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

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

                      For the quarter ended March 31, 1998

                         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)

                         33 Wood Avenue South, Suite 466
                                Iselin, NJ 08830
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (732) 603-3526



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



As of May 7, 1998, the Registrant had outstanding  36,663,797 shares of its $.03
par value Common Stock.


<PAGE>



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

<TABLE>
<CAPTION>
                                                                    March 31,      December 31,
                                                                      1998            1997
<S>                                                               <C>             <C>         
Assets
   Cash and cash equivalents                                      $  5,579,262    $  4,423,389
   Inventory                                                         1,804,627       1,804,627
   Grants and other receivables                                        198,957         237,655
   Prepaid royalties                                                   143,333         143,333
   Prepaid expenses and other current assets                           255,239         171,299
                                                                  ------------    ------------
        Total current assets                                         7,981,417       6,780,303

   Fixed assets, net                                                   734,610         703,428
   Prepaid royalties, net of current portion                           573,334         573,334
   Intangible assets, net                                              287,385         291,262
   Other assets                                                         74,379          73,514
                                                                  ------------    ------------

        Total assets                                              $  9,651,125    $  8,421,841
                                                                  ============    ============


Liabilities and Shareholders' Equity
   Long term debt, current portion                                      42,077          55,253
   Accounts payable                                                    409,803       2,576,968
   Accrued expenses                                                    861,436         809,869
   Accrued wages and other compensation                                441,685         401,285
   Advances against future sales                                     1,000,000       1,000,000
                                                                  ------------    ------------
        Total current liabilities                                    2,755,002       4,843,375

   Advances against future sales, net of current portion             4,000,000       4,000,000
   Other liabilities                                                   100,000         100,000
                                                                  ------------    ------------
        Total liabilities                                            6,855,002       8,943,375
                                                                  ------------    ------------

   Shareholders' equity
   Preferred stock, $.03 par value, 1,250,000 shares authorized
    Series B convertible, with a $1,000 liquidation preference,
        0 and 2,755 shares outstanding, respectively                      --                83
    Series C convertible, with a $1,000 liquidation preference,
        5,000 and 0 shares outstanding, respectively                       150            --
   Common stock, $.03 par value; 60,000,000 shares authorized,
       36,265,119 and 34,391,638 shares issued and outstanding
       (excluding $551 in 1998 and 1997, held in Treasury)
       in 1998 and 1997, respectively                                1,087,402       1,031,197
     Paid in capital in excess of par                               75,410,994      70,516,913
     Accumulated deficit                                           (73,702,422)    (72,069,727)
                                                                  ------------    ------------
        Total shareholders' (deficit) equity                         2,796,124        (521,534)
                                                                  ------------    ------------

        Total liabilities and shareholders' equity                $  9,651,125    $  8,421,841
                                                                  ============    ============
</TABLE>

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


<PAGE>





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

<TABLE>
<CAPTION>
   
                                                              Three Months Ended
                                                           March 31,       March 31,
                                                             1998            1997
                                                         ------------    ------------
<S>                                                      <C>             <C>         
Expenses
   Research and development, net                         $  1,055,537    $  1,325,815
   Marketing expenses                                            --           569,981
   Patents                                                     49,631          32,388
   General and administrative                                 532,873         494,318
   Depreciation and amortization                               50,339          70,570
                                                         ------------    ------------

      Total operating expenses                              1,688,379       2,493,072
                                                         ------------    ------------

Loss from operations                                       (1,688,379)     (2,493,072)

Other income (expenses):
   Interest income                                            106,074          61,455
   Other income (expenses), net                                 7,203          (4,399)
   Interest expense                                            (2,821)           --
                                                         ------------    ------------
   Other income (expense), net                                110,456          57,056
                                                         ------------    ------------


Net loss                                                 ($ 1,577,923)   ($ 2,436,016)

Less: Dividend embedded in convertible preferred stock   ($   590,248)   ($   156,110)
        Preferred stock dividends                        ($   106,399)   ($    18,250)
                                                         ============    ============

Net loss applicable to common shareholders               ($ 2,274,570)   ($ 2,610,376)
                                                         ============    ============

Net loss per share applicable
    to common stockholders - basic and diluted           ($      0.06)   ($      0.08)
                                                         ============    ============


Weighted average shares outstanding-basic and diluted      35,549,037      31,016,871
                                                         ============    ============
</TABLE>
    

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


<PAGE>




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

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                         March 31,       March 31,
                                                           1998            1997
                                                       ------------    ------------
<S>                                                    <C>             <C>          
Cash flows from operating activities
  Net loss                                             ($ 1,577,923)   ($ 2,436,016)
                                                       ------------    ------------
  Adjustments to reconcile net loss to net
    cash flow used in operating activities
       Depreciation and amortization                         50,339          70,570
  Changes in operating assets and liabilities
       Grants receivable                                     38,698            --
       Prepaid expenses and other current assets            (83,940)        154,941
       Advanced royalties                                      --          (143,333)
       Other assets                                            (865)           --
       Accounts payable                                  (2,167,165)        522,417
       Accrued expenses                                      51,567         444,398
       Accrued wages                                         40,400            --
                                                       ------------    ------------

       Total adjustments                                 (2,070,964)      1,048,993
                                                       ------------    ------------

  Net cash flows used in operating activities            (3,648,888)     (1,387,023)
                                                       ------------    ------------

Cash flows from investing activities
     Purchases of fixed assets, net                         (77,644)        (35,901)
                                                       ------------    ------------

  Net cash flows used in investing activities               (77,644)        (35,901)
                                                       ------------    ------------

Cash flows from financing activities
     Proceeds from issuances of common stock
         and exercise of warrants, net                      237,088          67,500
     Proceeds from issuances of preferred stock, net      4,658,494       5,740,000
     Advances against future sales, net                        --         1,000,000
     Increase (decrease) in loans payable                   (13,176)        (14,166)
                                                       ------------    ------------

  Net cash flows provided by financing activities         4,882,405       6,793,334
                                                       ------------    ------------

Net increase (decrease) in cash and cash equivalents      1,155,873       5,370,411

Cash and cash equivalents at beginning of year            4,423,389       5,132,906
                                                       ------------    ------------

Cash and cash equivalents at end of period             $  5,579,262    $ 10,503,316
                                                       ============    ============
</TABLE>


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

<PAGE>


Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information  pursuant to the instructions to Form 10-Q and Article 10
of Regulation S-X.  Accordingly,  they do not include all of the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management, all adjustments,  consisting
of  normal  recurring  accrual  adjustments,  considered  necessary  for a  fair
presentation have been included.  Operating  results for the three-month  period
ended March 31, 1998, are not necessarily  indicative of the results that may be
expected for the year ended December 31, 1998,

1.    The Company

Pharmos Corporation (the "Company") is a bio-pharmaceutical company incorporated
under  the  laws of the  state  of  Nevada  and is  engaged  in the  design  and
development of novel pharmaceutical  products in various fields including:  site
specific drugs for ophthalmic indications,  neuroprotective agents for treatment
of central  nervous system ("CNS")  disorders,  systemic drugs designed to avoid
CNS related side effects,  and emulsion-based  products for topical and systemic
applications.   The  Company  uses  a  variety  of  patented   and   proprietary
technologies  to improve the  efficacy  and/or  safety of drugs.  The  Company's
compounds are in various  stages of  development,  from  preclinical to advanced
clinical  trials.  On March 9,  1998,  the  Company  received  approval  for two
separate  New  Drug   Applications   ("NDA")   from  the  U.S.   Food  and  Drug
Administration  ("FDA").  These  approvals were for  Lotemax(TM)  and Alrex(TM).
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.  In
conjunction  with its  development  efforts,  the  Company  has also  undertaken
research and  development  contracts in the past and has sold fine  chemicals to
the pharmaceutical research community.  The Company's administrative offices are
located in Iselin,  New Jersey and conducts  operations through its wholly owned
subsidiary, Pharmos, Ltd., in Rehovot, Israel.

2.    Liquidity and Business Risks

The Company currently has had no sources of recurring  revenues and has incurred
operating  losses since its  inception.  At March 31,  1998,  the Company has an
accumulated  deficit of  $73,702,422  (unaudited).  Such  losses  have  resulted
principally from costs incurred in research and development and from general and
administrative  expenses.  The Company had funded its operations through the use
of cash obtained  principally  from third party financing.  Management  believes
that cash and cash  equivalents  of $5.6 million as of March 31, 1998,  combined
with anticipated cash inflows,  including  revenues  expected to be derived from
sales of Lotemax  and Alrex will be  sufficient  to support  operations  through
first quarter of 1999. The Company's  success depends upon many factors that are
beyond the Company's  immediate control,  including market acceptance of Lotemax
and Alrex,  competition,  and the ability to obtain  additional  financing.  The
Company is continuing to actively  pursue  various  funding  options,  including
equity offerings,  strategic corporate alliances,  business combinations and the
establishment of research and development  partnerships to obtain the additional
financing  necessary to complete the  development of its product  candidates and
bring them to  commercial  markets.  There can be no  assurance  that Lotemax or
Alrex will achieve  market  acceptance or that the Company will be successful in
obtaining additional financing or commercializing its product candidate.


<PAGE>



3.    Significant Accounting Policies

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.

In accordance  with its  obligations  under the  Marketing  Agreements to supply
Bausch & Lomb with certain specified quantities of loteprednol etabonate ("LE"),
the active drug substance,  the Company  purchased  quantities of LE and smaller
quantities of a key reagent  required for the manufacture of LE in the amount of
$2,403,012.  Certain  quantities of LE, totaling $598,385  ($569,981 as of March
31,  1997) were  purchased  during  1997 for use in testing,  manufacturing  and
various marketing activities, and were charged to results of operations in 1997.
Purchases of  $1,804,627  of LE which were made  subsequent to the company being
advised  by the  FDA  that LE was an  approvable  drug  have  been  recorded  as
inventory at March 31, 1998.

Reclassifications

Certain  amounts for 1997 have been  reclassified  to conform to the fiscal 1998
presentation.  Such  reclassifications  did not have an impact on the  Company's
financial position or results of operations.

Recent Accounting Standards

Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income" ("SFAS 130")

On June 30,  1997,  the FASB  issued SFAS No. 130.  This  statement  establishes
standards for reporting and display of  comprehensive  income and its components
(revenues,  expenses,  gains  and  losses)  in a  full  set  of  general-purpose
financial statement. SFAS No. 130 requires that an enterprise (a) classify items
of other  comprehensive  income by their nature in a financial statement and (b)
display the accumulated  balance of other  comprehensive  income separately from
retained  earnings and  additional  paid-in-capital  in the equity  section of a
statement of financial position.

This statement is effective for fiscal years  beginning after December 15, 1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative  purposes is  required.  The adoption of SFAS No. 130 did not have a
material impact on the Company.

Statement of Financial  Accounting Standards No. 131, "Disclosure about Segments
of an  Enterprise"  ("SFAS 131") 

In June of 1997,  the FASB issued SFAS No. 131.  This  statement  requires  that
public business  enterprises report certain information about operating segments
in complete  sets of financial  statements  of the  enterprise  and in condensed
financial  statements of interim periods to shareholders.  It also requires that
enterprises  report certain  information about their products and services,  the
geographic areas in which they operate and their major customers. This statement
is effective for fiscal years  beginning  after  December 15, 1997. The adoption
did not have a significant impact on the Company.


<PAGE>



4.    Collaborative Agreements

In June 1995, the Company  entered into a marketing  agreement  (the  "Marketing
Agreement") wit Bausch & Lomb Pharmaceuticals,  Inc. ("Bausch & Lomb") to market
Lotemax,  on an exclusive  basis in the United States  following  receipt of FDA
approval.   The  Marketing   Agreement  also  covers  the  Company's  two  other
Loteprednol  etabonate-based  products, which are referred to as Alrex and LE-T.
Under the  Marketing  Agreement,  Bausch & Lomb will  purchase  the active  drug
substance  (loteprednol  etabonate)  from the Company.  Through  March 31, 1998,
Bausch & Lomb has provided the Company with $5 million in cash advances  against
future  sales.  An  additional  $1million is due upon the receipt of  regulatory
approval  for LE-T in the  United  States.  Bausch & Lomb  will be  entitled  to
credits against future  purchases or sales 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
advance  expected  to  be  recouped  by  Bausch  and  Lomb  in  1998,  based  on
management's  estimate  of  product  sales to  Bausch  & Lomb in 1998,  has been
presented as a current liability in the accompanying  balance sheet at March 31,
1998 and December 31, 1997.

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.

5.    Common and Preferred Stock Transactions

In January 1998, the  shareholders  of the Company  approved the increase in the
number of authorized  shares of common stock from  50,000,000 to 60,000,000  and
adopted the 1997  Incentive  and  Non-Qualified  Stock  Option  Plan,  which has
reserved for issuance up to 600,000  shares of common stock upon the exercise of
stock options to be granted to employees,  directors,  consultants and other key
personnel.

On  February  4,  1998,   the  Company   completed  a  private   placement  with
institutional  investors of Series C Convertible Preferred Stock and warrants to
purchase  650,000  shares of  common  stock,  generating  gross  proceeds  of $5
million.  The preferred stock carries a 5% premium payable in common stock,  and
is convertible in to common shares of the Company 60 days subsequent to the date
of  issuance.  For the period  ending 180 days after the date of  issuance,  the
conversion  price is 90% of the  average  of the low trade  prices of the Common
Stock for the five consecutive  trading days ending on the day immediately prior
to the conversion date (the "Variable Conversion Price"). Following such period,
the conversion  price is the lower of the Variable  Conversion Price  or 120% of
the average of the closing bid prices of the Common  Stock for the trading  days
beginning  on the date  which is 151 days,  and  ending on the date which is 180
days,  following the date of issuance.  Until  converted into common stock,  the
preferred  stock has no voting rights.  The warrants issued to the investors are
exercisable at prices ranging from $2.28 to $2.67 per share, commencing one year
after the closing for a three- year period.

During the first quarter of 1998,  the Company  issued  1,704,978  shares of its
common  stock  upon  conversion  of  2,755  shares  of the  Company's  Series  B
Convertible  Preferred  Stock.  The shares were issued  with  conversion  prices
ranging from $1.41 per share to $1.78 per share.  The Company also issued 34,904
shares of common  stock in payment  of  dividends  of the  Series B  Convertible
Preferred stock. As of the date of such issuances, these dividends are valued at
$68,624.

During the first  quarter of 1998,  the  Company  issued  133,599  shares of its
common  stock upon the  exercise of  warrants,  and  received  consideration  of
$237,088.

As of  March  31,  1998,  cumulative  dividends  in  arrears  on  the  Company's
outstanding Series C convertible 


<PAGE>

   
preferred  stock are $37,775.  The  dividends are payable in common stock of the
Company.  Additionally,  the Company has recorded a Preferred  Stock Dividend in
the amount of $68,624 ($18,250 as of March 31, 1997),  representing the value of
the common shares issued during the first quarter of 1998 upon conversion of the
remaining outstanding balance of 5% Series B Convertible Preferred Stock.

In connection with the issuances of the Series A, B and C convertible  preferred
stock, the Company was required to recognize in the EPS  calculation,  the value
of the  conversion  discount as a dividend to the  preferred  stockholders.  The
dividend has been recognized in the EPS calculation on a pro rata basis over the
period beginning with issuance to the date that conversion can occur. During the
quarter ended March 31, 1998, the Company recorded a preferred stock dividend of
$590,248  ($156,110  as  of  March  31,  1997)  on  the  outstanding  shares  of
convertible preferred stock in connection with the conversion discount.
    


Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Results of Operations

Quarters ended March 31, 1998 and 1997

Total operating  expenses  decreased $804,693 or 32%, from $2,493,072 in 1997 to
$1,688,379 in 1998. The decrease is primarily due to bulk material  purchases of
loteprednol  etabonate  ("LE"),  the active drug substance of Lotemax and Alrex,
made in the 1997 quarter. Reduced research and development expenses in 1998 also
contributed to lower total operating expenses.

Net research and  development  expenses  decreased  by  $270,278,  or 20%,  from
$1,325,815  in 1997 to  $1,055,537  in 1998.  The  decrease  in R&D  expense  is
primarily due to the closure of the  company's R&D  facilities in Florida in the
fourth quarter of 1997, partially offset by increased spending on Phase II human
clinical studies of the Company's dexanabinol (HU-211) product.

Marketing expenses  decreased by $569,981,  or 100%, from $569,981 in 1997 to $0
in 1998. In accordance  with its obligations  under the Marketing  Agreements to
supply  Bausch  &  Lomb  with  certain   specified   quantities  of  the  active
drug-substance,  the Company  purchased  bulk  quantities of LE in the amount of
$569,981 during the first quarter of 1997. These purchases were expensed in 1997
since the material is to be used in testing, manufacturing and various marketing
programs.

Patent expenses increased by $17,243, or 53%, from $32,388 in 1997 to $49,631 in
1998. This increase is due in part to the timing of completion of certain patent
applications.

General and  administrative  expenses increased by $38,555 or 8 %, from $494,318
in 1997 to $532,873 in 1998.  The increase is primarily due to costs  associated
with the  commencement  of  marketing of Lotemax and Alrex.  In March 1998,  the
Company,  together  with  Bausch & Lomb  Pharmaceuticals,  Inc.,  announced  the
receipt of approval from the Food and Drug  Administration  (FDA) to manufacture
and market Lotemax and Alrex.

Depreciation  and  amortization  expenses  decreased  by $20,231,  or 29%,  from
$70,570 in 1997 to  $50,339 in 1998,  reflecting  reduced  depreciation  expense
relating to the Alachua, Florida operation.

Other  income,  net,  increased  by  $53,400,  or 94%,  from  $57,056 in 1997 to
$110,456 in 1998.  Interest income  increased as a result of higher average cash
balances and net foreign exchange transaction gains.


<PAGE>


Liquidity and Capital Resources

The  Company  currently  has no  sources of  recurring  revenues,  has  incurred
operating losses since its inception and has financed its operations with public
and private  offerings of  securities,  advances and other  funding  pursuant to
marketing  and  co-development   agreements  with  Bausch  and  Lomb,   research
contracts, license fees, royalties and sales, and interest income.

The  Company  has  working  capital  of $5.2  million,  including  cash and cash
equivalents  of $5.6  million,  as of March 31,  1998.  On  February 4, 1998 the
Company completed a $5 million private placement of convertible  preferred stock
and  warrants.  Management  believes  that  existing  cash and cash  equivalents
combined with additional cash inflows from investment  income and R&D grants and
proceeds from sales of the drug substance for Lotemax and Alrex to Bausch & Lomb
will be sufficient to support  operations through the first quarter of 1999. The
Company will continue to actively  pursue  various  funding  options,  including
additional   equity   offerings,   strategic   corporate   alliances,   business
combinations  and the  establishment of product related research and development
limited  partnerships,  to obtain the additional  financing required to continue
the  development  of its  products  and bring them to  commercial  markets.  The
Company's  success  depends  upon many  factors  that are beyond  the  Company's
immediate   control,   including   market   acceptance  of  Lotemax  and  Alrex,
competition, and the ability to obtain financing. There can be no assurance that
Lotemax or Alrex will  achieve  market  acceptance  or that the Company  will be
successful  in  obtaining  additional   financing  or  commercializing   product
candidates.

Pursuant  to the U.S.  Marketing  agreement  with  Bausch & Lomb the Company has
received  cumulative  advances  from  Bausch & Lomb as of March  31,  1998 of $5
million. Bausch & Lomb will be entitled to recoup the advances by way of credits
from future sales of Lotemax, Alrex and line extension products. 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.


<PAGE>






                                     Part II

                                Other Information

Item 1       Legal Proceedings                                             NONE

Item 2       Changes in Securities                                         NONE

Item 3       Defaults upon Senior Securities                               NONE

Item 4       Submission of Matters to Vote of Security Holders             NONE

Item 5       Other Information                                             NONE

Item 6       Exhibits and Reports on Form 8-K

Reports on Form 8-K

The Company's Current Report on Form 8-K, dated February 4, 1998, filed pursuant
to Section 13 of the Exchange Act.

The Company's  Current Report on Form 8-K, dated March 10, 1998,  filed pursuant
to Section 13 of the Exchange Act.

Exhibits

None



<PAGE>



                                 SIGNATURE PAGE



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


                                           PHARMOS CORPORATION





Dated: May 12, 1998                  by:   /s/ Robert W. Cook
                                           ------------------
                                           Robert W. Cook
                                           Vice President  -  Finance and Chief
                                           Financial Officer