respectively  compared to the same period in 2002.
Professional  fees  declined  by  $96,292  due to a  reduced  need for legal and
accounting services.

Depreciation  and  amortization  expenses  decreased  by  $11,301,  or 2%,  from
$516,787 in 2002 to $505,486 in 2003.  The  decrease is due to some fixed assets
becoming fully depreciated.

Other expense, net, increased by $678,395 from $327,075 in 2002 to $1,005,470 in
2003.  The  warrants  issued in the March 2003  private  placement  offering are
subject  to the  requirements  under  EITF  00-19 and thus are  currently  being
accounted  for as a  liability.  The value of the  warrants  are being marked to
market  each  reporting  period  until  exercised  or  expiration.   The  charge
associated  with these  warrants  amounted to  approximately  $1.5  million.  In
accordance  with  Emerging  Issues Task Force  Issue No.  98-5,  Accounting  for
Convertible  Securities  with  Beneficial  Conversion  Features or  Contingently
Adjustable  Conversion  Ratios  ("BCF"),  the Company  recorded a charge of $1.8
million which was fully  amortized at December 31, 2000 in  connection  with the
issuance of convertible debt with a favorable  conversion feature. In accordance
with EITF 00-27, a net credit of $786,000 was recorded as interest income during
the first quarter to reverse the BCF  previously  recorded  which was associated
with the remaining balance of the September 2000 Convertible  Debenture offering
with a face amount of $3.5  million  which was not  converted.  During the first
nine months of 2003, the Company recognized  royalties of a non-material  amount
per the licensing agreement with Herbamed, Ltd, a company controlled by Dr. Haim
Aviv,  the Company's  CEO. The lower average cash balance  during the first nine


                                       15
<PAGE>

months  of 2003  than in 2002  resulted  in a  decrease  in  interest  income of
$280,231.  Interest expense decreased by $392,966 due to the early redemption of
the September 2000 Convertible Debentures.

LIQUIDITY AND CAPITAL RESOURCES

While the Company  received  revenues  from 1998 until the third quarter of 2001
from the sale of its approved  products,  it has incurred  cumulative  operating
losses since its inception and had an  accumulated  deficit of $115.5 million at
September  30,  2003.  The Company has  financed  its  operations  with  private
offerings of its securities,  advances and other funding pursuant to a marketing
agreement with Bausch & Lomb,  research contracts,  license fees,  royalties and
sales,  the  sale of a  portion  of our New  Jersey  State  Net  Operating  Loss
carryforwards,  and  interest  income.  Should  the  Company  be unable to raise
adequate  financing  in the  future,  operations  will need to be scaled back or
discontinued.

The  Company had  working  capital of $4.8  million as of  September  30,  2003.
Included in the  current  assets of $28.2  million is $16.4  million in cash and
cash  equivalents,  and $9.7 million in restricted  cash.  As of September,  the
Company also had $21.0 million of restricted cash held in escrow. As part of the
September 2003 financing,  $5.0 million of the $21.0 million was released to the
Company during October 2003 for working  capital  purposes.  The remaining $16.0
million will remain in escrow until either the Company's convertible  debentures
are  converted  into  common  shares of the  Company by the  investor  or by the
Company,  or such funds are repaid by the Company or such funds are used to fund
acquisition(s) with approval by the investors.

In September  2000,  the Company  completed a private  placement of  Convertible
Debentures,  common stock and  warrants to purchase  shares of common stock with
institutional   investors,   generating  gross  proceeds  of  $11  million.  The
Convertible Debentures, which generated gross proceeds of $8.0 million, were due
in  February  2002 and  carried a 6% interest  payable  semiannually  in cash or
common stock. In connection with the Convertible  Debenture,  the  institutional
investors also received  warrants for the purchase of 276,259 common shares with
a relative fair value of $725,000.  The Convertible  Debentures were convertible
into common shares of the Company at the conversion price of $3.83 per share (or
2,088,775 common shares) and were convertible  beginning October 31, 2000. Under
certain limited  anti-dilutive  conditions,  the conversion  price could change.
Until  converted into common stock or the outstanding  principal is repaid,  the
terms of the Convertible Debentures require the Company to deposit $4 million in
an escrow  account.  The  escrowed  capital is shown as  Restricted  Cash on the
Company's  balance  sheet and was released to the Company in  proportion  to the
amount  of  Convertible  Debentures  converted  into  common  shares or upon the
repayment of the debt.  The issuance  costs related to the private  placement of
approximately  $1.4 million were  capitalized and amortized over the life of the
debt.

The holders of the  Convertible  Debentures and the Company agreed to modify the
repayment and  conversion  terms in December  2001.  The holders of $5.8 million
convertible debt (book value on December 31, 2001,  including  accrued interest)
extended  the  maturity  date to June 2003 in exchange  for a  reduction  in the
conversion  price from $3.83 to $2.63 for half of the outstanding  balance and $
2.15 for the other half of the outstanding  balance. The convertible debt with a
maturity  date of June 2003 was  convertible  beginning  December 31, 2001.  The
holder of the  remaining  outstanding  debt of $1.9 million  (including  accrued
interest)  changed the maturity  date from February 28, 2002 to January 31, 2002
in exchange for  lowering the  conversion  price for the other  holders.  As the
modification was not significant in accordance with EITF 96-19 the change in the
fair value between the original  convertible  debt and the modified  convertible
debt was  accreted  over  the  remaining  term of the  convertible  debt  with a
corresponding charge into interest expense.

In October 2001, Bausch & Lomb purchased all rights to the Company's loteprednol
etabonate  ophthalmic  product line for cash and  assumption of certain  ongoing
obligations. The Company received gross proceeds of approximately $25 million in
cash for its rights to Lotemax(R) and Alrex(R),  prescription  products that are
made and  marketed by Bausch & Lomb under a 1995  Marketing  Agreement  with the
Company;  in addition,  Bausch & Lomb acquired future  extensions of loteprednol

                                       16
<PAGE>

etabonate formulations including LE-T, a product currently in Phase III clinical
trial.  The Company has had no product sales  beginning in the fourth quarter of
2001. Upon FDA approval,  Bausch & Lomb will pay the Company up to an additional
maximum gross  proceeds of $12 million,  with the actual  payment price based on
the date of the earlier of commercial launch or the six month anniversary of FDA
approval  of this new  combination  therapy.  If the  earlier of (a)  commercial
launch or (b) the Triggering  Event occurred before January 1, 2002, the Company
would have received $15.4  million.  This amount is being reduced by $90,000 for
each month  thereafter to a minimum  amount of $13.3 million (if the  Triggering
Event  occurs on December  31,  2003).  If the  Triggering  Event  occurs  after
December  31,  2003,  then the Company and Bausch & Lomb will  negotiate in good
faith to agree upon the amount of  additional  consideration  that Bausch & Lomb
will pay the Company but not to exceed $13.3  million.  An additional  milestone
payment of up to $10 million could be paid to the Company to the extent sales of
the new  product  exceed an  agreed-upon  forecast  in the first two years.  The
Company  has a passive  role as a member  of a joint  committee  overseeing  the
development  of LE-T  and has an  obligation  to  Bausch  & Lomb to fund up to a
maximum of $3.75 million, of which $600,000 was deducted from the purchase price
paid by Bausch & Lomb to Pharmos in October 2001, of the LE-T development  cost.
As a  result  of this  transaction,  the  Company  recorded  a net gain of $16.3
million during the fourth quarter of 2001. In July 2003, the Company paid Bausch
& Lomb $1.5 million of its liability for LE-T  development.  As of September 30,
2003, Pharmos owes an additional $1.6 million as its share of these research and
development  related LE-T expenses.  This amount is included as part of accounts
payable at September  30, 2003.  The Company  incurred  transaction  and royalty
costs of  approximately  $2 million.  The Company also compensated the LE patent
owner  approximately  $2.7  million  ($1.5  million  paid upon  closing and $1.2
million of this amount was paid in October  2002) from the  proceeds of the sale
of Lotemax and Alrex in return for his consent to the  Company's  assignment  of
its rights  under the  license  agreement  to Bausch & Lomb.  Additionally,  the
patent owner will receive 11% of the proceeds  payable to the Company  following
FDA approval of LE-T, as well as 14.3% of its milestone payment, if any.

On March 4, 2003,  the  Company  completed  a private  placement  to sell common
shares and warrants to eight investors,  generating total gross proceeds of $4.3
million under a shelf registration. The private placement offering was completed
by issuing  5,058,827  shares of common stock at a price of $0.85 per share (the
fair market value on March 4, 2003) and 1,141,182  warrants at an exercise price
of $1.25 per share,  which includes 129,412  placement agent warrants.  Issuance
costs  of  approximately  $150,000  in cash  and  $45,000  for the  value of the
placement agent warrants were recorded as a debit to additional paid in capital.

According to EITF 00-19,  the issued  warrants meet the  requirements of and are
being  accounted for as a liability  since  registered  shares must be delivered
upon settlement. The Company calculated the value of the warrants, including the
placement agent warrants,  being approximately  $394,000 under the Black-Scholes
option-pricing method (assumption: volatility 75%, risk free rate 2.88% and zero
dividend  yield).  The value of the  warrants  is being  marked  to market  each
reporting  period until exercised or expiration and has a value of $1,576,590 at
September 30, 2003.

On May 30, 2003, the Company completed a private placement to sell common shares
and warrants to ten investors,  generating total gross proceeds of $8.0 million.
The Company filed a  registration  statement  with the  Securities  and Exchange
Commission to permit resales of the common stock issued.  The private  placement
offering was completed by issuing 9,411,765 shares of common stock at a price of
$0.85 per share  (representing an approximate 20% discount to a ten-day trailing
average of the closing  price of the stock  ending May 28,  2003) and  3,573,529
warrants  at an  exercise  price of $1.40  per  share,  which  includes  441,177
placement agent warrants.  Issuance costs of approximately  $525,000 in cash and
$240,000 for the value of the placement  agent warrants were recorded as a debit
to additional paid in capital.

On September 26, 2003, the Company  completed a private placement of convertible
debentures and warrants to six institutional  investors,  generating total gross
proceeds of $21.0 million. $5.0 million of the proceeds will be used for working
capital purposes,  and $16.0 million will be available to fund acquisitions upon
the approval of the investors.  The convertible  debentures are convertible into
common  stock of the Company at a fixed  price of $4.04,  205% above the closing

                                       17
<PAGE>

bid price of the  stock  for the five  days  preceding  the  closing  date.  The
debentures,  which  bear  an  interest  rate  of  4%,  will  be  redeemed  in 13
substantially  equal  monthly  increments  beginning  March  31,  2004.  Amounts
converted into shares of Pharmos common stock will reduce the monthly redemption
amount in inverse order of maturity. The $16.0 million earmarked for acquisition
activity  will be held in escrow until used or repaid.  At  September  30, 2003,
$5.0  million was held in escrow,  which was  released to the Company in October
2003.  In  connection  with the  financing,  the Company  also issued  5,514,705
three-year  warrants  (including  514,705  placement agent warrants) to purchase
5,514,705  shares of common stock at an exercise  price of $2.04 per share.  The
issuance costs related to the convertible debentures of approximately $1,017,000
in cash  and  $485,000  for the  value  of the  placement  agent  warrants  were
capitalized  and are  being  amortized  over the life of the debt.  The  Company
calculated the value of the warrants at the date of the  transaction,  including
the  placement  agent  warrants,   being  approximately   $4,652,877  under  the
Black-Scholes option-pricing method (assumption:  volatility 75%, risk free rate
1.59% and zero dividend yield). The Company allocated the $21.0 million in gross
proceeds between the convertible debentures and the warrants based on their fair
values.  The Company is reporting the debt discount as a direct reduction to the
face amount of the debt in  accordance  with APB 21. The  discount  will accrete
over the life of the outstanding debentures. The issuance costs allocated to the
convertible debentures are being deferred and amortized to interest expense over
the life of the debt. . APB 21 also requires the Company to allocate the warrant
costs between the  convertible  debentures  and the  transaction  warrants.  The
issuance costs  allocated to the warrants were recorded as a debit to additional
paid in capital.

As of  September  30,  2003,  we had the  following  commitments  and  long-term
obligations:
<TABLE>
<CAPTION>

                              Last three
                              months of
                                 2003           2004          2005         2006      Thereafter      Total
                                 ----           ----          ----         ----      ----------      -----
<S>                           <C>           <C>            <C>             <C>          <C>       <C>
Operating Leases                $ 402,389       $ 377,736     $ 81,375     $ 57,978     $ 12,212     $ 931,690
Convertible debentures,
excluding interest                             16,153,846    4,846,154                              21,000,000
R&D commitments                   835,743         866,202                                            1,701,945
                             ------------- --------------- ------------ ------------ ------------ ------------
     Grand total              $ 1,238,132   $ 17,397,784   $4,927,529      $ 57,978     $ 12,212  $ 23,633,635
</TABLE>

The R&D commitments  represent scheduled  professional fee payments for clinical
services  relating to the Phase III clinical study of dexanabinol  for traumatic
brain injury.  One of the clinical service based agreements,  if fully executed,
currently  totals $8.8  million.  The contract may be  terminated at any time on
thirty  days'  advance  notice.  As of  September  30,  2003,  the  Company  has
recognized $8.2 million as an expense.

Management  believes  that cash and cash  equivalents  of $16.5  million and the
total  restricted  balance of $5.0 million  (released  from  restricted  cash in
October  2003) as of  September  30,  2003,  will be  sufficient  to support the
Company's continuing  operations into the fourth quarter of 2004. The Company is
continuing to actively  pursue various  funding  options,  including  additional
equity offerings,  strategic corporate alliances,  business combinations and the
establishment of product related research and development limited  partnerships,
to obtain  additional  financing to continue the development of its products and
bring them to commercial markets.

We have assessed our vulnerability to certain market risks,  including  interest
rate  risk  associated  with  financial  instruments  included  in cash and cash
equivalents, our convertible debentures and the fair market value of the warrant
liability.  Due to the relatively short-term nature of these investments we have
determined that the risks associated with interest rate fluctuations  related to
these financial instruments do not pose a material risk to us.

Statements made in this document related to the  development,  commercialization
and market  expectations of the Company's drug candidates,  to the establishment
of corporate  collaborations,  and to the Company's operational  projections are
forward-looking  and are made  pursuant  to the safe  harbor  provisions  of the
Securities  Litigation  Reform Act of 1995.  Such  statements  involve risks and
uncertainties  which may cause results to differ materially from those set forth
in these  statements.  Among the  factors  that  could  result  in a  materially

                                       18
<PAGE>

different  outcome  are the  inherent  uncertainties  accompanying  new  product
development, action of regulatory authorities and the results of further trials.
Additional economic,  competitive,  governmental,  technological,  marketing and
other factors  identified in Pharmos'  filings with the  Securities and Exchange
Commission could affect such results.

In May 2003, the Financial  Accounting  Standards Board issued Statement No. 150
("FAS 150"),  Accounting for Certain Financial  Instruments with Characteristics
of Both Liabilities and Equity.  FAS 150 specifies that  instruments  within its
scope embody obligations of the issuer and that the issuer must classify them as
liabilities.  SFAS 150 requires issuers to classify as liabilities the following
three types of freestanding  financial  instruments:  (1) mandatorily redeemable
financial instruments;  (2) obligations to repurchase the issuer's equity shares
by transferring assets and (3) certain obligations to issue a variable number of
shares.  SFAS 150 defines a "freestanding  financial  instrument" as a financial
instrument  that  (1) is  entered  into  separately  and  apart  from any of the
entity's other  financial  instruments or equity  transactions or (2) is entered
into in conjunction with some other  transaction and can be legally detached and
exercised on a separate  basis.  For all financial  instruments  entered into or
modified after May 31, 2003,  SFAS 150 is effective  immediately.  For all other
instruments of public  companies,  SFAS 150 went into effect at the beginning of
the first interim period beginning after June 15, 2003. The adoption of SFAS No.
150 did not have a material impact on the Company's financial statements for the
third quarter of 2003. The Financial  Accounting  Standards Board is expected to
defer the effective  date for selected  provisions  of SFAS No. 150,  limited to
mandatorily  redeemable  nonctrolling  interests  associated  with  finite-lived
subsidiaries.  The deferral of those selected provisions is not expected to have
a material impact on the Company's financial statements.

In April  2003,  the FASB issued SFAS No. 149,  Amendment  of  Statement  133 on
Derivative  Instruments and Hedging  Activities  ("SFAS No. 149").  SFAS No. 149
clarifies  under what  circumstances  a contract with an initial net  investment
meets the  characteristics of a derivative as discussed in Statement No. 133. It
also  specifies when a derivative  contains a financing  component that warrants
special  reporting in the  Consolidated  Statement  of Cash Flows.  SFAS No. 149
amends certain other existing  pronouncements in order to improve consistency in
reporting  these  types of  transactions.  The new  guidance  is  effective  for
contracts  entered  into or  modified  after  June  30,  2003,  and for  hedging
relationships  designated  after June 30, 2003.  This  standard  does not have a
material impact on the Company's consolidated financial statements.

In January 2003,  the FASB issued FIN 46,  "Consolidation  of Variable  Interest
Entities,  an  Interpretation  of ARB No.  51".  FIN 46  requires an investor to
consolidate a variable  interest entity if it is determined that the investor is
a primary  beneficiary of that entity,  subject to the criteria set forth in FIN
46. Assets,  liabilities,  and  non-controlling  interests of newly consolidated
variable  interest  entities  will be  initially  measured at fair value.  After
initial measurement, the consolidated variable interest entity will be accounted
for  under the  guidance  provided  by  Accounting  Research  Bulletin  No.  51,
"Consolidated  Financial  Statements." FIN 46 is effective for variable interest
entities  created or entered into after January 31, 2003. For variable  interest
entities  created or acquired  before  February  1, 2003,  FIN 46 applies in the
first fiscal year or interim  period  beginning  after  December  15, 2003.  The
Company does not believe that the adoption of this standard will have a material
impact on its consolidated financial statements.

In  November  2002,  the FASB  issued FASB  Interpretation  No. 45,  Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others (`FIN 45"), which clarifies  disclosure and
recognition/measurement   requirements   related  to  certain  guarantees.   The
disclosure  requirements  are effective for  financial  statements  issued after
December 15, 2002 and the recognition/measurement  requirements are effective on
a prospective  basis for guarantees  issued or modified after December 31, 2002.
The Company typically grants its customers a warranty, which guarantees that the
Company's  products  will   substantially   conform  to  the  Company's  current
specifications for ninety days from the delivery date as well as indemnification
for customers  from third party  claims.  This standard does not have a material
impact on the Company's consolidated financial statements.


                                       19
<PAGE>


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Please  refer  to  the  second  to  last  paragraph  in the  foregoing  section,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

Item 4.  Controls and Procedures

     (a)  Evaluation of Disclosure Controls and Procedures: An evaluation of
          Pharmos' disclosure controls and procedures (as defined in
          section13(a) - 14(c) of the Securities Exchange Act of 1934 (the
          "Act")) was carried out under the supervision and with the
          participation of Pharmos' Chief Executive Officer and Chief Financial
          Officer and several other members of Pharmos' senior management at the
          end of the period. Pharmos' Chief Executive Officer and Chief
          Financial Officer concluded that Pharmos' disclosure controls and
          procedures as currently in effect are effective in ensuring that the
          information required to be disclosed by Pharmos in the reports it
          files or submits under the Act is (i) accumulated and communicated to
          Pharmos' management (including the Chief Executive Officer and Chief
          Financial Officer) in a timely manner, and (ii) recorded, processed,
          summarized and reported within the time periods specified in the SEC's
          rules and forms.

     (b)  Changes in Internal Controls: There were no significant changes in
          Pharmos' internal controls or in other factors that could
          significantly affect those controls subsequent to the date of their
          most recent evaluation.



                                       20
<PAGE>


                                     PART II

                                OTHER INFORMATION

Item 1         Legal Proceedings                                            NONE

Item 2         Changes in Securities

         On September 26, 2003, the Company  completed a private placement under
Rule  506  of  Regulation  D of  convertible  debentures  and  warrants  to  six
institutional  investors,  generating  total gross  proceeds of $21 million.  $5
million of the  proceeds  will be used for  working  capital  purposes,  and $16
million  will be  available  to  fund  acquisitions  upon  the  approval  of the
investors.  The convertible  debentures are convertible into common stock of the
Company at a fixed price of $4.04, 205% above the closing price of the stock for
the five days preceding the closing date. The debentures, which bear an interest
rate of 4%,  will be  redeemed  in 13  substantially  equal  monthly  increments
beginning March 31, 2004.  Pharmos also issued 5,514,705 in warrants  (including
placement  agent  warrants) at an exercise price of $2.04 per share.  On October
24, 2003,  the Company filed a  registration  statement  with the Securities and
Exchange  Commission  ("SEC")  to  permit  resales  of the  common  stock by the
investors in this September 2003 private  placement (and of the shares of common
stock issuable upon exercise of the warrants),  which registration statement was
declared effective by the SEC on November 4, 2003.


Item 3         Defaults upon Senior Securities                              NONE

Item 4         Submissions of Matters to Vote of Security Holders

         At the  Corporation's  Annual Meeting of Stockholders  held on July 30,
        2003, the stockholders of the Corporation  elected the following persons
        as directors of the Corporation. In October 2002, the Company's Board of
        Directors  amended the  Company's  by-laws to provide  for a  classified
        Board of Directors. The amended by-laws now provide for three classes of
        directors,  with the initial  term of the Class I directors to expire at
        the 2004 annual  meeting,  the initial term of the Class II directors to
        expire at the 2005 annual meeting, and the initial term of the Class III
        directors to expire at the 2006 annual meeting. Following the expiration
        of the initial  term for each class,  all  subsequent  terms will be for
        three-year periods.

        The  following  persons  have been  elected to serve as directors in the
        following classes:

        Name                        Class            Term Expiring
        ----                        -----            -------------

        Haim Aviv                   III              2006
        Elkan R. Gamzu              III              2006
        David Schlachet              II              2005
        Mony Ben Dor                 II              2005
        Georges Anthony Marcel        I              2004
        Lawrence F. Marshall          I              2004

                                       21
<PAGE>

        The results of the voting were as follows:

                                         VOTES FOR                VOTES WITHHELD
                                         ---------                --------------
        Haim Aviv                        47,266,679                   388,434
        Elkan R. Gamzu                   47,398,152                   256,961
        Mony Ben Dor                     47,395,622                   259,491
        David Schlachet                  47,364,477                   290,636
        Georges Anthony Marcel           47,373,097                   282,016
        Lawrence F. Marshall             47,380,117                   274,996

        Further,   the   stockholders   ratified   the  Board's   selection   of
        PricewaterhouseCoopers LLP as the Corporation's independent auditors for
        the fiscal year ending  December 31,  2003,  with  47,483,169  votes for
        ratification,   116,893   votes   against   ratification,   and   55,050
        abstentions.

Item 5         Other Information

In August 2003, Pharmos was informally notified by the NASDAQ Stock Market, Inc.
("Nasdaq") of a possible  violation  relating to Nasdaq's "20% Rule". Based upon
Nasdaq's  preliminary  analysis of Pharmos'  February 2003 registered  placement
transaction and the May 2003 private placement  transaction,  Nasdaq expressed a
concern  that such  transactions,  when  aggregated  together,  would have first
required shareholder approval based upon the issuance of securities representing
more than 20% of Pharmos' outstanding  securities at a price at less than market
value.  The completion of the September 2003  convertible debt financing had the
effect of  eliminating  any concerns  Nasdaq may have had relating to a possible
violation by Pharmos of such corporate governance rules.

Item 6            Exhibits and Reports on Form 8-K

                  Number           Exhibit
                  --------        --------
                  31.1            Certification of Chief Executive Officer
                                  pursuant to Exchange Act Rules 13a-14(a) and
                                  15(d)-14(a), adopted pursuant to Section 302
                                  of the Sarbanes-Oxley Act of 2002.

                  31.2            Certification of Chief Financial Officer
                                  pursuant to Exchange Act Rules 13a-14(a) and
                                  15(d)-14(a), adopted pursuant to Section 302
                                  of the Sarbanes-Oxley Act of 2002.

                  32.1            Certification of Chief Executive Officer
                                  pursuant to 18 U.S.C. Section 1350, adopted
                                  pursuant to Section 906 of the Sarbanes-Oxley
                                  Act of 2002.

                  32.2            Certification of Chief Financial Officer
                                  pursuant to 18 U.S.C. Section 1350, adopted
                                  pursuant to Section 906 of the Sarbanes-Oxley
                                  Act of 2002.

                  (b)             Reports on Form 8-K

                    Current Report filed on September 30, 2003; Item 5 was
                    reported


                                       22
<PAGE>

                                 SIGNATURE PAGE



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                                    PHARMOS CORPORATION


DATED: NOVEMBER 13, 2003
                                                    by: /s/ Robert W. Cook
                                                       -----------------------
                                                    Robert W. Cook
                                                    Executive Vice President and
                                                    Chief Financial Officer
                                                    (Principal Accounting and
                                                      Financial Officer)






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