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, 1999

                         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 November 2, 1999, the Registrant had outstanding  44,360,508 shares of its
$.03 par value Common Stock.


<PAGE>


Part I.   Financial Information
Item 1   Financial Statements


Pharmos Corporation
(Unaudited)
Condensed Consolidated Balance Sheets
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                         September 30,   December 31,
                                                                             1999            1998
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
Assets
   Cash and cash equivalents                                             $  3,091,885    $  3,452,916
   Inventory                                                                2,079,635       1,727,096
   Receivables                                                                435,460         550,057
   Prepaid royalties                                                          259,662         259,488
   Prepaid expenses and other current assets                                  364,088         206,793
                                                                         ------------    ------------
        Total current assets                                                6,230,730       6,196,350

   Fixed assets, net                                                        1,151,810       1,181,030
   Prepaid royalties, net of current portion                                  250,479         366,152
   Intangible assets, net                                                     209,845         244,738
   Other assets                                                                76,198          78,400
                                                                         ------------    ------------

        Total assets                                                     $  7,919,062    $  8,066,670
                                                                         ============    ============


Liabilities and Shareholders' Equity
   Accounts payable                                                      $    699,273    $    936,899
   Accrued expenses                                                           426,425         679,737
   Accrued wages and other compensation                                       508,485         456,575
   Advances against future sales                                            1,874,000       1,836,231
   Note payable                                                               438,781            --
                                                                         ------------    ------------
        Total current liabilities                                           3,946,964       3,909,442

   Advances against future sales, net of current portion                    1,811,339       2,591,023
   Other liabilities                                                          100,000         100,000
                                                                         ------------    ------------

        Total liabilities                                                   5,858,303       6,600,465
                                                                         ------------    ------------


   Shareholders' equity
   Preferred stock, $.03 par  value, 1,250,000 shares authorized
    Series C convertible, 0 and 1,500 shares outstanding, respectively
      (liquidation preference of $ 0 and $1,500,000                              --                45
   respectively)
   Common stock, $.03 par value; 60,000,000 shares authorized,
       44,360,508 and 39,800,112 shares issued and outstanding
       (excluding $551 in 1999 and 1998, held in Treasury)
       in 1999 and 1998, respectively                                       1,330,264       1,193,452
     Paid in capital in excess of par                                      81,835,225      78,051,783
     Accumulated deficit                                                  (81,104,730)    (77,779,075)
                                                                         ------------    ------------

        Total shareholders' (deficit) equity                                2,060,759       1,466,205
                                                                         ------------    ------------

   Commitments and contingencies

        Total liabilities and shareholders' equity                       $  7,919,062    $  8,066,670
                                                                         ============    ============
</TABLE>


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


                                       2
<PAGE>

Pharmos Corporation
(Unaudited)
Condensed Consolidated Statements of Operations
--------------------------------------------------------------------------------

                                                          Three Months
                                                        Ended September 30,
                                                       1999            1998
                                                   ------------    ------------
Revenues
    Product sales                                  $    833,118    $     90,743
    License fee                                            --             1,663
                                                   ------------    ------------
                                                        833,118          92,406

Cost of Goods Sold                                      265,649          32,447
                                                   ------------    ------------

    Gross Margin                                        567,469          59,959
                                                   ------------    ------------

Expenses
    Research and development, net                       839,390         675,807
    Selling, general and administrative                 599,174         552,467
    Patents                                              61,781          55,675
    Depreciation and amortization                        85,353          64,002
                                                   ------------    ------------

       Total operating expenses                       1,585,698       1,347,950
                                                   ------------    ------------

Loss from operations                                 (1,018,229)     (1,287,992)
                                                   ------------    ------------

Other income (expense):
    Interest income                                      34,378          70,808
    Other income (expense), net                          20,805          16,643
    Interest expense                                     (9,239)         (1,603)
                                                   ------------    ------------
    Other income, net                                    45,944          85,848
                                                   ------------    ------------

Net loss                                               (972,285)     (1,202,144)
                                                   ------------    ------------

    Less: Preferred stock dividends                        (246)        (62,500)
                                                   ------------    ------------

Net loss applicable to common shareholders         ($   972,531)   ($ 1,264,644)
                                                   ============    ============

Net loss per share applicable
    to common stockholders - basic and diluted     ($       .02)   ($       .03)
                                                   ============    ============


Weighted average shares outstanding                  43,664,398      37,405,455
                                                   ============    ============

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


                                       3
<PAGE>


Pharmos Corporation
(Unaudited)
Condensed Consolidated Statements of Operations
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                            Nine Months Ended September 30,
                                                                 1999            1998
                                                             ------------    ------------
<S>                                                          <C>             <C>
Revenues
    Product sales                                            $  2,024,329    $    983,899
    License fee                                                      --           351,663
                                                             ------------    ------------
                                                                2,024,329       1,335,562

Cost of Goods Sold                                                564,444         372,299
                                                             ------------    ------------

    Gross Margin                                                1,459,885         963,263
                                                             ------------    ------------

Expenses
    Research and development, net                               2,591,722       2,738,259
    Selling, general and administrative                         1,844,477       1,712,941
    Patents                                                       153,174         168,007
    Depreciation and amortization                                 253,464         167,717
                                                             ------------    ------------

       Total operating expenses                                 4,842,837       4,786,924
                                                             ------------    ------------

Loss from operations                                           (3,382,952)     (3,823,661)
                                                             ------------    ------------

Other income (expense):
    Interest income                                                97,523         268,465
    Other income (expense), net                                    (1,881)         27,412
    Interest expense                                              (21,151)         (8,020)
                                                             ------------    ------------
    Other income, net                                              74,491         287,857
                                                             ------------    ------------

Net loss                                                       (3,308,461)     (3,535,804)

    Less: Dividend embedded in convertible preferred stock             --        (642,648)
    Preferred stock dividends                                     (22,253)       (231,399)
                                                             ------------    ------------

Net loss applicable to common shareholders                   ($ 3,330,714)   ($ 4,409,851)
                                                             ============    ============

Net loss per share applicable
    to common stockholders - basic and diluted               ($       .08)   ($       .12)
                                                             ============    ============


Weighted average shares outstanding                            42,104,485      36,621,907
                                                             ============    ============
</TABLE>


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


                                       4
<PAGE>

Pharmos Corporation
(Unaudited)
Condensed Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                               Nine Months
                                                           Ended September 30,
                                                           1999           1998
                                                       -----------    -----------
<S>                                                    <C>            <C>
Cash flows from operating activities
  Net loss                                             ($3,308,461)   ($3,535,804)
                                                       -----------    -----------
  Adjustments to reconcile net loss to net
    cash flow used in operating activities
       Depreciation and amortization                       253,464        167,717
  Changes in operating assets and liabilities
       Inventory                                          (352,539)       (64,658)
       Receivables                                         114,597       (134,419)
       Prepaid expenses and other current assets          (157,295)       (45,970)
       Advanced royalties                                  115,499         77,162
       Other assets                                          2,203         (3,474)
       Accounts payable                                   (237,626)    (2,004,461)
       Accrued expenses                                   (253,312)        64,680
       Advances against future sales, net                 (741,915)      (477,727)
       Accrued wages                                        51,910         99,159
                                                       -----------    -----------

       Total adjustments                                (1,205,014)    (2,321,991)
                                                       -----------    -----------

  Net cash flows used in operating activities           (4,513,475)    (5,857,795)
                                                       -----------    -----------

Cash flows from investing activities
     Purchases of fixed assets, net                       (189,351)      (489,008)
                                                       -----------    -----------

  Net cash flows used in investing activities             (189,351)      (489,008)
                                                       -----------    -----------

Cash flows from financing activities
     Proceeds from issuances of common stock
         and exercise of warrants, net                        --        1,678,333
     Proceeds from issuances of preferred stock, net          --        4,588,866
     Proceeds from exercise of equity credit line        3,903,014           --
     Increase (decrease) in loans payable                  438,781        (43,993)
                                                       -----------    -----------

  Net cash flows provided by financing activities        4,341,795      6,223,206
                                                       -----------    -----------

Net increase (decrease) in cash and cash equivalents      (361,031)      (123,596)

Cash and cash equivalents at beginning of year           3,452,916      4,423,389
                                                       -----------    -----------

Cash and cash equivalents at end of period             $ 3,091,885    $ 4,299,793
                                                       ===========    ===========
</TABLE>


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


                                       5
<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  and  nine-month  periods ended  September 30,
     1999,  are not  necessarily  indicative of the results that may be expected
     for the year ended December 31, 1999.


1.   The Company

     Pharmos   Corporation   (the   "Company")  is  a   pharmaceutical   company
     specializing in the modification of existing molecules through  proprietary
     techniques to reduce undesirable side effects and/or enhance efficacy.  The
     Company is developing  pharmaceuticals  in various fields  including:  site
     specific drugs for ophthalmic  indications,  neuroprotective  agents with a
     novel  mechanism  of action for the  treatment  of central  nervous  system
     ("CNS")   disorders,   newly  designed   molecules  to  treat  cancer,  and
     emulsion-based products for topical and systemic applications.  The Company
     has administrative  offices in Iselin,  New Jersey and conducts  operations
     through its wholly owned subsidiary, Pharmos, Ltd., in Rehovot, Israel.

     In March 1998,  the Company  received  approval for three separate New Drug
     Applications  ("NDA") from the U.S. Food and Drug  Administration  ("FDA").
     Two of  these  approvals  were  for  Lotemax(R)  and one was for  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 September 30, 1999, the Company had an accumulated deficit of
     $81,104,730.  Such  losses  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 $3.1 million as of September 30, 1999,  combined with
     anticipated  cash inflows from  revenues  derived from sales of Lotemax and
     Alrex and the equity line of credit  obtained on December  10, 1998 will be
     sufficient  to support  operations  through 2000. As of September 30, 1999,
     $5.4 million remained available under the equity line of credit.

     The  Company's  success  depends  upon many  factors  that are  beyond  the
     Company's  immediate  control,  including market  acceptance of Lotemax and
     Alrex,  competition,  and the ability to obtain additional  financing.  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 to obtain the
     additional  financing  necessary to complete the development of its product
     candidates and bring them to commercial markets.  There can be no assurance
     that Lotemax or Alrex will achieve  market  acceptance  or that the Company
     will be successful in obtaining additional financing or commercializing its
     product candidates.


                                       6
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements


3.   Significant Accounting Policies

Revenue recognition

     Sales  revenue is recognized  upon shipment 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.

     All of the  Company's  revenues  from  product  sales are derived  from one
     Customer.

Inventories

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

Reclassifications

     Certain  amounts for 1998 have been  reclassified  to conform to the fiscal
     1999  presentation.  Such  reclassifications  did not have an impact on the
     Company's financial position or results of operations.


4.   Collaborative Agreements

     In  June  1995,  the  Company  entered  into  a  marketing  agreement  (the
     "Marketing Agreement") with Bausch & Lomb Pharmaceuticals,  Inc. ("Bausch &
     Lomb") 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
     December 1996 ("the New Territories Agreement").

     Through  September 30, 1999,  Bausch and Lomb has provided the Company with
     $5 million in cash advances  against future sales,  of which  approximately
     $3.7 million was  outstanding  at  September  30, 1999.  An  additional  $1
     million is due from Bausch & 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 during the next twelve  months,
     based on management's  estimate of product sales to Bausch & Lomb, has been
     presented  as a current  liability  in the  accompanying  balance  sheet at
     September 30, 1999 and December 31, 1998.

     Bausch  & Lomb  also  collaborates  in the  development  of LE-T 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.


                                       7
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements


5.   Common and Preferred Stock Transactions

     On  February  4, 1998,  the  Company  completed  a private  placement  with
     institutional  investors of Series C Redeemable Convertible Preferred Stock
     ("Series C convertible  preferred  stock") and warrants to purchase 650,000
     shares of common stock, generating gross proceeds of $5 million. The Series
     C convertible preferred stock carried a 5% premium payable in common stock,
     and was convertible, at the option of the holder, into common shares of the
     Company 60 days  subsequent to the date of issuance.  The conversion  price
     was the lower of 90% of the  average of the low trade  prices of the Common
     Stock for the five  consecutive  trading days ending on the day immediately
     prior to the conversion date (the "Variable Conversion Price") or $2.89 per
     share.  Until  converted  into  common  stock,  the  Series  C  convertible
     preferred  stock had no voting rights.  The warrants issued to the investor
     and the finders are  exercisable  at prices ranging from $2.28 to $2.67 per
     share,  commencing  one year  after  the  closing  for  four and five  year
     periods.

     During  1998,  the Company  issued  2,299,957  shares of common  stock upon
     conversion of 3,500 shares of its Series C convertible preferred stock.

     During the first  quarter of 1999,  the Company  issued  858,585  shares of
     common stock upon conversion of its Series C convertible preferred stock.

     During the second  quarter of 1999,  the Company  issued  334,339 shares of
     common stock upon conversion of its Series C convertible preferred stock.

     During the third  quarter of 1999,  the Company  issued  153,201  shares of
     common stock upon conversion of its Series C convertible  preferred  stock.
     These third quarter  transactions  completed the conversion of the Series C
     convertible  preferred  stock,  leaving no preferred  stock  outstanding at
     September 30, 1999.

     As of September 30, 1999 and December 31, 1998, cumulative dividends on the
     Company's  outstanding  Series C convertible  preferred stock were $-0- and
     $173,671,  respectively.  The  dividends  were paid in common  stock of the
     Company at the fair market value on the date of conversion.

     In  connection  with the  issuances  of the  Series A, B and C  convertible
     preferred stock, the Company was required to recognize, in its earnings per
     share  ("EPS")  calculation,  the  value of the  conversion  discount  as a
     dividend to the preferred stockholders. The dividend has been recognized in
     the EPS  calculation  on a pro rata basis over the  period  beginning  with
     issuance  to the  earliest  date that  conversion  can occur.  The  Company
     recorded a  preferred  stock  dividend  of $0 for both of the three  months
     ended September 30, 1999 and 1998, and $ 0 and $642,648 for the nine months
     ended September 30, 1999 and 1998, respectively,  on the outstanding shares
     of convertible preferred stock in connection with the conversion discount.

     The Company  entered into a Private  Equity Line of Credit  Agreement  (the
     "Credit  Agreement")  as of December 10,  1998,  as amended on December 18,
     1998, with Dominion  Capital Fund, Ltd.,  which  subsequently  assigned its
     rights to Centennial  Parkway LLC. (the "Investor").  Pursuant to the terms
     of the  Credit  Agreement,  the  Company  may,  from time to time  during a
     specified  term,  cause the  Investor  to purchase  up to an  aggregate  of
     $10,000,000  of the Company's  common stock,  par value $.03 per share (the
     "Common  Stock").  The price  per  share of Common  Stock to be paid by the
     Investor is to be determined  at the time of each  purchase  according to a
     specified  formula which is based upon the average closing bid price of the
     Common  Stock on the  principal  trading  exchange or market for the Common
     Stock (the "Principal  Market") over a prescribed,  five-day  period.  With
     each  purchase of Common  Stock,  the Investor is also to receive  warrants
     exercisable  for a number of shares of Common Stock equal to ten percent of
     the number of shares of Common  Stock  purchased  at an exercise  price per
     share  equal to 125% of the  closing  bid price of the Common  Stock on the
     Principal Market on a specified date.


                                       8
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements


     During the first quarter of 1999, under terms of the Credit Agreement,  the
     Company  issued 933,233 shares of its Common Stock and warrants to purchase
     86,162  shares of its Common  Stock to the Investor  for  consideration  of
     $1,158,000,  net of fees.  The warrants have exercise  prices  ranging from
     $1.41 to $1.99 per share and expire in the first quarter of 2002.

     During the second quarter of 1999, under terms of the Credit Agreement, the
     Company  issued  1,369,279  shares  of its  Common  Stock and  warrants  to
     purchase   114,311   shares  of  its  Common  Stock  to  the  Investor  for
     consideration  of $1,737,000 net of fees. The warrants have exercise prices
     ranging  from $1.56 to $2.38 per share and expire in the second  quarter of
     2002.

     During the third quarter of 1999, under terms of the Credit Agreement,  the
     Company  issued 761,760 shares of its Common Stock and warrants to purchase
     67,598  shares of its Common  Stock to the Investor  for  consideration  of
     $1,005,497  net of fees.  The warrants  have exercise  prices  ranging from
     $1.52 to $2.23 per share and expire in the third quarter of 2002.

     During the third quarter of 1999,  the Company issued 150,000 shares of its
     Common  Stock upon the  exercise of  previously  outstanding  warrants  for
     consideration of $126,000.


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 and nine months ending  September 30,
     1999 and 1998 are as follows:

                           Three months ended                Nine months
                               September 30,             ended September 30,
                           1999           1998           1999           1998
                       -----------    -----------    -----------    -----------
     Net revenues
       United States   $   833,118    $    92,406    $ 2,024,329    $ 1,335,562
       Israel                 --             --             --             --
                       -----------    -----------    -----------    -----------
                       $   833,118    $    92,406    $ 2,024,329    $ 1,335,562
                       ===========    ===========    ===========    ===========
     Net loss
       United States   ($  960,662)   ($1,204,833)   ($3,255,628)   ($3,535,956)
       Israel              (11,623)         2,689        (52,833)           152
                       -----------    -----------    -----------    -----------
                       ($  972,285)   ($1,202,144)   ($3,308,461)   ($3,535,804)
                       ===========    ===========    ===========    ===========


7.   Note Payable

     On April 1,  1999,  the  Company  issued a  one-year  note to  finance  the
     purchase  of  certain  drug  substance  inventory.  The note is  payable in
     installments and bears interest at 8% per annum.


                                       9
<PAGE>

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

Results of Operations

Quarters ended September 30, 1999 and 1998

Product sales revenue totaled  $833,118 for the quarter ended September 30, 1999
compared to $90,743 for the quarter ended September 30, 1998.  Sales revenue for
the quarter ended September 30, 1998 reflects reorders from product  wholesalers
and  distributors  subsequent to the filling of initial orders during the second
quarter, and represented about half of actual Lotemax and Alrex sales during the
quarter.  Additionally,  the Company  recorded license revenue of $1,663 for the
quarter ended September 30, 1998.

Cost of goods sold for the quarter  ended  September  30, 1999 totaled  $265,649
compared to $32,447 for the quarter  ended  September  30,  1998.  The  increase
reflects volume and the timing of certain licensing expenses. Cost of goods sold
includes the cost of the active drug substance and licensing costs.

Total operating  expenses  increased $237,748 or 18%, from $1,347,950 in 1998 to
$1,585,698  in 1999.  The  increase  is  primarily  due to higher  research  and
development   expenses  and,  to  a  lesser   extent,   increased   general  and
administrative expenses and depreciation expense.

Net  research  and  development  expenses  increased  by $163,583  or 24%,  from
$675,807 in 1998 to $839,390 in 1999.  The  increase in R&D expense is primarily
due  to  expenses   associated   with  the   development   of   Dexanabinol,   a
neuroprotective  agent for the  treatment  of  central  nervous  system  ("CNS")
disorders.

General and administrative expenses increased by $46,707 or 8%, from $552,467 in
1998 to $599,174 in 1999.  The increase is primarily  due to facility  costs and
employee benefits partially offset by reduced investor relations costs.

Patent expenses  increased by $6,106, or 11%, from $55,675 in 1998 to $61,781 in
1999. This increase is due principally to the timing of various patent costs.

Depreciation  and  amortization  expenses  increased  by $21,351,  or 33%,  from
$64,002 in 1998 to $85,353 in 1999,  reflecting  increased  depreciation expense
relating to laboratory equipment purchases in 1998.

Other income, net, decreased by $39,904, or 47%, from $85,848 in 1998 to $45,944
in 1999.  The  decrease is due to the decline in interest  income as a result of
lower average cash balances and the increased  interest expense primarily due to
the interest payable on the Company's note to finance an inventory purchase.

Nine months ended September 30, 1999 and 1998

Product sales revenue totaled $2,024,329 for the nine months ended September 30,
1999 compared to $983,899 for the nine months ended September 30, 1998. The 1999
period includes product sales for all nine months while the 1998 period includes
sales only for the second and third  quarters of 1998,  following the March 1998
FDA  approval  of  the  Company's   Lotemax  and  Alrex   ophthalmic   products.
Additionally,  the Company  recorded  license  revenue of $ 351,663 for the nine
months  ended   September  30,  1998.   This  license   revenue   represented  a
non-recurring payment in exchange for the transfer of certain drug technology.

Cost of goods sold for the nine months ended September 30, 1999 totaled $564,444
compared to $372,299 for the nine months ended  September 30, 1998. The increase
reflects  the volume  difference  between  the two  periods.  Cost of goods sold
includes the cost of the active drug substance and licensing costs.


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<PAGE>


Total  operating  expenses  increased  $55,913 or 1%, from $4,786,924 in 1998 to
$4,842,837  in 1999.  The  increase is primarily  due to  increased  general and
administrative  expenses and  depreciation  expense offset by lower research and
development expenses.

Net  research  and  development  expenses  decreased  by  $146,537,  or 5%, from
$2,738,259  in 1998 to  $2,591,722  in 1999.  The  decrease  in R&D  expense  is
primarily due the absence of development  and regulatory  costs  associated with
Lotemax and Alrex, which were approved by the FDA in March 1998.

General and administrative expenses increased by $131,536 or 8%, from $1,712,941
in 1998 to $1,844,477 in 1999. The increase is primarily due to higher wages and
benefits, increased investor relations activities offset by reduced professional
fees and reduced travel costs.

Patent expenses  decreased by $14,833,  or 9%, from $168,007 in 1998 to $153,174
in 1999. This decrease is due principally to the timing of various patent costs.

Depreciation  and  amortization  expenses  increased  by $85,747,  or 51%,  from
$167,717 in 1998 to $253,464 in 1999, reflecting increased  depreciation expense
relating to laboratory equipment purchases in 1998.

Other  income,  net,  decreased by $213,366,  or 74%,  from  $287,857 in 1998 to
$74,491 in 1999.  The decline is principally  due to lower interest  income as a
result of lower  average  cash  balances  and less  favorable  foreign  exchange
transactions.

Liquidity and Capital Resources

The Company  had no sources of  recurring  revenues  until the  commencement  of
product  sales in April  1998,  and has  incurred  operating  losses  since  its
inception.  At September  30, 1999,  the Company had an  accumulated  deficit of
$81,104,730.  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 $2.0  million,  including  cash and cash
equivalents of $3.1 million,  as of September 30, 1999. On February 4, 1998, the
Company  completed  a  private  placement  of  convertible  preferred  stock and
warrants that generated $5 million in gross proceeds.  On December 10, 1998, the
Company obtained a $10 million equity line of credit with a single institutional
investor.  As of September 30, 1999, $5.4 million  remained  available under the
equity line of credit.

Management  believes  that the  equity  line of credit,  existing  cash and cash
equivalents  combined with anticipated cash inflows from investment  income, R&D
grants and proceeds  from sales of the drug  substance  for Lotemax and Alrex to
BLP will be  sufficient  to support  operations  through  2000.  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 the  additional  financing  that would be  required  to  continue  the
development of its products and bring them to commercial markets.  The Company's
success  depends  upon many  factors  that are  beyond the  Company's  immediate
control, including market acceptance of Lotemax and Alrex, competition,  and the
ability  to obtain  additional  financing.  There can be no  assurance  that the
Company will be successful in obtaining  additional financing or commercializing
its product candidates, or that Lotemax or Alrex will achieve market acceptance.

Statements made in this document related to the  development,  commercialization
and market expectations of the Company's 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

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<PAGE>

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.

The Year 2000

The Year 2000 computer system issue involves hardware and software programs that
recognize a date using "00" as the year 1900 rather than the year 2000 and could
result in errors or systems failures for many businesses, including the Company.
Recognizing the importance of minimizing the impact of potential  disruptions to
the  Company's  business  resulting  from the year 2000  issue,  the Company has
adopted a plan to review and correct any potential issues which could impact the
Company's  operations.  The plan  addresses  the state of  readiness of internal
computer  systems as well as significant  external third party systems to handle
the risks associated with the year 2000 issue.

Internal  Preparation.  The two major  areas of  concern  for  computer  systems
internal  to the  Company  are the  financial  systems  and the data  collection
systems for the Company's research efforts.

The Company's  financial  records are  maintained on readily  available  generic
programs  purchased  from various  vendors.  These  programs are run on personal
computers  and a network  server for personal  computers.  All of the  Company's
currently  utilized  critical  systems have been  installed or updated since the
beginning of 1998. A required  product  specification  for these new systems was
that the purchased  systems were certified by the vendors as able to handle year
2000 issues properly ("Y2K compliant"). The critical financial systems addressed
include  accounts  payable,  accounts  receivable,  inventory,  cash management,
general ledgers and financial consolidation.

Information  and data critical to the Company's  research  efforts are generally
maintained  on  printed  records,   however;  many  data  summary,   review  and
communication  activities  utilize  programs  run on  personal  computers  and a
network  server for  personal  computers.  The  Company's  critical  systems for
research have been  installed or updated in recent years and are Y2K  compliant.
Additionally,  the Company has a policy requiring  maintenance of updated copies
of  programs  and files  ("back up") in the case of  possible  system  failures,
including year 2000 issue related  failures.  The back up material is maintained
at the Company's  research  facility and an additional  copy is maintained at an
off site location.

The Company currently  believes that its systems are either fully Y2K compliant,
that  appropriate  back up procedures  exist or that the costs of addressing any
possible  year  2000  issues  will not have a  material  adverse  impact  on the
Company's operations or financial position.

Third Party  Preparation.  The Company's has identified its critical third party
relationships  in order to  assess  potential  year 2000  issues  with the third
party's  computer  systems that might  impact the  Company's  operations.  These
critical  relationships  include one customer,  one principal vendor,  financial
institutions  and  various  service  vendors.  The Company  has  surveyed  these
critical third parties and has received  assurances  that the third parties have
addressed  year 2000  issues  involving  systems  important  in the  conduct  of
business with the Company, or that plans are in place to assure that the systems
are Y2K compliant  before the end of 1999.  The Company  completed the survey of
critical third party relationships by the end of the second quarter of 1999. The
Company  addressed  or corrected  all issues by the end of the third  quarter of
1999.

Compliance  Costs.  The Company's  expenditures  on its year 2000 issues to date
have been nominal,  and the Company does not anticipate any  significant  future
costs associated with year 2000 issues.



                                       12
<PAGE>

Risks of the Company's  Year 2000 Issues.  The greatest risks to the Company are
potential  failures  of the  computer  systems  of  the  Company's  third  party
relationships.  The Company  currently  believes that the most likely worst case
scenario concerning the year 2000 issue involves potential business  disruptions
among the financial  institutions with which the Company conducts business. If a
significant  number  of  these  financial   institutions   experience   business
disruptions  due  to a year  2000  issue,  the  Company's  cash  flow  could  be
materially disrupted.

The Company believes that any year 2000 compliance problems of the Company,  its
customers or vendors will not have any material  adverse effect on the Company's
business, results of operations and financial condition.



                                       13
<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



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<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 15, 1999                 by:  /s/ Robert W. Cook
                                              ------------------
                                              Robert W. Cook
                                              Vice President Finance and
                                              Chief Financial Officer
                                              (Principal Accounting and
                                                Financial Officer)




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