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 March 31, 2001

                         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 301
                                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 [_].


As of May 1, 2001, the Registrant had outstanding  54,352,861 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
---------------------------------------------------------------------------------------------

                                                              March 31,          December 31,
                                                                2001                 2000
                                                           -------------        -------------
<S>                                                        <C>                  <C>
Assets
   Cash and cash equivalents                               $  20,276,582        $  22,480,777
   Inventories                                                   794,541              796,550
   Receivables                                                 1,262,219            1,188,502
   Prepaid royalties                                                --                  6,591
   Restricted cash                                             4,060,949                 --
   Prepaid expenses and other current assets                     307,972              281,109
                                                           -------------        -------------
        Total current assets                                  26,702,263           24,753,529

   Fixed assets, net                                           1,928,524            1,681,390
   Prepaid royalties, net of current portion                     143,000              143,000
   Intangible assets, net                                        140,059              151,690
   Restricted cash                                                  --              4,035,414
   Other assets                                                   18,086               18,086
                                                           -------------        -------------

        Total assets                                       $  28,931,932        $  30,783,109
                                                           =============        =============


Liabilities and Shareholders' Equity
   Accounts payable                                        $   1,486,856        $     458,504
   Accrued expenses                                            1,209,542            1,162,098
   Accrued wages and other compensation                          909,101              768,975
   Convertible debentures, net                                 6,884,974                 --
   Advances against future sales                                 386,605              619,702
                                                           -------------        -------------
        Total current liabilities                             10,877,078            3,009,279

   Advances against future sales, net of current portion       1,000,000            1,000,000
   Convertible debentures, net                                      --              6,580,872
   Other liabilities                                             100,000              100,000
                                                           -------------        -------------
        Total liabilities                                     11,977,078           10,690,151
                                                           -------------        -------------

   Commitments and contingencies

   Shareholders' equity
   Common stock, $.03 par value; 80,000,000
       shares  authorized, 54,352,861 and
       54,063,897 shares issued and outstanding
       (excluding  $551 in 2001 and
       2000, held in Treasury)
       in 2001 and 2000, respectively                          1,630,585            1,621,916
     Deferred compensation                                      (115,537)                --
     Paid in capital                                         108,684,219          108,965,351
     Accumulated deficit                                     (93,244,413)         (90,494,309)
                                                           -------------        -------------
        Total shareholders' equity                            16,954,854           20,092,958
                                                           -------------        -------------


        Total liabilities and shareholders' equity         $  28,931,932        $  30,783,109
                                                           =============        =============
</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 March 31,
                                                                2001                 2000
                                                           -------------        -------------
<S>                                                        <C>                  <C>
Revenues
    Product sales                                          $   1,025,058        $     663,580
    License fee                                                   80,000                 --
                                                           -------------        -------------
    Total Revenues                                             1,105,058              663,580

Cost of Goods Sold                                               411,341              280,529
                                                           -------------        -------------

Gross Margin                                                     693,717              383,051

Expenses
    Research and development, net                              2,099,631            1,436,975
    Selling, general and administrative                        1,020,526              859,069
    Patents                                                       70,967               31,960
    Depreciation and amortization                                159,221               97,060
                                                           -------------        -------------

       Total operating expenses                                3,350,345            2,425,064
                                                           =============        =============

Loss from operations                                          (2,656,628)          (2,042,013)

Other income (expense)
    Interest income                                              322,080              152,971
    Other income (expense), net                                   10,457               (6,102)
    Interest expense                                            (426,012)                --
                                                           -------------        -------------
    Other income (expense), net                                  (93,475)             146,869
                                                           -------------        -------------

Net loss                                                   ($  2,750,103)       ($  1,895,144)
                                                           =============        =============

Net loss per share applicable
    to common stockholders - basic and diluted             ($       0.05)       ($       0.04)
                                                           =============        =============


Weighted average shares outstanding - basic and diluted       54,171,988           48,982,681
                                                           =============        =============
</TABLE>

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


                                       3
<PAGE>

<TABLE>
<CAPTION>
Pharmos Corporation
(Unaudited)
Consolidated Statements of Cash Flows
---------------------------------------------------------------------------------------------
                                                               Three Months Ended March 31,
                                                                2001                 2000
                                                           -------------        -------------
<S>                                                        <C>                  <C>
Cash flows from operating activities
  Net loss                                                 ($  2,750,103)       ($  1,895,144)
   Adjustments to reconcile net loss to net
    cash flow used in operating activities
       Depreciation and amortization                             159,221               97,060
       Amortization of Debt Discount and Issuance costs          304,102                 --
       Non-cash compensation charge -
          consultant compensation                                 10,395                 --
  Changes in operating assets and liabilities
       Inventory                                                   2,009              139,368
       Receivables                                               (73,717)             458,454
       Prepaid expenses and other current assets                 (26,863)             (56,806)
       Advanced royalties                                          6,591               50,415
       Accounts payable                                        1,028,352             (105,149)
       Accrued expenses                                           47,444             (252,884)
       Accrued wages and other compensation                      140,126              144,192
                                                           -------------        -------------

       Total adjustments                                       1,597,660              474,650
                                                           -------------        -------------

  Net cash flows used in operating activities                 (1,152,443)          (1,420,494)

Cash flows from investing activities
     Purchases of fixed assets, net                             (394,724)            (128,393)
                                                           -------------        -------------

  Net cash flows used in investing activities                   (394,724)            (128,393)

Cash flows from financing activities
     Advances against future sales                              (233,097)            (231,727)
     Proceeds from issuances of common stock
         and exercise of warrants, net                           185,500           16,695,838
     Pricing adjustment for private placement, net              (583,896)                --
     Proceeds from exercise of equity credit line                   --              1,592,250
     Increase in restricted cash                                 (25,535)                --
     Decrease in notes payable                                      --               (338,128)
                                                           -------------        -------------

Net cash provided (used) by financing activities                (657,028)          17,718,233

Net increase (decrease) in cash and cash equivalents          (2,204,195)          16,169,346

Cash and cash equivalents at beginning of year                22,480,777            2,918,554
                                                           -------------        -------------

Cash and cash equivalents at end of period                 $  20,276,582        $  19,087,900
                                                           =============        =============
</TABLE>


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


                                       4
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
     been prepared in accordance with generally accepted  accounting  principles
     for interim financial information pursuant to the instructions to Form 10-Q
     and Article 10 of Regulation S-X.  Accordingly,  they do not include all of
     the information  and footnotes  required by generally  accepted  accounting
     principles for complete financial statements. In the opinion of management,
     all  adjustments,  consisting  of  normal  recurring  accrual  adjustments,
     considered necessary for a fair presentation have been included.  Operating
     results  for  the  three-month   period  ended  March  31,  2001,  are  not
     necessarily  indicative  of the results  that may be expected  for the year
     ended December 31, 2001.


1.   The Company

     Pharmos  Corporation (the "Company") is a  bio-pharmaceutical  company that
     discovers and develops novel  therapeutics to treat a range of inflammatory
     and neurological  disorders such as traumatic brain injury and stroke.  The
     Company has an expansive 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.

     The Company  received  approval for three  separate  New Drug  Applications
     ("NDA") from the U.S. Food and Drug  Administration  ("FDA") in 1998. These
     approvals were for  Lotemax(R) and Alrex(R).  Lotemax has been approved for
     the  treatment  of  several  ocular  inflammatory  indications,   including
     uveitis, and for post-operative  inflammation.  Alrex has been approved for
     the treatment of seasonal allergic conjunctivitis.

2.   Liquidity and Business Risks

     While the Company has  generated  revenue  through the sale of its approved
     products  in the  market,  it  has  incurred  operating  losses  since  its
     inception.  At March 31, 2001,  the Company has an  accumulated  deficit of
     $93,244,413.  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 $20.3  million as of March 31,  2001,  combined  with
     anticipated  cash inflows from  revenues  derived from sales of Lotemax and
     Alrex, will be sufficient to support the Company's continuing operations.

     In order to finance the  development of its drug  pipeline,  the Company is
     continuing to actively pursue various  funding  options,  including  equity
     offerings,  strategic corporate alliances,  business combinations,  and the
     establishment  of research and  development  partnerships.  There can be no
     assurance  that the Company will be successful in  commercializing  its new
     product candidates.

3.   Significant Accounting Policies

     Revenue recognition

     Sales  revenue is  recognized  upon the transfer of the title and rights of
     products to customers, less allowances for estimated returns and discounts.
     License fees and royalties are  recognized  when earned in accordance  with
     the underlying agreements.  Revenue for contracted research and development
     services is  recognized  as  performed.  Revenue  from these  contracts  is
     recognized  as costs are incurred (as defined in the  contract),  generally
     direct labor and supplies plus agreed overhead rates.  Any advance payments
     on contracts are deferred until the related services are performed.

     The Company's revenues are principally derived from one customer.


                                       5
<PAGE>
Pharmos Corporation
Notes to Condensed Consolidated Financial Statements


     Inventories

     Inventories  consist of  loteprednol  etabonate,  the compound  used in the
     Company's  products,  Lotemax and Alrex, and is stated at the lower of cost
     or market with cost determined on a weighted average basis.

     Reclassifications

     Certain  amounts for 2000 have been  reclassified  to conform to the fiscal
     2001  presentation.  Such  reclassifications  did not have an impact on the
     Company's financial position or results of operations.

4.   Collaborative Agreements

     In 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 and Alrex on an exclusive
     basis in the United States following receipt of FDA approval. The Marketing
     Agreement  also covers the  Company's  other  loteprednol  etabonate  based
     product,  LE-T. Under the Marketing Agreement,  Bausch & Lomb will purchase
     the active drug  substance  (loteprednol  etabonate)  from the  Company.  A
     second agreement, covering Europe, Canada and other selected countries, was
     signed in 1996 ("the New Territories Agreement").

     Through  March 31,  2001,  Bausch and Lomb has provided the Company with $5
     million in cash advances against future sales, of which  approximately $1.4
     million is  outstanding  at March 31, 2001. An additional $1 million is due
     from Bausch and Lomb upon the receipt of  regulatory  approval  for LE-T in
     the United  States.  Bausch & Lomb is  entitled  to recoup the  advances by
     withholding  certain amounts against  payments for future  purchases of the
     active drug substance,  based on the advances made,  until all the advances
     have been repaid. The Company may be obligated to repay such advances if it
     is unable to supply Bausch & Lomb with certain specified  quantities of the
     active drug substance.  The portion of advances  expected to be recouped by
     Bausch and Lomb in 2001, based on management's estimate of product sales to
     Bausch & Lomb in 2001,  has been  presented  as a current  liability in the
     accompanying balance sheet at March 31, 2001.

     Bausch & Lomb also  collaborates  in the  development of products by making
     available  amounts up to 50% of the Phase III  clinical  trial  costs.  The
     Company has retained certain conditional  co-marketing rights to all of the
     products  covered  by the  Marketing  Agreement  and  the  New  Territories
     Agreement.

     Total  receivables from Bausch & Lomb as of March 31, 2001 and December 31,
     2000 were $724,365 and $870,043, respectively.

5.   Common Stock Transactions

     During the first  quarter of 2001,  the Company  paid  $572,539  and issued
     182,964  shares  (valued  at  $400,325  at the date of issue) of the common
     stock  of the  Company  to the  investors  in the  September  2000  private
     placement of convertible  debentures and common stock.  The payment of cash
     and stock were the options chosen by the Company and represent  adjustments
     to the pricing based upon the Company's  stock price during the  adjustment
     period. Under the terms of the agreements, no further adjustments are due.

     During the first quarter of 2001,  the Company issued 106,000 shares of its
     common stock upon the exercise of warrants,  and received  consideration of
     $185,500.

     Also,  during the first quarter of 2001, the Company  modified the terms of
     certain  incentive and  nonqualified  stock  options  granted to two of the
     Company's former employees who entered into consulting  relationships  with
     the  Company.  Accordingly,  the  Company  expensed  $10,395 as  consultant
     compensation  for the value of the  currently  vested  options and recorded
     $115,537 as deferred compensation for the value of the unvested options.


                                       6
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements


6.   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 months ending March 31, 2001 and 2000
     are as follows:

                                           2001               2000
                                           ----               ----
          Net revenues
            United States               $ 1,105,058       $   663,580
            Israel                               --                --
                                        -----------       -----------
                                        $ 1,105,058       $   663,580
                                        ===========       ===========
          Net loss
            United States               ($2,628,931)      ($1,868,894)
            Israel                         (121,172)          (26,250)
                                        -----------       -----------
                                        ($2,750,103)      ($1,895,144)
                                        ===========       ===========


                                       7
<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Results of Operations

Quarters ended March 31, 2001 and 2000

Product sales revenue totaled $1,025,058 for the quarter ended March 31, 2001, a
54% increase from  $663,580 for the quarter ended March 31, 2000.  Product sales
increases  reflect  market  share  gains and higher  pricing  for the  Company's
Lotemax and Alrex ophthalmic products.  Additionally,  License Fee revenues were
$80,000  compared  to zero for the same period in 2000.  The license  income was
primarily generated from the licensing of a technology of the Company for use in
Japan.

Cost of goods  sold for the  quarter  ended  March 31,  2001  totaled  $411,341,
increasing  47% from $280,529 for the quarter  ended March 31, 2000.  The higher
cost of goods  sold is due to  higher  sales  volumes  and  higher  royalty  and
licensing costs. The gross margin on product sales was 60% for the quarter ended
March 31, 2001 and 58% for the quarter ended March 31, 2000.

Total operating  expenses  increased $925,281 or 38%, from $2,425,064 in 2000 to
$3,350,345  in 2001.  The  increase  is  primarily  due to higher  research  and
development expenses, as well as increased general and administrative expenses.

Net  research  and  development  expenses  increased  by $662,656  or 46%,  from
$1,436,975  in 2000 to  $2,099,631  in 2001.  The  increase  in R&D  expense  is
primarily due to increased  expenditures,  including increased employee staffing
levels, related to the development of dexanabinol for the treatment of traumatic
brain injury and to increased activity in the Company's  cannabinoid  program to
treat various central nervous system and inflammation-based conditions.

General and administrative  expenses increased by $161,457 or 19%, from $859,069
in 2000 to $1,020,526 in 2001. The increase is primarily due to higher  staffing
levels.

Depreciation and  amortization  expenses  increased by $62,161,  or 64%, from to
$97,060 in 2000 to $159,221 in 2001,  reflecting increased  depreciation expense
relating to laboratory equipment purchases.

Other income (expense),  net, decreased by $240,344,  from income of $146,869 in
2000 to expense of $93,475 in 2001.  The  primary  cause of this  change was the
interest  expense,  including  the  amortization  of debt  discount and issuance
costs, related to the Convertible  debentures issued by the Company in the third
quarter of 2000. The higher interest  expense was partially  offset by increased
interest income as a result of higher average cash balances.

Liquidity and Capital Resources

While  the  Company  has  generated  revenue  through  the sale of its  approved
products in the market, it has incurred operating losses since its inception. At
March 31,  2001,  the Company has an  accumulated  deficit of  $93,244,413.  The
Company  has  financed  its  operations  with public and  private  offerings  of
securities,  advances and other funding  pursuant to a marketing  agreement with
BLP, research contracts, license fees, royalties and sales, and interest income.

The Company had working  capital of $15.8 million,  which included cash and cash
equivalents  of $20.3  million,  as of March 31, 2001.  During the quarter ended
March 31, 2001, the Company received $.2 million from the exercise of previously
outstanding warrants and options to purchase the Company's common stock.


                                       8
<PAGE>

Management  believes  that  existing  cash and cash  equivalents  combined  with
anticipated  cash inflows from  proceeds  from sales of the drug  substance  for
Lotemax and Alrex to BLP,  investment income, R&D grants and the availability of
the  equity  line of  credit,  will  be  sufficient  to  support  the  Company's
continuing  operations.  As of March 31, 2001, $1.7 million  remained  available
under the equity  line of credit.  The  Company  continues  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 the additional
financing that is required to continue the development of its products and bring
them to commercial markets.

Quantitative and Qualitative Disclosures about Market Risk

We have assessed our vulnerability to certain market risks,  including  interest
rate  risk  associated  with  financial  instruments  included  in cash and cash
equivalents  and our  convertible  debentures.  Due to the 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 its drug products,  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  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.


                                       9
<PAGE>

                                     Part II

                                Other Information

Item 1     Legal Proceedings                                                NONE

Item 2     Changes in Securities                                            NONE

Item 3     Defaults upon Senior Securities                                  NONE

Item 4     Submission of Matters to Vote of Security Holders                NONE

Item 5     Other Information                                                NONE

Item 6     Exhibits and Reports on Form 8-K                                 NONE



                                       10
<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: May 10, 2001
                         by:  /s/ Robert W. Cook
                                                    Robert W. Cook
                                                    Executive Vice President and
                                                    Chief Financial Officer
                                                    (Principal Accounting and
                                                      Financial Officer)



                                       11