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, 2003

                         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 |_|.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|.

As of May 12, 2003 the Registrant had outstanding 61,627,687 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>
                                                                      March 31,      December 31,
                                                                        2003             2002
                                                                   -------------    -------------
<S>                                                                 <C>              <C>
Assets
   Cash and cash equivalents                                         $16,600,400      $19,579,287
   Other receivables                                                     709,751          698,800
   Restricted cash                                                            --        2,199,999
   Prepaid expenses and other current assets                             396,813          323,991
                                                                   -------------    -------------
        Total current assets                                          17,709,964       22,802,077

   Fixed assets, net                                                   1,634,712        1,792,322
   Restricted cash                                                        60,000           60,000
   Other assets                                                           32,283           32,283
                                                                   -------------    -------------

        Total assets                                                 $19,433,959      $24,686,682
                                                                   =============    =============

Liabilities and Shareholders' Equity
   Accounts payable                                                   $3,768,723       $3,742,460
   Accrued expenses                                                    2,853,440        3,241,581
   Accrued wages and other compensation                                  996,309          999,647
   Convertible debentures, net                                                --        3,446,658
                                                                   -------------    -------------
        Total current liabilities                                      7,618,472       11,430,346

   Other liability                                                        10,000           10,000
                                                                   -------------    -------------
        Total liabilities                                              7,628,472       11,440,346
                                                                   -------------    -------------

   Commitments and contingencies

   Shareholders' equity
   Preferred stock, $.03 par value, 1,250,000 shares authorized,
   none issued and outstanding
   Common stock, $.03 par value; 110,000,000 shares authorized,
   61,624,687 and 56,560,660 issued and outstanding
   (excluding, $426 (14,189 shares in 2003 and 2002), held in
   Treasury) in 2003 and 2002, respectively                            1,848,741        1,696,820
   Deferred compensation                                                (106,656)        (119,988)
   Paid in capital                                                   117,080,661      114,187,558
   Accumulated deficit                                              (107,017,259)    (102,518,054)
                                                                   -------------    -------------
        Total shareholders' equity                                    11,805,487       13,246,336
                                                                   -------------    -------------

        Total liabilities and shareholders' equity                   $19,433,959      $24,686,682
                                                                   =============    =============
</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 March 31,
                                                              2003            2002
                                                          ------------    ------------
<S>                                                         <C>             <C>
Revenues                                                            --              --

Expenses
    Research and development, net of grants                 $4,039,065      $3,683,793
    Selling, general and administrative                        852,899         893,383
    Depreciation and amortization                              171,616         174,912
                                                          ------------    ------------

       Total operating expenses                              5,063,580       4,752,088
                                                          ------------    ------------

Loss from operations                                        (5,063,580)     (4,752,088)

Other income (expense)
    Interest income                                            846,511         169,981
    Other (expense) income                                     (18,516)         11,327
    Interest expense                                          (263,620)       (397,289)
                                                          ------------    ------------
    Other income (expense), net                                564,375        (215,981)
                                                          ------------    ------------

Net loss                                                   ($4,499,205)    ($4,968,069)
                                                          ============    ============

Net loss per share
    - basic and diluted                                          ($.08)          ($.09)
                                                          ============    ============

Weighted average shares outstanding - basic and diluted     58,303,145      56,452,044
                                                          ============    ============
</TABLE>

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


                                       3
<PAGE>


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

<TABLE>
<CAPTION>
                                                                  Three Months Ended March 31,
                                                                      2003            2002
                                                                  ------------    ------------
<S>                                                                <C>             <C>
Cash flows from operating activities
  Net loss                                                         ($4,499,205)    ($4,968,069)
   Adjustments to reconcile net loss to net
    cash  used in operating activities
       Depreciation and amortization                                   171,616         174,912
       Reversal of beneficial conversion feature                      (786,000)             --
       Change in the value of warrants                                 (43,365)
       Amortization of debt discount and issuance costs                 53,342         232,394
       Amortization of fair value of change in convertible debt         68,808         110,583
       Amortization of stock options issuances below fair
         market value                                                   13,332          12,973
       Non-cash compensation charge - consultant compensation            1,837          39,319
  Changes in operating assets and liabilities
       Other receivables                                               (10,951)        (33,712)
       Prepaid expenses and other current assets                       (72,822)        530,941
       Accounts payable                                                 26,263      (1,739,735)
       Accrued expenses                                               (738,483)         46,613
       Accrued wages and other compensation                             (3,338)        (73,376)
                                                                  ------------    ------------

  Net cash used in operating activities                             (5,818,966)     (5,667,157)
                                                                  ------------    ------------

Cash flows from investing activities
     Purchases of fixed assets                                         (14,006)       (184,178)
                                                                  ------------    ------------

  Net cash used in investing activities                                (14,006)       (184,178)
                                                                  ------------    ------------

Cash flows from financing activities
     Proceeds from issuance of common stock, net                     4,154,086              --
     Fees related to refinancing convertible debt                           --        (163,000)
     Repayment of convertible debentures                            (3,500,000)     (2,000,000)
     Decrease in restricted cash                                     2,199,999       3,605,474
                                                                  ------------    ------------

Net cash provided by financing activities                            2,854,085       1,442,474
                                                                  ------------    ------------

Net decrease in cash and cash equivalents                           (2,978,887)     (4,408,861)

Cash and cash equivalents at beginning of year                      19,579,287      35,269,114
                                                                  ------------    ------------

Cash and cash equivalents at end of period                         $16,600,400     $30,860,253
                                                                  ============    ============

Supplemental information:
  Interest paid                                                       $525,448        $175,165
Supplemental disclosure of non-cash financing activities:
  Conversion of convertible debt and interest to equity                             $2,617,593
  Issuance of warrants in connection with the private placement       $393,707              --
</TABLE>

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


                                       4
<PAGE>


Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

Basis of Presentation

      The accompanying unaudited condensed consolidated financial statements
      have been prepared in accordance with generally accepted accounting
      principles for interim financial information pursuant to the instructions
      to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
      include all of the information and footnotes required by generally
      accepted accounting principles for complete financial statements. In the
      opinion of management, all adjustments, consisting of normal recurring
      accrual adjustments, considered necessary for a fair presentation have
      been included. Operating results for the three-month period ended March
      31, 2003, are not necessarily indicative of the results that may be
      expected for the year ended December 31, 2003.

      1.    The Company

      Pharmos Corporation (the "Company") is a bio-pharmaceutical company that
      discovers and develops new drugs to treat a range of inflammatory, pain
      and neurological disorders. Although the Company does not currently have
      any approved products, we have a 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 February 2003, the FDA accepted the Company's Investigational New Drug
      (IND) application to begin U.S. patient enrollment into the pivotal Phase
      III clinical trial of dexanabinol for severe traumatic brain injury. The
      Company estimates a total of up to 20 U.S. trauma centers will join the
      more than 60 centers in Europe, Israel and Australia already participating
      in the study.

      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 in July 2002. In March 2003,
      the Company commenced dosing patients. This trial is being conducted at
      three leading medical centers in Israel. The exploratory, Phase IIa, trial
      will enroll up to 200 patients undergoing CS-CPB.

      In October 2001, the Company sold its ophthalmic product line that
      included Lotemax(R) and Alrex(R), two products commercially marketed by
      Bausch & Lomb, 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 and was not profitable in 2002 and the first
      quarter of 2003. During 2001, the Company recorded net income due to the
      nonrecurring sale of its ophthalmic product line. At March 31, 2003, the
      Company has an accumulated deficit of $107.0 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 cash and cash equivalents of $16.6
      million as of March 31, 2003, will be sufficient to support the Company's
      continuing operations into the first quarter 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.


                                       5
<PAGE>


Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

      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-month period ending March 31, 2003 and 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.

      Equity based compensation

      The Company accounts for its employee stock option plans in accordance
      with the provisions of Accounting Principles Board Opinion No. 25,
      "Accounting for Stock Issued to Employees", and related interpretations.
      As such, compensation expense related to employee stock options is
      recorded if, on the date of grant, the fair value of the underlying stock
      exceeds the exercise price. The Company adopted the disclosure-only
      requirements of SFAS No. 123, " Accounting for Stock-Based Compensation",
      which allows entities to continue to apply the provisions of APB Opinion
      No. 25 for transactions with employees and provide pro forma operating
      results and pro forma per share disclosures for employee stock grants as
      if the fair-value-based method of accounting in SFAS No. 123 has been
      applied to these transactions. Options issued to non-employees are valued
      using the fair value methodology under SFAS 123.

      The following table illustrates the effect on income from continuing
      operations and earnings per share if the Company had applied the fair
      value recognition provisions of SFAS No. 123 to stock-based employee
      compensation. The estimated fair value of each option is calculated using
      the Black-Scholes option-pricing model.

                                                    Quarter End March 31,
                                                     2003           2002
                                                     ----           ----
          Net (loss) as reported                 ($4,499,205)   ($4,968,069)

          Add: Stock-based employee
          compensation expense included in
          reported net income                         13,332         12,973
          Deduct: Total stock-based employee
          compensation expense determined
          under fair value based method for
          all awards                                (237,749)      (239,510)
                                                 -----------    -----------
          Pro forma net (loss)                   ($4,723,622)   ($5,194,606)
                                                 ===========    ===========
          Earnings per share:
          Basic and diluted- as reported              ($0.08)        ($0.09)
          Basic  and diluted - pro forma              ($0.08)        ($0.09)

      For disclosure purposes under SFAS No. 123, the fair value of each option
      grant was estimated on the date of grant using the Black-Scholes option
      valuation model with the following weighted-average assumption:

                                               Quarter Ended March 31,
                                                  2003        2002
                                                  ----        ----
      Risk-interest rate                          2.88%       4.34%
      Expected lives (in years)                    5           5
      Dividend yield                               0%          0%
      Expected volatility                         75%         75%


                                       6
<PAGE>


Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

      4.    Net Loss Per Common Share

      Basic and diluted net loss per common share was computed by dividing the
      net loss for the period by the weighted average number of shares of common
      stock issued and outstanding. 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 March 31, 2003
      and 2002 had been converted.

                                                             2003         2002
                                                          ---------    ---------
      Stock options                                       4,017,830    3,233,505
      Warrants                                            2,787,693    2,334,830
      Shares issuable upon exercise of convertible debt          --    1,373,243
                                                          ---------    ---------
      Total potential dilutive securities assuming the
      Company was in an income position                   6,805,523    6,941,578


      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.

      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 the 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 date of FDA
      marketing approval as follows: If the earlier of (a) commercial launch or
      (b) 6 months after FDA approval of LE-T (the "Triggering Event") occurred
      before January 1, 2002 the Company was initially to receive $15.4 million.
      That amount has been reducing by $90,000 for each month of 2002 and 2003
      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 the Company receives as a
      result of the contingent payment. The Triggering Event has not yet
      occurred, and there is no assurance that FDA approval will be obtained.

      Upon FDA approval, 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


                                       7
<PAGE>


Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

      $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 March 31, 2003, the Company's share of these
      research and development-related LE-T expenses to date was approximately
      $3.1 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 March 4, 2003, the Company completed a private placement to sell common
      shares and warrants to eight investors, generating total gross proceeds of
      $4.3 million under a shelf registration. The private placement offering
      was completed by issuing 5,058,827 shares of common stock at a price of
      $0.85 per share (the fair market value on March 4, 2003) and 1,141,182
      warrants at an exercise price of $1.25 per share, which includes 129,412
      placement agent warrants. Issuance costs of approximately $150,000 in cash
      and $45,000 for the value of the placement agent warrants were recorded as
      a debit to additional paid in capital.

      According to EITF 00-19, the issued warrants meet the requirements of and
      will be accounted for as a liability since registered shares must be
      delivered upon settlement. The Company calculated the value of the
      warrants, including the placement agent warrants, to be approximately
      $394,000 under the Black-Scholes option-pricing method (assumption:
      volatility 75%, risk free rate 2.88% and zero dividend yield). The value
      of the warrants will be marked to market each reporting period until
      exercised or expiration.

      During 2003, the Company issued 5,200 shares of common stock with gross
      proceeds of $3,515 pursuant to the Pharmos Corporation 2001 Employee Stock
      Purchase Plan.

      7.    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, were due in February 2002 and carried a 6% interest payable
      semiannually in cash or common stock. In connection with the Convertible
      Debenture, the institutional investors also received warrants for the
      purchase of 276,259 common shares with a relative fair value of $725,000.
      The Convertible Debentures were convertible into common shares of the
      Company at the conversion price of $3.83 per share (or 2,088,775 common
      shares) and were convertible beginning October 31, 2000. Under certain
      limited anti-dilutive conditions, the conversion price could change. Until
      converted into common stock or the outstanding principal is repaid, the
      terms of the Convertible Debentures required 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 was released to the Company in
      proportion to the amount of Convertible Debentures converted into common
      shares or upon the repayment of the debt. The issuance costs related to
      the Private Placement of approximately $1.4 million were capitalized and
      amortized over the life of the debt.

      In December 2001, the holders of the Convertible Debentures and the
      Company agreed to modify the repayment and conversion terms. The holders
      of $5.8 million convertible debt (book value on December 31, 2001,
      including accrued interest) extended the maturity date to June 30, 2003 in
      exchange for a reduction in the conversion price from $3.83 to $2.63 for
      half of the outstanding balance and $ 2.15 for the other half of the
      outstanding balance. The convertible debt with a maturity date of June
      2003 is convertible beginning December 31, 2001. The holder of the
      remaining outstanding debt of $1.9 million (including accrued interest)
      changed the maturity date from February 28, 2002 to January 31, 2002 in
      exchange for lowering the conversion price for the other holders. As the
      modification was not significant in accordance with EITF 96-19 the change
      in the fair value between the original convertible debt and the modified
      convertible debt was be accreted over the remaining term of the
      convertible debt with a corresponding charge interest expense. During the
      first quarter of 2002, the Company issued 1,217,485 shares of its common
      stock upon the conversion of $2.5 million principal of the 2000
      Convertible Debenture offering and repaid $2 million of the


                                       8
<PAGE>


Pharmos Corporation
Notes to Condensed Consolidated Financial Statements

      Convertible Debentures, leaving $3.5 million of outstanding principal due
      in June 2003.

      Emerging Issues Task Force Issue No. 98-5, Accounting for Convertible
      Securities with Beneficial Conversion Features or Contingently Adjustable
      Conversion Ratios, required the Company to compute the Beneficial
      Conversion Feature ("BCF") of the convertible debt from the private
      placement of September 2000. 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 in 2000 was computed
      at approximately $1.8 million, all of which has been amortized and
      included as interest expense in the year ending December 31, 2000. Two of
      the eight investors of the March 2003 private placement were also holders
      of the remaining $3.5 million September 2000 Convertible Debenture
      offering, which was ultimately redeemed for approximately $4.0 million,
      which includes unpaid and accrued interest. The Convertible Debenture
      holders chose not to convert the existing debt to common equity. Instead,
      the Convertible Debenture holders opted to be repaid early and participate
      in a new round of financing. For the two investors, the sale of the common
      stock and warrants reduced the conversion price of the outstanding debt,
      which resulted in an additional BCF charge of approximately $2.7 million
      during the first quarter ending March 31, 2003. The total related BCF
      charge since inception of the debt of $3.5 million was redeemed this
      quarter as a result of the debt being repaid. The impact of the reversal
      of the total BCF charge since inception of the debt resulted in a net
      credit of $786,000 recorded as interest income during the first quarter
      ending March 31, 2003. This accounting treatment in accordance with EITF
      00-27.

      8.    Segment and Geographic Information

      The Company is active in one business segment: designing, developing,
      selling and marketing pharmaceutical products. The Company maintains
      development operations in the United States and Israel. The Company's
      selling operations are maintained in the United States.

      Geographic information for the three months ending March 31, 2003 and 2002
      are as follows:

                                            2003              2002
                                            ----              ----
          Net loss
            United States               ($3,830,023)      ($4,828,047)
            Israel                         (669,182)         (140,022)
                                        -----------       -----------
                                        ($4,499,205)      ($4,968,069)
                                        ===========       ===========


                                       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. The Company has 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 but 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, was not profitable in 2002 and the first quarter of 2003, and has incurred
a cumulative net loss of $107.0 million through March 31, 2003. In 2001, the
Company recorded a profit due to the sale of its ophthalmic product line to
Bausch & Lomb. 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 achieve
profitability, if ever, is dependent on its 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
contract to develop or acquire the capacity to manufacture and sell its
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

Results of Operations

Quarters ended March 31, 2003 and 2002

Total operating expenses increased $311,492 or 7%, from $4,752,088 in 2002 to
$5,063,580 in 2003. The increase was primarily due to the rising costs of the
Phase III clinical trial of dexanabinol for severe traumatic brain injury due to
the increasing number of centers and patients involved. The increase in the
clinical trial offset the lower expenses to consultant and professional fees.
Last year at this time the Company was preparing its Investigational New Drug
(IND) submission to the FDA to commence its study of dexanabinol as a treatment
for traumatic brain injury, which submission required significant outside help
from consultants and other experts.

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 projects are the development of dexanabinol for the treatment of traumatic
brain injury, which is currently involved in Phase III testing in Europe,
Australia and Israel, and the mild cognitive impairment that can follow coronary
surgery under cardiopulmonary bypass operations. During the first quarter of
2003, the gross cost of the project was $3.3 million. Total costs since the
project entered Phase II development in 1996 through March 31, 2003 are $28.1
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, collection and evaluation of the data, production of the drug
substance and drug product, commercial scale-up, 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 or secure production
of finished drug product under current Good Manufacturing Practice conditions
for sale in countries in which marketing approval has been obtained. 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


                                       10
<PAGE>

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 commenced a Phase IIa trial of
dexanabinol as a preventive agent against the mild cognitive impairment that can
follow coronary surgery under cardiopulmonary bypass (CS-CPB) operations. The
exploratory, Phase IIa trial will enroll up to 200 patients undergoing CS-CPB.
Expenses directly related to this project were $162,848 in the quarter.

Expenses for other research and development projects in earlier stages of
development for the first quarters of 2003 and 2002 were $483,281 and
$1,336,135, respectively. Total research and development expenses, net of
grants, for the first quarters of 2003 and 2002 were $4,039,065 and $3,683,793,
respectively. The Company recorded grant money of $328,637 and $310,226 during
the first quarters of 2003 and 2002, respectively, from the Office of the Chief
Scientist of Israel's Ministry of Industry and Trade, which reduced the research
and development expenses.

Selling, general and administrative expenses decreased by $40,484, or 5%, from
$893,383 in 2002 to $852,899 in 2003. Beginning in 2003, the Company deployed
increased resources to research and development and as a result, a greater
portion of shared costs were allocated to research and development compared to
selling, general and administrative expenses for facilities related expenses. As
a result, salaries, insurance, and office expenses decreased by $53,013,
$10,408, and $17,703, respectively, in the quarter compared to the first quarter
2002.

Depreciation and amortization expenses decreased by $3,296, or 2%, from $174,912
in 2002 to $171,616 in 2003. The decrease is due to some fixed assets becoming
fully depreciated.

Other income (expense), net, increased by $780,356 or 361%, from an expense of
$215,981 in 2002 to income of $564,375 in 2003. In accordance with Emerging
Issues Task Force Issue No. 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios
("BCF"), the Company recorded a charge of $1.8 million which was fully amortized
at December 31, 2000 in connection with the issuance of convertible debt with a
favorable conversion feature. In accordance with EITF 00-27, a net credit of
$786,000 was recorded during the current quarter to reverse of the BCF
previously recorded which was associated with the remaining balance of the
September 2000 Convertible Debenture offering with a face amount of $3.5 million
which was not converted. The credit was offset by an additional interest expense
in the quarter due to the redemption of the outstanding debt in March 2003. The
Convertible Debenture was due to mature in June 2003. During the quarter, the
Company recognized royalties of a non-material amount per the licensing
agreement with Herbamed, Ltd, a company controlled by Dr. Haim Aviv, the
Company's CEO. The lower average cash balance during the first quarter of 2003
than in 2002 resulted in a decrease in interest income of $109,470.

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 $107.0 million at
March 31, 2003. The Company has financed its operations with private offerings
of securities, advances and other funding pursuant to a marketing agreement with
Bausch & Lomb, research contracts, license fees, royalties and sales, the sale
of a portion of our New Jersey State Net Operating Loss carryforwards, and
interest income. Should the Company be unable to raise adequate financing in the
future, operations will need to be scaled back or discontinued.

The Company had working capital of $10.1 million as of March 31, 2003. Included
in the current assets of $17.7 million is $16.6 million of cash and cash
equivalents.


                                       11
<PAGE>


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, were due
in February 2002 and carried a 6% interest payable semiannually in cash or
common stock. In connection with the Convertible Debenture, the institutional
investors also received warrants for the purchase of 276,259 common shares with
a relative fair value of $725,000. The Convertible Debentures were convertible
into common shares of the Company at the conversion price of $3.83 per share (or
2,088,775 common shares) and were convertible beginning October 31, 2000. Under
certain limited anti-dilutive conditions, the conversion price could change.
Until converted into common stock or the outstanding principal is repaid, 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 was released to the Company in proportion to the
amount of Convertible Debentures converted into common shares or upon the
repayment of the debt. The issuance costs related to the private placement of
approximately $1.4 million were capitalized and amortized over the life of the
debt.

In December 2001, the holders of the Convertible Debentures and the Company
agreed to modify the repayment and conversion terms. The holders of $5.8 million
convertible debt (book value on December 31, 2001, including accrued interest)
extended the maturity date to June 2003 in exchange for a reduction in the
conversion price from $3.83 to $2.63 for half of the outstanding balance and $
2.15 for the other half of the outstanding balance. The convertible debt with a
maturity date of June 2003 was convertible beginning December 31, 2001. The
holder of the remaining outstanding debt of $1.9 million (including accrued
interest) changed the maturity date from February 28, 2002 to January 31, 2002
in exchange for lowering the conversion price for the other holders. As the
modification was not significant in accordance with EITF 96-19 the change in the
fair value between the original convertible debt and the modified convertible
debt was accreted over the remaining term of the convertible debt with a
corresponding charge into interest expense.

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 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.
Upon FDA approval, Bausch & Lomb will pay the Company up to an additional
maximum gross proceeds of $12 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 January 1, 2002, the Company
would have received $15.4 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
which $600,000 was deducted from the purchase price paid by Bausch & Lomb to
Pharmos in October 2001, 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 March 31, 2003, the Company's share of these research and
development-related LE-T expenses to date was estimated at approximately $3.1
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) 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.


                                       12
<PAGE>


On March 4, 2003, the Company completed a private placement to sell common
shares and warrants to eight investors, generating total gross proceeds of $4.3
million under a shelf registration. The private placement offering was completed
by issuing 5,058,827 shares of common stock at a price of $0.85 per share (the
fair market value on March 4, 2003) and 1,141,182 warrants at an exercise price
of $1.25 per share, which includes 129,412 placement agent warrants. Issuance
costs of approximately $150,000 in cash and $45,000 for the value of the
placement agent warrants were recorded as a debit to additional paid in capital.

According to EITF 00-19, the issued warrants meet the requirements of and will
be accounted for as a liability since registered shares must be delivered upon
settlement. The Company calculated the value of the warrants, including the
placement agent warrants, to be approximately $394,000 under the Black-Scholes
option-pricing method (assumption: volatility 75%, risk free rate 2.88% and zero
dividend yield). The value of the warrants will be marked to market each
reporting period until exercised or expiration.

As of March 31, 2003, we had the following contractual commitments and long-term
obligations:

<TABLE>
<CAPTION>
                    Last nine
                    months of
                       2003         2004       2005      2006   Thereafter    Total
                       ----         ----       ----      ----   ----------    -----
<S>                <C>          <C>          <C>       <C>       <C>       <C>
Operating Leases     $408,126     $377,736   $81,375   $57,978   $12,212     $937,427
R&D commitments     1,818,180      721,574                                  2,539,754
                   ------------------------------------------------------------------
     Grand total   $2,220,306   $1,099,310   $81,375   $57,978   $12,212   $3,471,181
</TABLE>

The R&D commitments represent scheduled professional fee payments for clinical
services relating to the Phase III clinical study of dexanabinol for traumatic
brain injury. This clinical service based agreement, if fully executed,
currently totals $7.8 million. The contract may be terminated at any time on
thirty days' advance notice. As of March 31, 2003, the Company has recognized
$6.7 million as an expense.

Management believes that cash and cash equivalents of $16.6 million of March 31,
2003, will be sufficient to support the Company's continuing operations into the
first quarter of 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.

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.


                                       13
<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.


                                       14
<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     NONE

Item 5     Other Information

In April 2003, the Nasdaq Stock Market, Inc. ("Nasdaq") advised us that we were
no longer in compliance with its continued listing requirements (the "Listing
Requirements") because the bid price of our shares of common stock closed at a
price of less than $1.00 for at least 30 consecutive days. The Nasdaq Staff
informed us that if we were unable to achieve compliance with the bid price
Listing Requirements by October 2003, they would then determine if we met the
initial listing criteria of the Nasdaq SmallCap Market, and if we were able to
satisfy such listing criteria, we would then have had another 180 days to
satisfy the bid price requirements (subject to an additional 90 day extension in
certain circumstances). If compliance were not obtained by that point, the
Nasdaq Staff could order us to be delisted from Nasdaq, an order that we could
appeal.

The Nasdaq rules also provide that in order to regain compliance, the bid price
of a company's listed securities needs to close at $1.00 or more for at least
ten consecutive trading days. We satisfied that requirement on May 9, 2003, and
subsequently we were informed by the Nasdaq Staff that because we regained
compliance with these bid price requirements, they were treating the matter as
closed.

Item 6  Exhibits and Reports on Form 8-K

        (a)  Exhibits

        Number            Exhibit
        ------            -------
        99.1              Certification by Chief Executive Officer

        99.2              Certification by Chief Financial Officer

        (b)               Reports on Form 8-K

    Current Report filed on March 4, 2003; Item 5 was reported

    Current Report filed on March 7, 2003; Item 5 was reported


                                       15
<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 13, 2003
                                                    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 March 31, 2003 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: May 13, 2003
                                                   /s/  HAIM AVIV
                                                   -----------------------------
                                                   Haim Aviv
                                                   Chief Executive Officer

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


                                       16