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, 2002

                         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 |_|.

As of November 8, 2002 the Registrant had outstanding 56,585,941 shares of its
$.03 par value Common Stock.


<PAGE>


Part I.  Financial Information
Item 1   Financial Statements


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

<TABLE>
<CAPTION>
                                                                     September 30,    December 31,
                                                                         2002             2001
                                                                     -------------    -------------
<S>                                                                  <C>              <C>
Assets
   Cash and cash equivalents                                         $  23,698,765    $  35,269,114
   Other Receivables                                                       735,752          690,067
   Restricted cash                                                       1,762,502        2,275,251
   Prepaid expenses and other current assets                               396,886          997,695
                                                                     -------------    -------------
        Total current assets                                            26,593,905       39,232,127

   Fixed assets, net                                                     1,904,031        1,918,281
   Restricted cash                                                          60,000        3,090,550
   Other assets                                                             32,283           22,033
                                                                     -------------    -------------

        Total assets                                                 $  28,590,219    $  44,262,991
                                                                     =============    =============

Liabilities and Shareholders' Equity
   Accounts payable                                                  $   1,539,473    $   2,197,299
   Accrued expenses                                                      6,082,489        5,809,642
   Accrued wages and other compensation                                  1,109,188        1,317,934
   Convertible debentures, net                                           3,419,990        1,949,317
                                                                     -------------    -------------
        Total current liabilities                                       12,151,140       11,274,192

   Other liability                                                          10,000               --
   Convertible debentures, net                                                  --        5,847,951
                                                                     -------------    -------------
        Total liabilities                                               12,161,140       17,122,143
                                                                     -------------    -------------

   Commitments and contingencies

   Shareholders' equity
   Common stock, $.03 par value; 110,000,000 shares authorized,
   56,585,941 and 55,356,307 issued and outstanding (excluding
   14,189 and 18,356 shares in 2002 and 2001, held in Treasury)
   in 2002 and 2001, respectively                                        1,697,577        1,660,688
   Deferred compensation                                                  (133,320)        (223,144)
   Paid in capital                                                     114,080,934      111,151,758
   Accumulated deficit                                                 (99,216,112)     (85,448,454)
                                                                     -------------    -------------
        Total shareholders' equity                                      16,429,079       27,140,848
                                                                     -------------    -------------

        Total liabilities and shareholders' equity                   $  28,590,219    $  44,262,991
                                                                     =============    =============
</TABLE>


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


                                       2
<PAGE>


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

<TABLE>
<CAPTION>
                                                            Three Months Ended September 30,
                                                                 2002              2001
                                                             ------------      ------------
<S>                                                           <C>               <C>
Revenues
    Product sales                                                      --        $1,712,646

Cost of Goods Sold                                                     --           403,340
                                                             ------------      ------------

Gross Margin                                                           --         1,309,306
                                                             ------------      ------------

Expenses
    Research and development, net                              $4,148,848         2,237,500
    Selling, general and administrative                         1,076,057           686,587
    Depreciation and amortization                                 170,063           169,524
                                                             ------------      ------------

       Total operating expenses                                 5,394,968         3,093,611
                                                             ------------      ------------

Loss from operations                                           (5,394,968)       (1,784,305)

Other income (expense)
    Interest income                                               127,496           194,396
    Other income                                                    5,346            18,419
    Interest expense                                             (186,438)         (425,556)
                                                             ------------      ------------
    Other expense, net                                            (53,596)         (212,741)
                                                             ------------      ------------

Net loss                                                      ($5,448,564)      ($1,997,046)
                                                             ============      ============

Net loss per share
    - basic and diluted                                             ($.10)            ($.04)
                                                             ============      ============

Weighted average shares outstanding - basic and diluted        56,583,958        54,872,472
                                                             ============      ============
</TABLE>


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


                                       3
<PAGE>


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

<TABLE>
<CAPTION>
                                                          Nine Months Ended September 30,
                                                               2002             2001
                                                           ------------     ------------
<S>                                                        <C>               <C>
Revenues
    Product sales                                                    --       $4,218,441
    License fee                                                      --           80,000
                                                           ------------     ------------
    Total Revenues                                                   --        4,298,441

Cost of Goods Sold                                                   --        1,268,589
                                                           ------------     ------------

Gross Margin                                                         --        3,029,852
                                                           ------------     ------------

Expenses
    Research and development, net                           $10,016,149        6,322,910
    Selling, general and administrative                       2,907,645        2,817,717
    Depreciation and amortization                               516,787          492,811
                                                           ------------     ------------

       Total operating expenses                              13,440,581        9,633,438
                                                           ------------     ------------

Loss from operations                                        (13,440,581)      (6,603,586)

Other income (expense)
    Interest income                                             442,276          742,648
    Other income, net                                             3,148           24,561
    Interest expense                                           (772,499)      (1,277,553)
                                                           ------------     ------------
    Other expense, net                                         (327,075)        (510,308)
                                                           ------------     ------------

Net loss                                                   ($13,767,656)     ($7,113,894)
                                                           ============     ============

Net loss per share
    - basic and diluted                                           ($.24)           ($.13)
                                                           ============     ============

Weighted average shares outstanding - basic and diluted      56,534,870       54,470,720
                                                           ============     ============
</TABLE>


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


                                       4
<PAGE>


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

<TABLE>
<CAPTION>
                                                                Nine Months Ended September 30,
                                                                     2002             2001
                                                                 ------------     ------------
<S>                                                              <C>               <C>
Cash flows from operating activities
  Net loss                                                       ($13,767,656)     ($7,113,894)
   Adjustments to reconcile net loss to net
    cash flow used in operating activities
       Depreciation and amortization                                  516,787          492,811
       Amortization of Debt Discount and Issuance costs               285,721          912,296
       Amortization of FMV of change in Convertible Debt              317,006               --
       Amortization of deferred compensation for options
       granted below FMV                                               39,649               --
       Non-cash compensation charge - consultant compensation          63,537          122,993
  Changes in operating assets and liabilities
       Inventory                                                           --          322,620
       Other Receivables                                              (45,685)        (548,269)
       Prepaid expenses and other current assets                      600,809          (76,991)
       Advanced royalties                                                  --            6,591
       Other Assets                                                   (10,250)
       Accounts payable                                              (657,826)         417,425
       Accrued expenses                                               390,439          128,111
       Accrued wages and other compensation                          (208,746)         201,812
       Other liability                                                 10,000               --
                                                                 ------------     ------------

  Net cash flows used in operating activities                     (12,466,215)      (5,134,495)
                                                                 ------------     ------------

Cash flows from investing activities
     Purchases of fixed assets                                       (502,537)        (633,699)
                                                                 ------------     ------------

  Net cash flows used in investing activities                        (502,537)        (633,699)
                                                                 ------------     ------------

Cash flows from financing activities
     Advances against future sales                                         --         (619,702)
     Proceeds from issuance of common stock
         and exercise of warrants, net                                 18,104        2,429,826
     Pricing adjustment for private placement, net                         --         (572,539)
     Fees related to refinancing convertible debt                    (163,000)              --
     Repayment of convertible debentures                           (2,000,000)              --
     Decrease (increase) in restricted cash                         3,543,299          (71,399)
                                                                 ------------     ------------

Net cash provided  by financing activities                          1,398,403        1,166,186
                                                                 ------------     ------------

Net decrease in cash and cash equivalents                         (11,570,349)      (4,602,008)

Cash and cash equivalents at beginning of year                     35,269,114       22,480,777
                                                                 ------------     ------------

Cash and cash equivalents at end of period                        $23,698,765      $17,878,769
                                                                 ============     ============

Supplemental information:
  Interest paid                                                      $175,165         $240,000
Supplemental disclosure of non-cash financing activities:
  Conversion of convertible debt and interest to equity            $2,617,593               --
</TABLE>


        The accompanying notes are an integral part of these 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, 2002, are not necessarily indicative of the
      results that may be expected for the year ended December 31, 2002.

      1.    The Company

      Pharmos Corporation (the "Company") is a bio-pharmaceutical company that
      discovers and develops new drugs to treat a range of inflammatory and
      neurological disorders such as traumatic brain injury and stroke. Although
      we do not currently have any approved products, we have an extensive
      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.

      In October 2001, the Company sold its ophthalmic product line that
      included Lotemax(R) and Alrex(R), two products that were being marketed,
      and future extensions of loteprednol etabonate (see Note 5). As a result
      of the sale, the Company is exclusively in the drug candidate development
      stage.

      2.    Liquidity and Business Risks

      The Company incurred operating losses since its inception through the year
      ended December 31, 2000. During 2001, the Company recorded net income due
      to the nonrecurring sale of its ophthalmic product line. At September 30,
      2002, the Company has an accumulated deficit of $99.2 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 the current cash and cash equivalents
      of $23.7 million and restricted cash of $1.8 million as of September 30,
      2002, will be sufficient to support the Company's continuing operations
      through early 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.

      3.    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. Up-front license fees are deferred and recognized
      when all performance obligations are completed. The Company had no product
      sale revenues for the three and nine month periods ending September 30,
      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>
Pharmos Corporation
Notes to Condensed Consolidated Financial Statements


      Reclassifications

      Certain amounts for 2001 have been reclassified to conform to the fiscal
      2002 presentation. Such reclassifications did not have a material impact
      on the Company's financial position or results of operations.

      4.    Net Loss Per Common Share

      Basic and diluted net loss per common share was computed by dividing the
      net loss by the weighted average number of shares of common stock. 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.

      The following table summarized the equivalent number of common shares
      assuming the related securities that were outstanding as of September 30,
      2002 and 2001 had been converted.

                                                            2002         2001
                                                          ---------    ---------
      Stock options                                       3,104,030    2,427,030
      Warrants                                            2,297,277    2,297,277
      Shares issuable upon exercise of convertible debt   1,373,243    2,088,773
                                                          ---------    ---------
      Total potential dilutive securities assuming the
      Company was in an income position                   6,774,550    6,813,080

      5.    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.

      Through October 2001, Bausch & Lomb provided the Company with $5 million
      in cash advances against future sales. Bausch & Lomb was entitled to
      recoup the advances by withholding a certain percentage of payments to the
      Company against payments for purchases of the active drug substance. With
      the completion of the sale of the ophthalmic product line to Bausch & Lomb
      in October 2001, all the advances have been repaid.

      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 a 1995 Marketing Agreement with the Company. Bausch &
      Lomb also acquired future extensions of LE formulations including LE-T, a
      product candidate currently in Phase III clinical trial. Bausch & Lomb
      will pay the Company additional fees depending on the approval date with
      the FDA as follows: If the earlier of (a) commercial launch or (b) 6
      months after FDA approval of LE-T (the "Triggering Event") occurred before
      September 1, 2002 the Company would have received $14.7 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. The patent owner of LE-T is entitled to
      11% of the additional fees that

                                       7
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

      the Company receives as a result of the contingent payment, which will be
      net against any additional gain recorded. The Triggering Event has not yet
      occurred.

      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. As of September 30, 2002, the Company's share of these research
      and development-related LE-T expenses to date was approximately $1.2
      million.

      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.

      6.    Common Stock Transactions

      On July 19, 2002, an amendment was filed to the Company's Restated
      Articles of Incorporation which increased the number of authorized shares
      of common stock from 80 million to 110 million shares.

      During the first quarter of 2002, the Company issued 1,217,485 shares of
      its common stock upon the conversion of $2.6 million of the Company's
      convertible debentures relating to the September 2000 offering. The
      conversion amount includes $100,000 of accrued interest. Additionally, $2
      million of convertible debentures were repaid in January 2002, leaving
      $3.5 million of outstanding principal due in June 2003. In connection with
      the conversion and repayment, $3.6 million of restricted cash was released
      to the Company.

      7.    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,
      2002 and 2001 are as follows:

                             Three months ended           Nine months ended
                                September 30,               September 30,
                                -------------               -------------
                             2002          2001          2002           2001
                             ----          ----          ----           ----
       Net revenues
         United States          $ --    $1,712,646           $ --    $4,298,441
         Israel                   --            --             --            --
                         -----------   -----------   ------------   -----------
                                $ --    $1,712,646           $ --    $4,298,441
                         ===========   ===========   ============   ===========
       Net loss
         United States   ($4,762,042)  ($1,880,750)  ($12,779,033)  ($6,735,463)
         Israel             (686,522)     (116,296)      (988,623)     (378,431)
                         -----------   -----------   ------------   -----------
                         ($5,448,564)  ($1,997,046)  ($13,767,656)  ($7,113,894)
                         ===========   ===========   ============   ===========

                                       8
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

      8.    New Accounting Pronouncements

      In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
      Associated with Exit or Disposal

      Activities", which addresses the measurement, timing of recognition and
      reporting of costs associated with exit or disposal activities and
      restructuring activities. SFAS No. 146 requires that a liability for costs
      associated with exit or restructuring activities be recognized only when
      the liability is incurred as opposed to at the time a company formally
      approves and commits to an exit plan as set forth in EITF Issue No. 94-3,
      "Liability Recognition for Certain Employee Termination Benefits and Other
      Costs to Exit an Activity". SFAS No. 146 is effective for exit or disposal
      activities that are initiated after December 31, 2002. The company does
      not expect the adoption to have any impact on its consolidated financial
      statements.

      In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
      Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
      Technical Correction" ("SFAS 145"). SFAS 145 rescinds SFAS No. 4,
      "Reporting Gains and Losses from Extinguishment of Debt" ("SFAS 4"), SFAS
      No. 44, "Accounting for Intangible Assets of Motor Carriers" ("SFAS 44")
      and SFAS No.64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
      Requirements" (SFAS 64") and amends SFAS No. 13, " Accounting for Leases"
      ("SFAS 13"). This statement updates, clarifies and simplifies existing
      accounting pronouncements. As a result of rescinding SFAS 4 and SFAS 64,
      the criteria in APB No. 30, "Reporting the Results of Operations-Reporting
      the Effects of Disposal of a Segment of a Business, and Extraordinary,
      Unusual and Infrequently Occurring Events and Transactions", will be used
      to classify gains and losses from extinguishment of debt. The provisions
      of SFAS 145 are effective for fiscal years beginning after May 15, 2002,
      with earlier application encouraged. The Company expects to adopt SFAS 145
      effective January 1, 2003 and reflect any necessary reclassifications in
      its consolidated statements of operations. The adoption of SFAS 145 will
      not have a material impact on the Company's financial position.

      9.    Subsequent Event

      On October 24, 2002, we filed a report on Form 8-K to disclose our
      adoption of a Shareholder Rights Plan and our entering into a Rights
      Agreement with respect to such Plan, as well as our adoption of amended
      and restated By-Laws.

      Under the Rights Agreement, each common stockholder of record as of the
      close of business on November 6, 2002, received a dividend of one right
      for each share of common stock held. Each right entitled the holder to
      purchase from the company one one-thousandth of a share of a new series of
      participating preferred stock at an initial purchase price of $15.00. The
      rights will become exercisable and will detach from the common stock for a
      specified period after any person or group, without the approval of the
      Corporation's board of directors, has become the beneficial owner of, or
      commences a tender offer or exchange offer for, 15% or more of the then
      outstanding shares of Pharmos common stock (subject to certain
      exceptions). A copy of the Rights Agreement, which fully describes the
      rights, is included as Exhibit 99.2 to the Current Report on Form 8-K
      dated October 24, 2002 filed by us with the SEC.

                                       9
<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, however, the Company 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 and has incurred a cumulative net loss of $99.2 million through
September 30, 2002. Net income in 2001 resulted from non-recurring income from
the sale of the ophthalmic product line. Losses have resulted principally from
costs incurred in research 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 develop and obtain regulatory approvals for its product
candidates, to enter into agreements for product development and
commercialization with strategic corporate partners and to develop, acquire, or
contract for the capacity to manufacture and sell its products are necessary
factors to enable to the Company to achieve profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

Results of Operations

Quarters ended September 30, 2002 and 2001

There were no product sales or cost of goods sold for the three months ended
September 30, 2002. Product sales revenue totaled $1,712,646 and cost of goods
sold totaled $403,340 for the quarter ended September 30, 2001. The decrease in
both product sales and cost of goods sold is due to the sale of the Company's
ophthalmic product line to Bausch & Lomb in October 2001. Bausch & Lomb was the
Company's marketing partner for its ophthalmic product line.

Total operating expenses increased $2,301,357 or 74%, from $3,093,611 in 2001 to
$5,394,968 in 2002. The increase is primarily due to increased research and
development costs and to a smaller extent general and administrative expenses,
and depreciation.


                                       10
<PAGE>


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 project is the development of dexanabinol for the treatment of traumatic
brain injury, which is currently involved in Phase III testing in Europe,
Australia, and Israel. During the third quarter of 2002, the gross cost of the
project was $4.0 million. Total costs since the project entered Phase II
development in 1996 through September 30, 2002 are $22.8 million. Enrollment in
the current Phase III trial is expected to continue until the end of 2003. The
principal costs of completing the project include patient enrollment, production
of the drug product, collection and evaluation of the data, 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
sufficient quantities of drug product under current Good Manufacturing Practice
conditions. 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 can expect to
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, during the quarter, the Company received approval from Israel's
Ministry of Health to commence a Phase IIa trial of dexanabinol as a preventive
agent against the mild cognitive impairment (MCI) that can follow coronary
surgery under cardiopulmonary bypass (CS-CPB) operations. Enrollment of up to
200 patients with this trial is expected to commence by year end. Expenses
directly related to this project were not material in the third quarter.

Expenses for other research & development projects in earlier stages of
development for the third quarters of 2002 and 2001 were $551,567 and $942,327,
respectively. Research and development expenses, net of grants, for the third
quarters of 2002 and 2001 were $4,148,848 and $ 2,237,500, respectively. The
company received from the Office of the Chief Scientist of Israel's Ministry of
Industry and Trade grant money of $843,049 and $283,148 during the third
quarters of 2002 and 2001, respectively, which reduced the research and
development expenses.

Selling, general and administrative expenses increased by $389,470 or 57%, from
$686,587 in 2001 to $1,076,057 in 2002. The increase relates to higher
professional fees, investor relations and consultants.

Other expense, net, decreased by $159,145 or 75%, from $212,741 in 2001 to
$53,596 in 2002. The decrease was attributable to the lower debt payable at
September 30, 2002 resulting from (i) the conversion from debt to equity in the
first quarter of 2002 of $2.6 million of our Convertible Debentures issued in
2000, and (ii) the repayment of $2 million of the Convertible Debentures in the
first quarter of 2002. This conversion and repayment resulted in lower interest
expense.

Nine Months ended September 30, 2002 and 2001

There were no product sales or cost of goods sold for the nine months ended
September 30, 2002. Product sales revenue totaled $4,218,441 and cost of goods
sold totaled $1,268,589 for the nine months ended September 30, 2001. The
decrease in both product sales and cost of goods sold is due to the sale of the
Company's ophthalmic product line to Bausch & Lomb in October 2001. Bausch &
Lomb was the Company's marketing partner for its ophthalmic product line.

Total operating expenses increased $3,807,143 or 40%, from $9,633,438 in 2001 to
$13,440,581 in 2002. The increase is principally due to higher research and
development expenses, and, to a lesser extent, an increase in general and
administrative expenses.


                                       11
<PAGE>


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 product is the development of dexanabinol for the treatment of traumatic
brain injury, which is currently involved in Phase III testing in Europe,
Australia and Israel. During the first nine months of 2002, the gross cost of
the project was $8.1 million. Total costs since the project entered Phase II
development in 1996 through September 30, 2002 are $22.8 million. Enrollment in
the current Phase III trial is expected to continue until the end of 2003. The
principal costs of completing the project include patient enrollment, production
of the drug product, collection and evaluation of the data, 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
sufficient quantities of drug product under current Good Manufacturing Practice
conditions. 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 can expect to
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, during the quarter ended September 30, 2002, the Company received
approval from Israel's Ministry of Health to commence a Phase IIa trial of
dexanabinol as a preventive agent against the mild cognitive impairment (MCI)
that can follow coronary surgery under cardiopulmonary bypass (CS-CPB)
operations. Enrollment of up to 200 patients with this trial is expected to
occur by year end. Expenses directly related to this project were not material
for the nine months ended September 30, 2002.

Expenses for other research & development projects in earlier stages of
development for the first nine months of 2002 and 2001 were $2,668,624 and
$2,713,973, respectively. Research and development expenses, net of grants, for
the first nine months of 2002 and 2001 were $10,016,149 and $6,322,910,
respectively. The company received from the Office of the Chief Scientist of
Israel's Ministry of Industry and Trade grant money of $2,031,891 and $721,844
during the first nine months of 2002 and 2001, respectively, which reduced the
research and development expenses.

Selling, general and administrative expenses increased by $89,928 or 3%, from
$2,817,717 in 2001 to $2,907,645 in 2002. The increase is due to higher
professional fees, consultants, and investor relations while offset by a
reduction in the overhead allocation.

Depreciation and amortization expenses increased by $23,976, or 5%, from
$492,811 in 2001 to $516,787 in 2002, reflecting increased depreciation expense
relating to laboratory equipment purchases.

Other expense, net, decreased by $183,233 or 36%, from $510,308 in 2001 to
$327,075 in 2002.The decrease was attributable to the lower debt payable at
September 30, 2002 resulting from (i) the conversion from debt to equity in the
first quarter of 2002 of $2.6 million of our Convertible Debentures issued in
2000, and (ii) the repayment of $2 million of the Convertible Debentures in the
first quarter of 2002. This conversion and repayment resulted in lower interest
expense.

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 $99.2 million at
September 30, 2002. The Company has financed its operations with public and
private offerings of securities, advances and other funding pursuant to a
marketing agreement with Bausch & Lomb, research contracts, license fees, sales
and interest income.


                                       12
<PAGE>


The Company had working capital of $12.7 million as of September 30, 2002
(excluding restricted cash of $1.8 million). Included in the current assets of
$26.6 million is $23.7 million related to cash and cash equivalents.

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 are made and marketed by Bausch & Lomb under a 1995 Marketing Agreement
with the Company; in addition, Bausch & Lomb also acquired future extensions of
LE 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.
Bausch & Lomb will pay the Company up to an additional maximum gross proceeds of
$14.7 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 September 1, 2002, the Company would have
received $14.7 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). 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 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. As of September 30,
2002, the Company's share of these research and development-related LE-T
expenses to date was estimated at approximately $1.2 million. 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 and
is included in restricted cash as of September 30, 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.

As of September 30, 2002, we had the following contractual commitments and
long-term obligations:

<TABLE>
<CAPTION>
                           Last three
                           months of
                              2002         2003         2004          2005     Thereafter     Total
                              ----         ----         ----          ----     ----------     -----
<S>                         <C>        <C>            <C>           <C>          <C>       <C>
Operating Leases            $125,640     $514,624     $372,316      $80,661      $71,103   $1,164,344
Convertible debentures,
excluding interest                      3,500,000                                           3,500,000
R&D commitments              190,437      190,437                                             380,874
                           --------------------------------------------------------------------------
     Grand total            $316,077   $4,205,061     $372,316      $80,661      $71,103   $5,045,218
</TABLE>

In its agreement with a clinical research organization that is assisting in the
European Phase III trials of dexanabinol for traumatic brain injury, the Company
is obligated to make certain periodic progress payments for services rendered
that are based on the number of patients enrolled in the trials. This
performance based agreement, if fully executed, currently totals $7.68 million.
The contract may be terminated at any time on thirty days' advance notice. As of
September 30, 2002, the Company has recognized $4.3 million as an expense.

Management believes that cash and cash equivalents of $23.7 million and the
total restricted cash balance of $1.8 million as of September 30, 2002, will be
sufficient to support the Company's continuing operations through early 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.


                                       13
<PAGE>


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 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
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.


                                       14
<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 within the 90-day period preceding the filing date of
            this quarterly report. 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.


                                       15
<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   Submissions of Matters to Vote of Security Holders

      At the Corporation's Annual Meeting of Stockholders held on July 11, 2002,
      the stockholders of the Corporation elected the following persons as
      directors of the Corporation to serve until the next annual meeting of
      stockholders and until their successors are duly elected and qualified:
      Haim Aviv, Elkan R. Gamzu, David Schlachet, Mony Ben Dor, Georges Anthony
      Marcel and Lawrence F. Marshall. The results of the voting were as
      follows:

                                          VOTES FOR          VOTES WITHHELD
                                          ---------          --------------
      Haim Aviv                           44,159,599            791,158
      Elkan R. Gamzu                      44,304,864            645,893
      Mony Ben Dor                        44,258,030            692,727
      David Schlachet                     44,316,980            633,777
      Georges Anthony Marcel              44,338,805            611,952
      Lawrence F. Marshall                44,353,455            597,302

      Also at the Annual Meeting, the stockholders approved the increase in the
      number of authorized shares of the Company's Common Stock to 110,000,000
      from 80,000,000 with 43,052,632 votes for approval, 1,852,180 votes
      against approval, and 45,945 abstentions.

      Further, the stockholders approved the Amendment of the 2000 Stock Plan,
      with 42,568,666 votes for approval, 2,352,236 votes against approval, and
      29,855 abstentions.

      Further, the stockholders ratified the Board's selection of
      PricewaterhouseCoopers LLP as the Corporation's independent auditors for
      the fiscal year ending December 31, 2002, with 44,658,928 votes for
      ratification, 161,174 votes against ratification, and 130,655 abstentions.

Item 5  Other Information                                            NONE

Item 6  Exhibits and Reports on Form 8-K

            (a)   Exhibits

            Number      Exhibit
            ------      --------
            3(i)        Certificate of Designation of the Voting Powers,
                        Designation, Preferences and Relative, Participating,
                        Optional or Other


                                       16
<PAGE>


                        Special Rights and Qualifications, Limitations and
                        Restrictions of the Series D Preferred Stock
                        (incorporated by reference to Exhibit A to Exhibit 99.2
                        to the Current Report on Form 8-K of Pharmos dated
                        October 24, 2002).

            3(ii)       Amended and Restated By-Laws (incorporated by reference
                        to Exhibit 99.4 to the Current Report on Form 8-K of
                        Pharmos dated October 24, 2002).

            10.1        Rights Agreement dated as of October 23, 2002 between
                        Pharmos Corporation and American Stock Transfer & Trust
                        Company, as Rights Agent (incorporated by reference to
                        Exhibit 99.2 to the Current Report on Form 8-K of
                        Pharmos dated October 24, 2002).

            99.1        Certification by Chief Executive Officer

            99.2        Certification by Chief Financial Officer

            (b)   Reports on Form 8-K

      On October 24, 2002, we filed a report on Form 8-K to disclose our
      adoption of a Shareholder Rights Plan and our entering into a Rights
      Agreement with respect to such Plan, as well as our adoption of amended
      and restated By-Laws.

      Under the Rights Agreement, each common stockholder of record as of the
      close of business on November 6, 2002, received a dividend of one right
      for each share of common stock held. Each right entitled the holder to
      purchase from the company one one-thousandth of a share of a new series of
      participating preferred stock at an initial purchase price of $15.00. The
      rights will become exercisable and will detach from the common stock for a
      specified period after any person or group, without the approval of the
      Corporation's board of directors, has become the beneficial owner of, or
      commences a tender offer or exchange offer for, 15% or more of the then
      outstanding shares of Pharmos common stock (subject to certain
      exceptions). A copy of the Rights Agreement, which fully describes the
      rights, is included as Exhibit 99.2 to the Current Report on Form 8-K
      dated October 24, 2002 filed by us with the SEC.


                                       17
<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 14, 2002
                                                by: /s/ Robert W. Cook
                                                ----------------------
                                                Robert W. Cook
                                                Executive Vice President and
                                                Chief Financial Officer
                                                (Principal Accounting and
                                                  Financial Officer)

In connection with the Quarterly Report of Pharmos Corporation (the "Company")
on Form 10-Q for the quarter ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned each hereby certifies, pursuant to 18 U.S.C ss.1350, as adopted
pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (i) the Report fully
complies with the requirements of section 13(a) of the Securities Exchange Act
of 1934; and (ii) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.

Dated: November 14, 2002
                                                /s/  HAIM AVIV
                                                -----------------------
                                                Haim Aviv
                                                Chief Executive Officer

                                                /s/  ROBERT W. COOK
                                                -----------------------
                                                Robert W. Cook
                                                Chief Financial Officer


                                       18