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, 2000

                         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, 2000, the Registrant had outstanding 53,879,343 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,
                                                                                                     2000                  1999
                                                                                                 -------------       --------------
<S>                                                                                              <C>                  <C>
Assets
   Cash and cash equivalents .............................................................       $  23,737,327        $   2,918,554
   Inventories ...........................................................................           1,114,423            1,837,751
   Receivables ...........................................................................           1,254,237              961,769
   Prepaid royalties .....................................................................             104,974              284,193
   Prepaid expenses and other current assets .............................................             310,759              222,391
                                                                                                 -------------        -------------
        Total current assets .............................................................          26,521,720            6,224,658

   Fixed assets, net .....................................................................           1,435,944            1,183,859
   Prepaid royalties, net of current portion .............................................             143,333              166,477
   Restricted cash .......................................................................           4,006,294                 --
   Other assets ..........................................................................             922,436              216,300
                                                                                                 -------------        -------------

        Total assets .....................................................................       $  33,029,727        $   7,791,294
                                                                                                 -------------        -------------


Liabilities and Shareholders' Equity
   Note payable ..........................................................................       $        --          $     338,128
   Accounts payable ......................................................................             299,499              680,054
   Accrued expenses ......................................................................             871,988              711,189
   Accrued wages and other compensation ..................................................             722,896              549,542
   Advances against future sales .........................................................             758,366            2,010,000
                                                                                                 -------------        -------------
        Total current liabilities ........................................................           2,652,749            4,288,913

   Advances against future sales, net of current portion .................................           1,000,000            1,177,565
   Convertible debentures, net ...........................................................           6,533,415                 --
   Other liabilities .....................................................................             100,000              100,000
                                                                                                 -------------        -------------
        Total liabilities ................................................................          10,286,164            5,566,478
                                                                                                 -------------        -------------


   Shareholders' equity
   Common stock, $.03 par value; 80,000,000 shares authorized, 53,879,343 and
       45,424,401 shares issued and outstanding (excluding $551 in 2000 and
       1999, held in Treasury)
       in 2000 and 1999, respectively ....................................................           1,616,016            1,362,181
     Paid in capital .....................................................................         107,913,889           83,372,742
     Accumulated deficit .................................................................         (86,786,342)         (82,510,107)
                                                                                                 -------------        -------------
        Total shareholders' equity .......................................................          22,743,563            2,224,816
                                                                                                 -------------        -------------

   Commitments and contingencies

        Total liabilities and shareholders' equity .......................................       $  33,029,727        $   7,791,294
                                                                                                 -------------        -------------
</TABLE>


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


                                       2

<PAGE>






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

<TABLE>
<CAPTION>

                                                                                             Three Months Ended September 30,
                                                                                               2000                        1999
                                                                                           ------------                ------------
<S>                                                                                        <C>                         <C>
Revenues
    Product sales ..........................................................               $  1,661,735                $    833,118
    License fee ............................................................                    100,000                        --
                                                                                           ------------                ------------
                                                                                              1,761,735                     833,118

Cost of Goods Sold .........................................................                    580,202                     265,649
                                                                                           ------------                ------------

    Gross Margin ...........................................................                  1,181,533                     567,469
                                                                                           ------------                ------------

Expenses
    Research and development, net ..........................................                  1,362,475                     839,390
    Selling, general and administrative ....................................                    999,987                     599,174
    Patents ................................................................                     46,536                      61,781
    Depreciation and amortization ..........................................                    167,620                      85,353
                                                                                           ------------                ------------

       Total operating expenses ............................................                  2,576,618                   1,585,698
                                                                                           ------------                ------------

Loss from operations .......................................................                 (1,395,085)                 (1,018,229)
                                                                                           ------------                ------------

Other income (expense):
    Interest income ........................................................                    314,905                      34,378
    Other income (expense), net ............................................                     (9,192)                     20,805
    Interest expense .......................................................                   (441,787)                     (9,239)
                                                                                           ------------                ------------
    Other income(expense), net .............................................                   (136,074)                     45,944
                                                                                           ------------                ------------

Net loss ...................................................................                 (1,531,159)                   (972,285)
                                                                                           ------------                ------------

    Less: Preferred stock dividends ........................................                       --                          (246)
                                                                                           ------------                ------------

Net loss applicable to common shareholders .................................               ($ 1,531,159)               ($   972,531)
                                                                                           ============                ============

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


Weighted average shares outstanding ........................................                 52,986,170                  43,664,398
                                                                                           ============                ============
</TABLE>


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,
                                                                                                 2000                     1999
                                                                                              ------------             ------------
<S>                                                                                           <C>                      <C>
Revenues
    Product sales ................................................................            $  3,740,152             $  2,024,329
    License fee ..................................................................                 100,000                     --
                                                                                              ------------             ------------
                                                                                                 3,840,152                2,024,329

Cost of Goods Sold ...............................................................               1,337,893                  564,444
                                                                                              ------------             ------------

    Gross Margin .................................................................               2,502,259                1,459,885
                                                                                              ------------             ------------

Expenses
    Research and development, net ................................................               3,733,144                2,591,722
    Selling, general and administrative ..........................................               2,838,476                1,844,477
    Patents ......................................................................                 128,433                  153,174
    Depreciation and amortization ................................................                 376,838                  253,464
                                                                                              ------------             ------------

       Total operating expenses ..................................................               7,076,891                4,842,837
                                                                                              ------------             ------------

Loss from operations .............................................................              (4,574,632)              (3,382,952)
                                                                                              ------------             ------------

Other income (expense):
    Interest income ..............................................................                 739,345                   97,523
    Other income (expense), net ..................................................                  (2,370)                  (1,881)
    Interest expense .............................................................                (438,578)                 (21,151)
                                                                                              ------------             ------------
    Other income, net ............................................................                 298,397                   74,491
                                                                                              ------------             ------------

Net loss .........................................................................              (4,276,235)              (3,308,461)

    Less: Dividend embedded in convertible preferred stock
    Preferred stock dividends ....................................................                    --                    (22,253)
                                                                                              ------------             ------------

Net loss applicable to common shareholders .......................................            ($ 4,276,235)            ($ 3,330,714)
                                                                                              ============             ============

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


Weighted average shares outstanding ..............................................              51,506,739               42,104,485
                                                                                              ============             ============
</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,
                                                                                                  2000                     1999
                                                                                             ------------              ------------
<S>                                                                                          <C>                       <C>
Cash flows from operating activities
  Net loss .....................................................................             ($ 4,276,235)             ($ 3,308,461)
                                                                                             ------------              ------------
  Adjustments to reconcile net loss to net
    cash flow used in operating activities
       Depreciation and amortization ...........................................                  376,838                   253,464
  Changes in operating assets and liabilities
       Inventory ...............................................................                  723,328                  (352,539)
       Receivables .............................................................                 (292,468)                  114,597
       Prepaid expenses and other current assets ...............................                  (88,368)                 (157,295)
       Advanced royalties ......................................................                  202,363                   115,499
       Other assets ............................................................                     --                       2,203
       Accounts payable ........................................................                 (380,555)                 (237,626)
       Accrued expenses ........................................................                  160,799                  (253,312)
       Accrued wages ...........................................................                  173,354                    51,910
                                                                                             ------------              ------------

       Total adjustments .......................................................                  875,291                  (463,099)
                                                                                             ------------              ------------

  Net cash flows used in operating activities ..................................               (3,400,944)               (3,771,560)
                                                                                             ------------              ------------

Cash flows from investing activities
     Purchases of fixed assets, net ............................................                 (550,440)                 (189,351)
                                                                                             ------------              ------------

  Net cash flows used in investing activities ..................................                 (550,440)                 (189,351)
                                                                                             ------------              ------------

Cash flows from financing activities
     Advances against future sales, net ........................................               (1,429,199)                 (741,915)
     Proceeds from issuances of common stock,
         exercise of warrants and value ascribed to the
         beneficial conversion feature, net ....................................               22,219,549                      --
     Proceeds from exercise of equity credit line ..............................                2,145,905                 3,903,014
     Increase in debt payable,net ..............................................                 (338,128)                  438,781
     Increase convertible debentures, net ......................................                6,178,324                      --
     Increase in restricted cash ...............................................               (4,006,294)                     --
                                                                                             ------------              ------------

  Net cash flows provided by financing activities ..............................               24,770,157                 3,599,880
                                                                                             ------------              ------------

Net increase (decrease) in cash and cash equivalents ...........................               20,818,773                  (361,031)

Cash and cash equivalents at beginning of year .................................                2,918,554                 3,452,916
                                                                                             ------------              ------------

Cash and cash equivalents at end of period .....................................             $ 23,737,327              $  3,091,885
                                                                                             ============              ============
</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,
     2000,  are not  necessarily  indicative of the results that may be expected
     for the year ended December 31, 2000.


1.   The Company

     Pharmos  Corporation (the "Company") is a  bio-pharmaceutical  company that
     develops and  commercializes  products for the ophthalmic,  central nervous
     system,  neurological and other key healthcare  markets.  The Company has a
     diverse  product  pipeline  that includes  marketed  products with superior
     therapeutic indices, and drug candidates with enhanced molecular structures
     that display  improved  safety and/or efficacy  properties  compared to the
     parent  molecules  or to  competing  products.  The Company  has  executive
     offices in Iselin,  New Jersey and also  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").
     These approvals were for Lotemax(R) and Alrex(R). Lotemax has been approved
     for the treatment of several  ocular  inflammatory  indications,  including
     uveitis, and for post-operative  inflammation.  Alrex has been approved for
     the treatment of seasonal allergic conjunctivitis.


2.   Liquidity and Business Risks

     While the Company has  generated  revenue  through the sale of its approved
     products  in the  market,  it  has  incurred  operating  losses  since  its
     inception. At September 30, 2000, the Company has an accumulated deficit of
     $86,786,342.  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 debt and equity financing. Management believes
     that cash and cash  equivalents  of $23.7 million as of September 30, 2000,
     combined with restricted  cash and  anticipated  cash inflows from revenues
     derived  from  sales of  Lotemax  and  Alrex,  can  support  the  Company's
     continuing operations.

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




                                       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  principally  derived
     from one customer.

Inventories

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

Reclassifications

     Certain  amounts for 1999 have been  reclassified  to conform to the fiscal
     2000  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 third loteprednol etabonate based product, LE-T. Under
     the Marketing Agreement,  Bausch & Lomb purchases 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, 2000,  Bausch and Lomb has provided the Company with
     $5 million in cash advances  against future sales,  of which  approximately
     $1.8 million was  outstanding  at  September  30, 2000.  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  following  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, 2000 and December 31, 1999.

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

5.   Private Placement

     In September 2000, the Company completed a private placement of Convertible
     Debentures,  common stock and  warrants to purchase  shares of common stock
     with institutional investors, generating gross proceeds of $11 million.

     The Convertible  Debentures,  which generated gross proceeds of $8 million,
     are due in February 2002 and carry a 6% interest  payable in cash or common
     stock. The Convertible Debentures are convertible into common shares of the
     Company  at the  conversion  price of $3.83 per  share and are  convertible
     beginning  October 31, 2000. Under


                                       7
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

     certain  anti-dilutive  conditions,  the conversion price may change. Until
     converted  into  common  stock,  the  terms of the  Convertible  Debentures
     require  the  Company  to deposit  $4  million  in an escrow  account.  The
     escrowed capital is shown as Restricted Cash on the Company's Balance Sheet
     and  will be  released  to the  Company  in  proportion  to the  amount  of
     Convertible  Debentures  converted into common shares or upon the repayment
     of the debt.

     Current  accounting  standards,  including Emerging Issues Task Force Issue
     No. 98-5, Accounting for Convertible  Securities with Beneficial Conversion
     Features or Contingently  Adjustable Conversion Ratios, require the company
     to compute the Beneficial  Conversion  Feature  ("BCF") of the  convertible
     debt. The BCF must be capitalized and amortized from the closing date until
     the  earliest  date that the  investors  have the right to convert the debt
     into common  shares.  The BCF was computed at  approximately  $1.1 million,
     $355,091 of which has been  amortized and included as interest  expense for
     the three and nine month periods ending  September 30, 2000.  Additionally,
     the  discount on the  Convertible  Debenture  will be amortized to interest
     expense   over  the  life  of  the  debt.   This  amount  was  computed  at
     approximately  $ .8  million,  $44,494  of  which  has been  amortized  and
     included as interest  expense for the three and nine month  periods  ending
     September 30, 2000.

     The Company  issued  821,515  common shares in the private  placement  that
     generated gross proceeds of $3 million. Under the terms of the transaction,
     the number of shares is subject to a possible one-time adjustment which, if
     effected,  would not change the proceeds to the Company. The investors have
     an option,  in the form of a warrant,  to purchase an additional $2 million
     of common shares for a period of one year provided that the future purchase
     price is greater  than the initial  closing  price of $3.65 per share.  The
     maximum  number of shares that can be issued  from this  warrant is 547,945
     and is part of the maximum number of warrants  issued for the total private
     placement of 1,115,730, including placement agent warrants.

     Issuance costs related to the Convertible  Debentures of approximately  $.8
     million,  including the value of 187,929 warrants to purchase common shares
     at prices ranging from $4.34 to $4.56, have been capitalized.  The issuance
     costs are included in the Company's Other Assets and will be amortized over
     the life of the debt. For the three and nine month periods ending September
     30, 2000, $43,590 has been expensed.

6.   Common and Preferred Stock Transactions

     During the third quarter of 2000, the Company  issued  warrants to purchase
     up to  1,115,730  shares of common  stock at prices  ranging  from $3.65 to
     $6.08 per share and  expiring in 2001 and 2005 in  connection  with the $11
     million private placement described in Note 5.

     During the third quarter of 2000,  the Company issued 374,525 shares of its
     common stock upon the exercise of stock options and warrants,  and received
     consideration of $687,391.

     During the second  quarter of 2000, the Company issued 55,750 shares of its
     common stock upon the exercise of stock options and warrants,  and received
     consideration of $334,061.

     During the first quarter of 2000,  the Company issued  4,500,000  shares of
     its  common  stock  in  various   private   equity   sales,   and  received
     consideration, net of offering costs and expenses, of $12,648,383.

     During the first quarter of 2000,  the Company issued  2,184,728  shares of
     its common  stock upon the  exercise  of stock  options and  warrants,  and
     received consideration of $4,035,855.

     The Company  entered into a Private  Equity Line of Credit  Agreement  (the
     "Credit Agreement") as of December 10, 1998, and 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%


                                       8
<PAGE>

Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

     of the closing bid price of the Common Stock on the  Principal  Market on a
     specified date. As of September 30, 2000, $1.7 million  remained  available
     under the equity line of credit.

     During the second quarter of 2000, under terms of the Credit Agreement, the
     Company  issued 150,000 shares of its Common Stock and warrants to purchase
     12,574  shares of its Common  Stock to the Investor  for  consideration  of
     $553,655,  net of fees.  The warrants  have an exercise  price of $5.00 per
     share and expire in the second quarter of 2003.

     During the first quarter of 2000, under terms of the Credit Agreement,  the
     Company  issued 368,424 shares of its Common Stock and warrants to purchase
     38,588  shares of its Common  Stock to the Investor  for  consideration  of
     $1,592,250,  net of fees.  The warrants have exercise  prices  ranging from
     $2.19 to $16.80 per share and expire in the first quarter of 2003.

     During the third quarter of 2000, the Company  issued  warrants to purchase
     8,000  shares of its common  stock as  compensation  to a  consultant.  The
     warrants were immediately exercisable,  have an exercise price of $1.19 per
     share and expire by August 2005.

     During the second quarter of 2000, the Company issued  warrants to purchase
     16,000  shares of its common stock as  compensation  to a  consultant.  The
     warrants were immediately exercisable,  have an exercise price of $1.19 per
     share and expire by June 2005.

     During the first quarter of 2000, the Company  issued  warrants to purchase
     8,000  shares of its common  stock as  compensation  to a  consultant.  The
     warrants were immediately exercisable,  have an exercise price of $1.19 per
     share and expire by February 2005.

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,
     2000 and 1999 are as follows:

<TABLE>
<CAPTION>

                                                    Three months ended September 30,               Nine months ended September 30,
                                                   ----------------------------------            ----------------------------------
                                                       2000                  1999                    2000                  1999
                                                       ----                  ----                    ----                  ----
<S>                                                <C>                    <C>                    <C>                    <C>
Net revenues
  United States ........................           $ 1,761,735            $   833,118            $ 3,840,152            $ 2,024,329
  Israel ...............................                  --                     --                     --                     --
                                                   -----------            -----------            -----------            -----------
                                                   $ 1,761,735            $   833,118            $ 3,840,152            $ 2,024,329
                                                   ===========            ===========            ===========            ===========
Net loss
  United States ........................           ($1,432,454)           ($  960,662)           ($4,000,498)           ($3,255,628)
  Israel ...............................               (98,705)               (11,623)              (275,737)               (52,833)
                                                   -----------            -----------            -----------            -----------

                                                   ($1,531,159)           ($  972,285)           ($4,276,235)           ($3,308,461)
                                                   ===========            ===========            ===========            ===========
</TABLE>


                                       9

<PAGE>




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

Results of Operations

Quarters ended September 30, 2000 and 1999

Product sales revenue  totaled  $1,661,735  for the quarter ended  September 30,
2000  compared to $833,118 for the quarter ended  September 30, 1999.  Increased
sales  volumes  resulted  from market share growth and price  increases  for the
Company's  ophthalmic  products,  Lotemax and Alrex.  Additionally,  the Company
recorded License revenue of $100,000 for the quarter ended September 30, 2000.

Cost of goods sold for the quarter  ended  September  30, 2000 totaled  $580,202
compared to $265,649 for the quarter  ended  September  30,  1999.  The increase
reflects the higher sales  volumes.  Cost of goods sold includes the cost of the
active drug substance and licensing costs.

Total operating  expenses  increased $990,920 or 62%, from $1,585,698 in 1999 to
$2,576,618  in 2000.  The  increase  is  primarily  due to higher  research  and
development expenses,  increased general and administrative  expenses and higher
amortization and depreciation expenses.

Net  research  and  development  expenses  increased  by $523,085  or 62%,  from
$839,390 in 1999 to $1,362,475 in 2000. The increase in R&D expense is primarily
due a higher level of activity in the Company's  dexanabinol  analog program and
increased  expenses  relating to its  development of  dexanabinol  for traumatic
brain  injury.  Dexanabinol  is a  neuroprotective  agent for the  treatment  of
central  nervous  system  ("CNS")  disorders.  Additionally,   spending  on  the
Company's discovery and early stage programs increased.

General and administrative  expenses increased by $400,813 or 67%, from $599,174
in 1999 to $999,987 in 2000.  The increase is primarily  due to higher  staffing
costs and increased investor relations activity.

Depreciation  and  amortization  expenses  increased  by $82,267,  or 96%,  from
$85,353  in  1999  to  $167,620  in  2000.  The  increase   reflects   increased
depreciation expense relating to laboratory equipment purchases.

Other income, net, decreased by $182,018,  from net income of $45,944 in 1999 to
a net charge of $136,074 in 2000. While interest income increased  significantly
as a result of higher average cash balances, the increases were more than offset
by the  non-cash  charges of $399,585  for the  amortization  of the  Beneficial
Conversion  Feature  and  the  debt  discount  from  the  private  placement  of
convertible debentures in September 2000.

Nine months ended September 30, 2000 and 1999

Product sales revenue totaled $3,740,152 for the nine months ended September 30,
2000  compared to  $2,024,329  for the nine months  ended  September  30,  1999.
Increased sales volumes  resulted from market share growth and higher prices for
the Company's ophthalmic products, Lotemax and Alrex. Additionally,  the Company
recorded  license  income of $100,000  for the nine months ended  September  30,
2000.

Cost of  goods  sold  for the nine  months  ended  September  30,  2000  totaled
$1,337,893  compared to $564,444 for the nine months ended  September  30, 1999.
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.

Total operating expenses increased $2,234,054 or 46%, from $4,842,837 in 1999 to
$7,076,891  in 2000.  The  increase  is  primarily  due to higher  research  and
development expenses and increased general and administrative expenses.




                                       10
<PAGE>

Net research and  development  expenses  increased by  $1,141,422,  or 44%, from
$2,591,722  in 1999 to  $3,733,144  in 2000.  The  increase  in R&D  expense  is
primarily due to a higher level of activity in the Company's  dexanabinol analog
program and increased  expenses  relating to its  development of dexanabinol for
traumatic  brain  injury,  as  well  as  additional  spending  on the  Company's
discovery and early stage programs.

General  and  administrative   expenses  increased  by  $993,999  or  54%,  from
$1,844,477  in 1999 to  $2,838,476  in 2000.  The increase is  primarily  due to
higher staffing costs and increased investor relations activity.

Depreciation  and  amortization  expenses  increased by $123,374,  or 49%,  from
$253,464 in 1999 to $376,838 in 2000, reflecting increased  depreciation expense
relating to laboratory  equipment  purchases.  The increase  reflects  increased
depreciation expense relating to laboratory equipment purchases.

Other income,  net,  increased by $223,906,  from $74,491 in 1999 to $298,397 in
2000.  Interest income  increased by $641,823 as a result of higher average cash
balances.  However,  the increased  interest income was partially  offset by the
non-cash charges of $399,585 for the  amortization of the Beneficial  Conversion
Feature  and the  debt  discount  from  the  private  placement  of  convertible
debentures in September 2000.

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, 2000,  the Company has an  accumulated  deficit of
$86,786,342.  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 $23.9  million,  including  cash and cash
equivalents of $23.7 million,  as of September 30, 2000. The Company also had $4
million  of  restricted  cash held in escrow  until  the  Company's  convertible
debentures  are  converted  into common shares of the Company by the investor or
are repaid by the  Company.  On December 10,  1998,  the Company  obtained a $10
million  equity  line of  credit  with a single  institutional  investor.  As of
September 30, 2000,  $1.7 million  remained  available  under the equity line of
credit.

On September 1, 2000, the Company  completed a private  placement of convertible
debentures,  common stock and  warrants to purchase  shares of common stock with
institutional  investors,  generating  total gross proceeds of $11 million.  The
convertible debentures, which generated gross proceeds of $8 million, are due in
February  2002 and carry a 6%  interest  payable  in cash or common  stock.  The
convertible  debentures are convertible into common shares of the Company at the
conversion  price of $3.83 per share and are convertible  beginning  October 31,
2000. Under certain anti-dilutive  conditions,  the conversion price may change.
The issuance of common shares in the private placement  generated gross proceeds
of $3  million.  The  investors  have an option,  in the form of a  warrant,  to
purchase  an  additional  $2 million  of common  shares for a period of one year
provided  that the future  purchase  price is greater  than the initial  closing
price of $3.65 per share.

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 the Company's regular operations.  The Company
expects to commence  the final phase of clinical  development  on the  Company's
dexanabinol  (HU-211) drug candidate in the near future.  The total cost of this
phase of  development  is expected to range  between $15 million and $25 million
over the next 3 years. The Company  continues to actively pursue various funding
options,  including strategic corporate alliances,  additional equity offerings,
business  combinations  and the  establishment  of product related  research and
development  limited  partnerships,  to obtain the additional  financing that is
required  to  continue  the  development  of its  products  and  bring  them  to
commercial markets.


                                       11
<PAGE>

Statements made in this document related to the  development,  commercialization
and market expectations of its drug products,  to the establishment of corporate
collaborations, and to the Company's operational projections are forward-looking
and are made pursuant to the safe harbor provisions of the Securities Litigation
Reform Act of 1995. Such statements involve risks and  uncertainties,  which may
cause results to differ  materially from those,  set forth in these  statements.
Among the factors that could result in a  materially  different  outcome are the
inherent   uncertainties   accompanying  new  product  development,   action  of
regulatory  authorities and the results of further trials.  Additional economic,
competitive, governmental, technological, marketing and other factors identified
in Pharmos'  filings with the  Securities and Exchange  Commission  could affect
such results.






                                     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

     (a)  Exhibits:

                   None.

     (b)  Reports on Form 8-K:

                    1. Form 8-K dated September 8, 2000 (earliest event reported
                    September 1, 2000); Item 5 was reported.





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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 14, 2000                        by:  /s/ Robert W. Cook
                                                     ------------------
                                                     Robert W. Cook
                                                     Vice President Finance and
                                                     Chief Financial Officer
                                                     (Principal Accounting and
                                                       Financial Officer)





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