UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2011~~2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-11550

Pharmos Corporation

(Exact name of registrant as specified in its charter)

	Nevada		36-3207413
	(State or other jurisdiction of incorporation or organization)		(IRS Employer Id. No.)

99 Wood Avenue South, Suite 302

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 o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Non-accelerated filer o

Accelerated filer o

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x .

As of ~~October~~April 3116, ~~2011~~2012, the Registrant had outstanding 5960,~~879~~023,~~391~~612 shares of its $.03 par value Common Stock.

PART I FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010		1
	Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011		1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010		2
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011		2
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010		3
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011		3
	Notes to Condensed Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		109
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		1514
Item 4	Controls and Procedures		1514
PART II OTHER INFORMATION
Item 1.	Legal Proceedings		1615
Item 1A.	Risk Factors		1615
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		1615
Item 3.	Defaults Upon Senior Securities		1615
Item 4.	~~(Removed~~Mine ~~and~~Safety ~~Reserved)~~Disclosures		1615
Item 5.	Other Information		1615
Item 6.	Exhibits		1716
SIGNATURES			1817

Part I.

Financial Information

Item 1

Financial Statements

PHARMOS CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
	September 30, 2011			December 31, 2010
	March 31, 2012			December 31, 2011
Assets
Cash and cash equivalents	$	1,~~799~~016,~~494~~483		$	31,~~139~~535,~~347~~137
Prepaid expenses and other current assets		52132,~~065~~402			46122,~~833~~417
Total current assets		1,~~851~~148,~~559~~885			31,~~186~~657,~~180~~554
Fixed assets, net		53,~~156~~877			54,~~613~~493
Total assets	$	1,~~856~~152,~~715~~762		$	31,~~191~~662,~~793~~047
Liabilities and Shareholders’ Equity
Accounts payable	$	88286,~~381~~456		$	67262,~~199~~067
Accrued interest and expenses		7555,~~153~~105			~~103~~98,~~913~~833
Total current liabilities		163,534			171,112
Convertible debenture		1,000,000			1,000,000
Total liabilities		1,163,534			1,171,112
Total current liabilities		1,341,561			1,360,900
Shareholders’ Equity
Total liabilities		1,341,561			1,360,900
Shareholders’ Equity (Deficit)
Preferred stock, $.03 par value, 1,250,000 shares authorized, none issued and outstanding		-			-
Common stock, $.03 par value; 120,000,000 shares
authorized, 59,879,391 and 59,585,273 issued as of
authorized, 60,026,450 and 59,879,391 issued as of
September 30, 2011 and December 31, 2010, respectively		1,796,382			1,787,558
March 31, 2012 and December 31, 2011, respectively		1,800,794			1,796,382
Paid-in capital in excess of par		211,~~800~~919,~~662~~951			211,~~587~~838,~~386~~004
Accumulated deficit		(~~212~~213,~~903~~909,~~437~~118	)		(~~211~~213,~~353~~332,~~837~~813	)
Treasury stock, at cost, 2,838 shares		(426	)		(426	)
Total shareholders' equity		693,181			2,020,681
Total shareholders' equity (Deficit)		(188,799	)		301,147
Total liabilities and shareholders' equity	$	1,856,715		$	3,191,793
Total liabilities and shareholders' equity (Deficit)	$	1,152,762		$	1,662,047

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

PHARMOS CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

Three months ended September 30, Nine months ended September 30,

	Three months ended March 31,

	2012			2011
Expenses
Research and development	$	290,663		$	281,783
General and administrative		260,057			294,345
Depreciation and amortization		616			626
Total operating expenses		551,336			576,754

Loss from operations		(551,336	)		(576,754	)

Other (expense) income
Interest income		31			96
Interest expense		(25,000	)		(26,469	)
Other expense		(24,969	)		(26,373	)

Net loss	$	(576,305	)	$	(603,127	)

Net loss per share
- basic and diluted	$	(0.01	)	$	(0.01	)

Weighted average shares outstanding
- basic and diluted		59,589,756			58,994,984

	2011			2010			2011			2010
Expenses
Research and development	$	175,346		$	153,806		$	671,600		$	380,164
General and administrative		244,604			295,936			798,363			935,742
Depreciation and amortization		759			363			2,057			1,013
Total operating expenses		420,709			450,105			1,472,020			1,316,919
Loss from operations		(420,709	)		(450,105	)		(1,472,020	)		(1,316,919	)
Other (expense) income
Interest income		52			578			208			1,207
Interest expense		(25,382	)		(27,464	)		(77,788	)		(83,767	)
Other income (expense)		-			6,690			-			5,822
Other expense		(25,330	)		(20,196	)		(77,580	)		(76,738	)
Net loss	$	(446,039	)	$	(470,301	)	$	(1,549,600	)	$	(1,393,657	)
Net loss per share
- basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.02	)
Weighted average shares outstanding
- basic and diluted		59,293,337			58,699,219			59,129,101			58,438,554

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

Pharmos Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine months ended September 30,
	Three months ended March 31,
	2011			2010
	2012			2011
Cash flows from operating activities
Net loss	$	(1576,~~549,600~~305	)	$	(1603,~~393,657~~127	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		~~2,057~~616			~~1,013~~626
Amortization of deferred financing fees		~~2,788~~-			81,~~768~~469
Stock based compensation		~~122~~36,~~101~~360			~~151~~39,~~097~~813
Interest expense to be paid in common stock		7525,000			7525,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(89,~~021~~986	)		(3149,~~106~~643	)
Accounts payable		2124,~~182~~389			14236,~~377~~102
Accrued expenses		(318,~~760~~728	)		(3712,~~451~~067	)
Accrued wages and other compensation		-			(195,000	)
Net cash used in operating activities		(518,654	)		(361,827	)
Net cash used in operating activities		(1,338,253	)		(1,406,959	)
Net decrease in cash and cash equivalents		(518,654	)		(361,827	)
Cash flows from investing activities
Cash and cash equivalents at beginning of year		1,535,137			3,139,347
Purchases of fixed assets		(1,600	)		(2,619	)
Cash and cash equivalents at end of period	$	1,016,483		$	2,777,520
Net cash used in investing activities		(1,600	)		(2,619	)
Net decrease in cash and cash equivalents		(1,339,853	)		(1,409,578	)
Cash and cash equivalents at beginning of year		3,139,347			4,629,486
Cash and cash equivalents at end of period	$	1,799,494		$	3,219,908
Supplemental disclosure of non-cash investing and financing activities:
Common shares issued for accrued interest	$	100,000		$	100,000
Common shares issued for debenture interest	$	50,000		$	50,000

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

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accrual adjustments, considered necessary for a fair statement have been included. Operating results and cash flows for the ~~nine~~three month period ended ~~September~~March 3031, ~~2011~~2012 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2011~~2012. The December 31, ~~2010~~2011 condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America and included in the Form 10-K filing.

2. Liquidity, Business Risks and Going Concern

The Company’s condensed consolidated financial statements have been prepared assuming it will continue as a going concern. At ~~September~~March 3031, ~~2011~~2012, the Company had approximately $1.80 million in cash and cash equivalents. Management believes that the current cash and cash equivalents will be sufficient to support ~~our~~their currently planned continuing operations through at least ~~April~~July ~~30,~~of 2012. However, the Company’s ability to continue as a going concern is largely dependent upon achieving a collaboration with a pharmaceutical partner or raising additional capital to advance its lead compounds, ~~Dextofisopam~~Levotofisopam, for the treatment of ~~IBS~~Gout, and ~~Levotofisopam~~Dextofisopam, for the treatment of ~~Gout~~IBS in 2012. The Company has in the past pursued various funding and financing options; however management believes that future funding or financing options will continue to be challenging because of the current environment.

The Company does not currently have the finances and resources to conduct large clinical trials for its most advanced compound, Dextofisopam and continues to seek a partner. Meanwhile, the Company is pursuing the development of Levotofisopam for the treatment of Gout and ~~will~~is ~~incur~~currently incurring clinical trial costs. The Company expects to have sufficient cash to fund the development of Levotofisopam through completion of athe current proof-of-concept Gout trial (the Gout trial) based on current estimates. ~~The Gout trial is expected to commence in the fourth quarter of 2011.~~ During the first ~~quarter~~half of 2012, the Company expects to have more information on the probability of success of the Gout trial. The Company intends to partner Levotofisopam upon successful completion of this trial. Should this not occur, the Company ~~may~~will be unable to continue operations, including repayment of the outstanding convertible debenture, unless additional capital can be obtained.

As such, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company has initiated a proof-of-concept clinical trial in the US in Gout patients using Levotofisopam at the Duke Clinical Research Unit of Duke University. The costs remaining are $172,159 which are of a short term nature and would not be payable should the Company stop the clinical trial.

3. The Company

Pharmos Corporation (the Company or Pharmos) is a biopharmaceutical company that discovers and develops novel therapeutics to treat a range of ~~diseases~~metabolic ofand ~~the~~ nervous system disorders, including gout, disorders of the brain-gut axis (e.g., Irritable Bowel Syndrome), ~~with a focus on~~ pain/inflammation, and autoimmune disorders.

Pharmos owns the rights to both R and S Tofisopam through two US issued composition of matter patents. These are the two enantiomers of racemic tofisopam that has been used safely outside the United States for over 30 years. Dextofisopam is the R enantiomer and is being developed for the treatment of irritable bowel syndrome (IBS) and as described below has completed clinical testing through Phase 2b. It is a large unmet medical need but Pharmos does not have the financial resources to fund large IBS trials and therefore seeks a pharmaceutical company as a partner. Levotofisopam is the S enantiomer and is being developed as a treatment for gout.

The Company’s operations in Israel were closed effective October 2008 and the Company has been actively seeking to sell and license the CB2 selective agonist program that had been developed in Israel.

~~Gout:~~Pharmos ~~Levotofisopam~~owns (the rights to both R and S- Tofisopam) through two US issued composition of matter patents. These are the two enantiomers of racemic tofisopam that has been used safely outside the United States for over 30 years. Dextofisopam is the R enantiomer and is being developed for the treatment of ~~Gout~~irritable bowel syndrome (IBS) and as described below has completed clinical testing through Phase 2b. IBS is a large unmet medical need but Pharmos does not have the financial resources to fund the next trial and therefore seeks a pharmaceutical company as a partner.

Levotofisopam is the S-enantiomer of the racemic mixture RS-tofisopam, a well-tolerated, effective, ~~nonsedating~~non-sedating agent used outside the United States for the treatment of a variety of disorders associated with stress or autonomic instability. In two earlier Phase 1 studies using S-Tofisopam a significant and rapid lowering of uric acid was noted. The Company initiated a proof of concept Phase 2a trial at the Duke Clinical Research Unit of Duke University and on January 10, 2012 the Company announced that the first patients in this clinical trial had been dosed. The trial expects to enroll 20 patients in an open label study. As of March 31, 2012, 11 patients have completed treatment and all patients showed a reduction in uric acid. The mean reduction was over 45% with reductions seen in all patients . Additionally, there was an increase in the fractional excretion of urate confirming the compound’s mechanism of action as enhancing excretion and not as a xanthine oxidase inhibitor.

The ~~Company~~Phase ~~has~~2a ~~submitted~~trial anis ~~Investigational~~expected ~~New Drug (IND) application~~ to ~~the FDA and received clearance to conduct human clinical trials, subject to first confirming the safety of the dose planned to~~ be ~~used~~completed in aMay ~~proof-of-concept~~2012 ~~study~~and ~~in Gout patients. To confirm~~ the ~~safety of the planned dose, the~~ Company’s ~~conducted~~strategy ais ~~successful non-human primate toxicology study. The Company now plans~~ to ~~conduct~~seek a ~~proof-of-concept~~partner ~~clinical~~for ~~trial in~~ the USfurther indevelopment ~~Gout~~of ~~patients using~~ Levotofisopam. This trial follows two ex-US Phase 1 clinical studies that were completed by Vela Pharmaceuticals (merged with Pharmos in October 2006). In these studies, conducted in healthy volunteers in the United Kingdom and The Netherlands, Levotofisopam treatment was generally well tolerated and was associated with a large and rapid reduction in mean uric acid values.

~~The~~While ~~lowering~~the ofCompany ~~uric~~has ~~acid~~limited iscash ~~believed~~resources toand ~~be a key treatment in Gout patients. The precise mechanism by which Levotofisopam lowers uric acid~~ is ~~unknown.~~unable ~~However,~~to ~~unlike~~fund ~~allopurinol,~~the anext ~~drug~~development ~~commonly~~trial ~~used~~for ~~to treat Gout patients~~Dextofisopam, ~~Levotofisopam~~it does ~~not~~have ~~inhibit~~sufficient ~~xanthine~~cash ~~oxidase.~~to ~~Available~~complete ~~data indicate that~~ the ~~predominant~~ongoing ~~mechanism~~US ofbased ~~the~~clinical ~~serum~~proof-~~urate~~of-concept ~~lowering~~trial ~~effect~~using of Levotofisopam in ~~humans~~Gout ~~is through uricosuric activity rather than inhibition of urate synthesis~~patients. A ~~precondition~~Currently ~~leading~~this inis ~~some~~a ~~cases~~small totrial ~~Gout~~that isthe ~~hyperuricemia,~~Company ~~which~~expects ~~leads~~ to ~~increased~~be ~~pools~~able ~~of insoluable urate. Chronic hyperuricemia can lead~~ to ~~destructive~~fund ~~gouty~~with ~~arthritis,~~its ~~formation~~current ofcash ~~kidney~~resources. ~~stones,~~The ~~urate~~Company’s ~~nephropathy,~~strategic ~~and/or~~plan ~~tophi~~is ~~(crystal~~to ~~aggregates),~~partner ~~which~~with ~~can~~a ~~produce~~pharmaceutical ~~grotesque~~company ~~malformations~~upon ofsuccessful ~~the~~completion ~~hands, feet, or other portions~~ of the ~~body. Hyperuricemia is caused either by an overproduction~~ proof-of ~~or, more usually (80~~-~~90%~~concept ofclinical ~~cases), underexcretion of uric acid, the metabolic product of purine metabolism~~trial.

Pharmos’ most advanced compound is Dextofisopam, which has completed a Phase 2a double-blind, placebo-controlled trial with patients having diarrhea-predominant or alternating IBS ~~–D:~~with positive effect on primary efficacy endpoint (n=141, p=0.033). In this study, Dextofisopam was well-tolerated and demonstrated significant improvement over placebo, suggesting that Dextofisopam has the potential to become a novel first line treatment for ~~Irritable~~IBS. ~~Bowel~~Pharmos ~~Syndrome~~initiated a Phase 2b trial in February 2007. Dextofisopam is the R-enantiomer of racemic tofisopam, a molecule marketed and used safely outside the United States for over three decades for multiple indications including IBS. Unlike the two 5-HT3 or 5-HT4 IBS therapies recently introduced into the market, and subsequently withdrawn because of safety concerns, Dextofisopam’s novel non-serotonergic activity offers a unique and innovative approach to IBS treatment.

The ~~Company's~~results ~~most~~of ~~advanced~~a ~~product~~Phase is2b ~~Dextofisopam~~study ~~for~~were ~~the~~announced ~~treatment~~in ofSeptember ~~irritable bowel syndrome (IBS)~~2009. ~~IBS~~The isprimary aendpoint ~~chronic~~of ~~and~~overall ~~sometimes~~adequate ~~debilitating~~relief ~~condition~~was ~~that~~not ~~affects~~met ~~roughly~~due ~~10%-15%~~to ofa ~~U.S.~~high ~~adults~~placebo ~~and~~response, isbut ~~two~~drug toactivity ~~three~~was ~~times~~observed ~~more prevalent~~ in ~~women~~all ~~than~~drug incohorts, ~~men.~~especially ~~With~~the an200 ~~absence~~mg ofdose. ~~safe~~The ~~and~~Company ~~effective~~is ~~therapies,~~now ~~Dextofisopam’s~~seeking ~~novel~~a ~~non-serotonergic~~pharmaceutical ~~activity~~partner ~~holds~~with ~~the~~clinical, ~~potential~~scientific ~~for a unique~~ and ~~innovative~~financial ~~treatment~~capabilities ~~approach~~ to ~~IBS~~further ~~with~~develop ~~diarrhea predominant and alternating patients~~Dextofisopam.

~~Dextofisopam~~In research efforts over the past decade, the Company has ~~completed~~developed a ~~statistically~~ significant ~~Phase~~expertise 2ain ~~trial~~cannabinoid ~~(N=141,~~biology ~~p=0.033)~~and chemistry, and ahas ~~Phase~~generated 2bsignificant ~~trial (N=324)~~know-how ~~which~~and ~~did~~an ~~not~~intellectual ~~meet~~property ~~the~~estate ~~primary~~pertaining ~~endpoint~~to ofmultiple ~~overall~~areas ~~adequate~~of ~~relief~~cannabinoid biology. The ~~Although~~Company ~~the~~closed ~~primary~~its ~~efficacy~~operations ~~variable~~in (%Israel ofeffective ~~weeks~~October ~~responding~~31, ~~for~~2008. ~~adequate~~No ~~overall~~further ~~relief~~development ofwork ~~IBS~~has ~~symptoms)~~been ~~did~~performed ~~not~~on ~~reach~~the ~~statistical~~cannabinoid ~~significance,~~assets and the ~~percentage~~focus ~~responding~~is ~~for~~to ~~the~~partner ~~Dextofisopam~~or ~~200~~sell mgthese ~~group~~assets. ~~was~~The ~~higher~~Company ~~than~~continues ~~that~~to ~~observed~~seek, ~~for~~to ~~the~~sell ~~Phase~~or 2alicense ~~trial.~~other ~~However~~CB2 assets, ~~the~~including ~~placebo~~Cannabinor ~~response~~which ~~rate~~ was ~~also~~the ~~higher~~only ~~than~~CB2 ~~expected~~asset ~~compared~~ to ~~the~~enter ~~Phase~~human 2aclinical ~~placebo response~~trials.

~~This~~The ~~result~~Company ~~was~~has ~~similarly~~explored ~~demonstrated~~the ~~across~~concept ~~all~~of ~~other~~a ~~secondary~~merger ~~efficacy~~or ~~variables~~reverse ~~associated~~merger with ~~the~~another ~~adequate~~life ~~overall~~science ~~relief~~company ~~question. In all cases except~~ in ~~the~~order ~~first~~to ~~month,~~build ~~the~~greater ~~response~~pipeline ~~rates~~critical ~~for~~mass. ~~the~~Several ~~Dextofisopam~~possible ~~200~~candidates ~~mg group~~ were ~~essentially~~recently ~~the~~examined ~~same~~but aswere ornot inpursued ~~most~~after ~~cases~~preliminary ~~better~~scientific ~~than the response rates observed for the Phase 2a trial~~diligence. ~~Also,~~Suitable ~~secondary~~opportunities ~~response~~continue ~~variables of adequate relief of abdominal pain and discomfort and overall IBS symptoms ratings showed statistical significance and trends favoring the Dextofisopam 200 mg group compared~~ to ~~placebo~~be evaluated.

The Company’s ~~strategy~~has isexecutive tooffices ~~seek~~in aIselin, ~~pharmaceutical~~New ~~partner with the appropriate GI clinical and scientific expertise for further development of Dextofisopam~~Jersey.

The CB2 selective receptor agonist program

Pharmos’ cannabinoid research was geared toward development of selective and specific CB2 receptor agonists. By activating CB2 receptors, CB2 agonists inhibit autoimmune and inflammatory processes, and are likely to be useful for treating pain, autoimmune, inflammatory and degenerative disorders. Although progress has been made, the early stage of this work and resource limitations have resulted in termination of these programs. Pharmos’ strategy is to sell or out license the technology developed around the cannabinoid research. Pharmos had developed these compounds in preclinical testing for neuropathic pain.

Substantial development work was conducted on the CB2 selective agonist program in Israel from 2002 through 2008. The Company expended approximately $15 million on this development program and these assets are available for sale or licensing. During the quarter the Company continued to engage in discussions on the possible licensing and or sale of the CB2 program.

4. Significant Accounting Policies

Basis of consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Pharmos Ltd. and Vela Pharmaceuticals. All significant intercompany balances and transactions are eliminated in consolidation. Vela Acquisition Corp. is dormant and was used as the vehicle to acquire Vela Pharmaceuticals Inc. in October 2006. The Israel operations (Pharmos Ltd.), including research and development activities, ceased effective October 31, 2008 and the Company completed its voluntary liquidation in May 2010. Vela Pharmaceuticals Inc. was dissolved in August of 2011.

Cash and Cash Equivalents

Cash and Cash Equivalents as of ~~September~~March 3031, ~~2011~~2012 consist primarily of a money market fund invested in short term government obligations.

Concentration of Credit Risk

Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents. The Company maintains its cash and cash equivalent balances with a high quality financial institution who invests the Company’s funds in Government short-term instruments. Consequently the Company believes that such funds are subject to minimal credit risk.

Grants

The costs and expenses of research and development activities are partially funded by grants the Company received. The grants are deducted from research and development expenses at the time such grants are received. There were no grants received in the three ~~or nine~~ month periods ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities, if any, are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled and any change in tax rates is recognized in the results of operations in the period that includes the enactment date.

6The Company follows the guidance for Accounting for Uncertainty in Income Taxes which prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. Pharmos conducts business in the US and as a result, files US and New Jersey income tax returns. In the normal course of business, the Company is subject to examination by taxing authorities. At present, there are no ongoing audits or unresolved disputes with the various tax authorities that the Company files with and there are no tax uncertainties as of March 31, 2012 and December 31, 2011.

The Company follows the guidance for Accounting for Uncertainty in Income Taxes which prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. Pharmos conducts business in the US and as a result, files US and New Jersey income tax returns. In the normal course of business, the Company is subject to examination by taxing authorities. At present, there are no ongoing audits or unresolved disputes with the various tax authorities that the Company files with and there are no tax uncertainties as of September 30, 2011 and December 31, 2010.

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, other assets, accounts payable and accrued liabilities approximate fair value due to their short term maturities.

The Company has estimated the fair value of the $1,000,000 outstanding convertible debenture due November 1, 2012 to be approximately $694,000 at September 30, 2011. In determining the fair value the Company used level 3 inputs (unobservable) and a discount rate of 35%. Management used a discount rate they believe was most relevant given the business risks and because they have been unable to raise third party financing during the past several years.6

The Company has estimated the fair value of the $1,000,000 outstanding convertible debenture due November 1, 2012 to be approximately $829,000 at March 31, 2012. In determining the fair value the Company used level 3 inputs (unobservable) and a discount rate of 33%. Management used a discount rate they believe was most relevant given the business risks and because they have been unable to raise third party financing during the past several years. The Company’s ability to repay the debenture on its due date is dependent upon achieving a successful partnership for Levotofisopam and or Dextofisopam or in raising additional capital.

Equity based compensation

During the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, the Company recognized equity based compensation expense of $~~122~~36,~~101~~360 and $~~151~~39,~~097~~813, respectively, for restricted stock and stock options. As of ~~September~~March 3031, ~~2011~~2012, the total compensation costs related to non-vested stock options not yet recognized is $~~133~~98,~~504~~471 which will be recognized over the next ~~three~~four ~~and one half~~ years. Also, the compensation expense related to the Executive Chairman of the Board non-vested restricted stock not yet recognized is $~~104~~71,500 which will be recognized over the next ~~two~~one and one half years.

During the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, executive and outside directors of the Company were granted stock options under the ~~Pharmos 2000 and~~ 2009 Stock Option Plan per the table below:

Period Ended	Grants Issued		Weighted Average Exercise Price		Weighted Average Fair Value
September 30, 2011		1,170,000	$	0.09	$	0.07
March 31, 2012		70,000	$	0.06	$	0.05
September 30, 2010		490,000	$	0.11	$	0.09
March 31, 2011		1,120,000	$	0.09	$	0.07

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-04, Fair Value Measurement (Topic 820). This ASU is intended to create consistency between U.S. GAAP and International Financial Reporting Standards on the definition of fair value and on the guidance on how to measure fair value and on what to disclose about fair value measurements. This ASU will be effective for financial statements issued for fiscal periods beginning after December 15, 2011, with early adoption prohibited for public entities. ~~The~~This ~~Company~~update isdid ~~currently~~not ~~evaluating~~have ~~the~~any ~~impact~~material ~~ASU~~effect ~~2011-04 will have~~ on ~~its~~our ~~consolidated~~ financial statements.

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income ("ASU 2011-05"). This update amends Accounting Standards Codification ("ASC") Topic 220, Comprehensive Income, to provide that total comprehensive income will be reported in one continuous statement or two separate but consecutive statements of financial performance. Presentation of total comprehensive income in the statement of stockholders' equity or the footnotes will no longer be allowed. The calculation of net income and basic and diluted net income per share will not be affected. ASU 2011-005 is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2011, and is currently effective for our Company. This update did not have any material effect on our financial statements.

5. Convertible Debentures

OnThe ~~January~~Company 3,has ~~2008~~a $1,000,000 ~~Pharmos~~convertible ~~Corporation~~debenture ~~completed~~that ais ~~private~~due ~~placement~~November 1, 2012. In the first quarter of 2012, the Company elected to pay the interest on its 10% Convertible Debentures ~~due~~incurred ~~November~~through the eighth interest payment date, January 15, 2012., Atin ~~the~~common ~~closing~~stock to the ~~Company~~remaining ~~issued~~debenture ~~$4,000,000~~holder. ~~principal~~The dollar amount of ~~the~~interest ~~Debentures~~incurred from July 15, at2011 ~~par~~to January 15, ~~and~~2012 ~~received~~to ~~gross~~be ~~proceeds~~paid in ~~the~~stock ~~same~~amounted ~~amount.~~to ~~The~~$50,000 ~~purchasers~~which, ~~consisted~~converted ofat ~~certain~~$0.34 ~~existing~~per ~~investors~~share, resulted in ~~the~~an ~~Company~~aggregate of 147,059 ~~namely~~shares ~~Venrock~~issued ~~Associates~~to ~~(which~~the isdebenture ~~affiliated~~holder.A ~~with~~post-effective ~~Anthony~~amendment B.to ~~Evnin),~~the ~~New~~registration ~~Enterprise~~statement ~~Associates~~covering ~~(which~~the isresale ~~affiliated~~of ~~with~~the ~~Charles~~shares W.underlying ~~Newhall,~~the ~~III),~~debenture held by Lloyd I. Miller, III, ~~and~~was ~~Robert~~declared F.effective ~~Johnston~~in February 2012.

The ~~Debentures~~Company’s ~~mature~~ability ~~the~~to ~~earlier~~repay ofthe ~~November~~debenture 1,on ~~2012~~its ordue ~~the~~date ~~sale~~is ofdependent ~~the~~upon ~~Company.~~achieving ~~The~~a ~~Debentures,~~successful ~~together~~partnership ~~with~~for ~~all~~Levotofisopam ~~accrued~~ and ~~unpaid interest thereon, may be repaid, without premium~~ or ~~penalty,~~Dextofisopam ~~commencing on November 1, 2011. Starting on November 1, 2009 (~~or earlier sale of the Company), any outstanding Debenture may be converted into common shares at the option of the holder. The conversion price is fixed equal to $0.70 per share. The Debentures bear interest at the rate of 10% per annum, payable semi-annually either in ~~cash~~raising oradditional ~~common stock of the Company at the option of the Company, provided that an effective registration statement is in effect~~capital.

~~On April 21, 2009, Venrock Associates (which is affiliated with Anthony B~~6. Net ~~Evnin,~~Loss aPer ~~Director~~Common of the Company), New Enterprise Associates (which is affiliated with Charles W. Newhall, III, a Director of the Company) and Robert F. Johnston, the Company’s Executive Chairman of the Board of Directors, agreed to convert as of such date the Company’s 10% Convertible Debentures due November 1, 2012 held by them, comprising an aggregate of $3,000,000 in principal amount, at a conversion price of $0.275 per share. An aggregate of 11,145,570 shares was issued upon conversion of the principal and accrued but unpaid interest on the debentures.Share

ABasic ~~registration~~and ~~statement~~diluted ~~covering~~net loss per common share was computed by dividing the ~~resale~~net ofloss for the ~~shares~~period ~~underlying~~by the ~~debenture~~weighted ~~held~~average bynumber ~~Lloyd~~of Ishares of common stock issued and outstanding. ~~Miller~~For the periods ending March 31, ~~III~~2012 and 2011, ~~was~~other ~~declared~~potential ~~effective~~common instock ~~February~~has ~~2011.~~been excluded from the calculation of diluted net loss per common share, as their inclusion would be anti-dilutive.

6. Acquisition of Vela Pharmaceuticals, Inc.

In 2006, the Company acquired Vela Pharmaceuticals, Inc. (“Vela”), which had a Phase II product candidate, Dextofisopam, in development to treat IBS. The Company has dedicated substantial resources to complete clinical development of this product candidate. The Vela acquisition also included additional compounds in preclinical and/or clinical development for neuropathic pain, inflammation and sexual dysfunction.

The Company issued 6.5 million shares of common stock and paid $6 million to Vela shareholders at closing. The Agreement also includes additional performance-based milestone payments to the Vela stockholders related to the development of Dextofisopam, aggregating up to an additional $5 million in cash and the issuance of up to an additional 9,250,000 shares of Pharmos common stock. None of the milestone conditions were met at December 31, 2010 and September 30, 2011 except for a $1.0 million milestone payment due upon the study’s commencement which was paid in 2008.

The remaining milestones are as follows:

· $1 million cash: Final patient enrolled in Phase 2b trial (1)

· $2 million + 2 million shares: NDA submission

· $2 million cash +2.25 million shares: FDA approval

· 1 million shares: Approval to market in Europe or Japan

· 4 million shares: $100 million sales of Dextofisopam, when and if approved, in any 12-month period

(1) The milestone was reached when the final patient was enrolled in the Dextofisopam Phase 2b trial and was recognized in the first quarter of 2009 as all probability criteria were met. The milestone had two components, a cash portion of $1,000,000 and a share portion of 2,000,000 shares valued at $180,000. The total charge in the first quarter was $1,180,000. The shares were issued in November 2009 under the terms of the Amendment #3 to the agreement and plan of merger. Under that amendment the payment of the cash portion was deferred until such time as 1) the Company successfully entered into a strategic collaboration or licensing agreement with a third party for the development of Dextofisopam resulting in an upfront cash fee of at least $10 million, and 2) payment of the cash milestone would still leave the Company with one year’s operating cash.

The results of the Phase 2b trial were announced in September 2009 and reported that while there was clearly drug activity, the trial did not achieve its primary endpoint. Under the terms of the Vela acquisition agreement as amended, the 2 million shares were issued on November 2, 2009. The cash portion that was expensed in Q1 2009 was reversed in Q4 2009 since it is not deemed probable that the amended terms would be achieved. Since the trial results were not successful, no other milestones have been achieved.

7. 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. For the periods ending September 30, 2011 and 2010, other potential common stock has been excluded from the calculation of diluted net loss per common share, as their inclusion would be anti-dilutive.

The following table sets forth the number of potential shares of common stock that have been excluded from diluted loss per share since inclusion would have been anti-dilutive.

	September 30,
	March 31,
	2011		2010
	2012		2011
Stock options		4,~~339~~478,~~312~~812		34,~~460~~577,~~499~~812
Convertible debenture		1,428,571		1,428,571
Restricted stock		~~525~~375,000		~~825~~675,000
Warrants		18,000,000		18,000,000
Total potential dilutive securities not included in loss per share		24,~~292~~282,~~883~~383		2324,~~714~~681,~~070~~383

87. Common Stock Transactions

On May 11, 2009, Robert Johnston, the Executive Chairman, was awarded 1,200,000 shares of restricted stock. 300,000 of such shares became vested and free from a risk of forfeiture on the first anniversary of the date hereof, and the remaining 900,000 shares become vested and free from a risk of forfeiture in quarterly increments over a three-year period commencing on the first anniversary of the grant date. Over the four year period, a total of $264,000 will be recorded as compensation expense. In the first ~~nine~~three months of ~~2011~~2012, the Company expensed $4916,500 for Mr. Johnston’s restricted stock.

OnIn ~~September~~the 3,first ~~2010,~~quarter ~~Steven~~of ~~Leventer Ph.D.~~2012, ~~board~~the ~~member,~~Company ~~was~~elected ~~awarded~~to ~~350,000~~pay ~~shares~~the ofinterest ~~non-qualified~~on ~~stock~~its ~~options.~~10% ~~One-third~~Convertible ofDebentures ~~the~~due ~~options~~November ~~shall~~2012 beincurred ~~exercisable~~through asthe ofeighth ~~the~~interest payment date, ~~hereof~~January 15, ~~one-third~~2012, ofin ~~the~~common ~~options~~stock ~~shall~~to bethe ~~exercisable~~remaining asdebenture ofholder. ~~the~~The ~~first~~dollar ~~anniversary~~amount of ~~the~~interest ~~date~~incurred ~~hereof~~from ~~and~~July ~~one-third~~15, of2011 ~~the~~to ~~options~~January ~~shall~~15, 2012 to be ~~exercisable~~paid asin ofstock ~~the~~amounted ~~second~~to ~~anniversary~~$50,000 ofwhich, ~~the~~converted ~~date~~at ~~hereof~~$0.34 Inper ~~the~~share, ~~first~~resulted ~~nine~~in ~~months~~an aggregate of ~~2011~~147,059 ~~the~~shares ~~Company~~issued ~~expensed~~to ~~$8,766~~the ~~for~~debenture Drholder. ~~Leventer’s stock options.~~

InAs ~~the~~of ~~first~~March ~~quarter~~31, ~~of 2011~~2012, the Company ~~elected~~had toreserved ~~pay~~4,478,812 ~~the~~common ~~interest~~stock onshares ~~its~~for ~~10%~~outstanding ~~Convertible~~stock ~~Debentures~~options. The ~~due~~Company ~~November~~has ~~2012~~outstanding ~~incurred~~warrants ~~through~~exercisable ~~the~~for ~~sixth interest payment date~~18, ~~January 15~~000,000 ~~2011,~~shares inof common stock ~~to the remaining debenture holder~~. The ~~dollar~~exercise ~~amount~~price of ~~interest~~the ~~incurred from July 15~~warrants, ~~2010~~which tohave ~~January~~a ~~15,~~five-year ~~2011~~term toand beexpire ~~paid~~on inApril ~~stock amounted to $50~~21,~~000~~ ~~which~~2014, ~~converted~~is at $0.3412 per share~~, resulted in an aggregate of 147,059 shares issued to the debenture holder~~.

In the third quarter of 2011, the Company elected to pay the interest on its 10% Convertible Debentures due November 2012 incurred through the seventh interest payment date, July 15, 2011, in common stock to the remaining debenture holder. The dollar amount of interest incurred from January 15, 2011 to July 15, 2011 to be paid in stock amounted to $50,000 which, converted at $0.34 per share, resulted in an aggregate of 147,059 shares issued to the debenture holder.8

As of September 30, 2011, the Company had reserved 4,339,312 common stock shares for outstanding stock options. The Company has outstanding warrants exercisable for 18,000,000 shares of common stock. The exercise price of the warrants, which have a five-year term and expire on April 21, 2014, is $0.12 per share.

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

This report on Form 10-Q contains information that may constitute "forward-looking statements." The use of words such as "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. As and when made, we believe that these forward-looking statements are reasonable. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part I, "Item 1A. Risk Factors" of our Form 10-K for the year ended December 31, ~~2010~~2011 and elsewhere in this report and those described from time to time in our future reports filed with the Securities and Exchange Commission.

We do not undertake to discuss matters relating to our ongoing clinical trials or our regulatory strategies beyond those which have already been made public or discussed herein.

Executive Summary of ~~2011~~2012 Strategy and Operating Plan

~~Pharmos~~The ~~Corporation (the~~ Company orowns ~~Pharmos)~~the isrights ato ~~biopharmaceutical~~both ~~company~~R ~~that discovers~~ and ~~develops~~S ~~novel~~Tofisopam. ~~therapeutics~~Levotofisopam tois ~~treat~~the aS-enantiomer ~~range~~ of ~~diseases of~~ the ~~nervous~~racemic ~~system,~~mixture ~~including~~RS-tofisopam. ~~disorders~~Dextofisopam ofis the ~~brain-gut~~R ~~axis~~enantiomer ~~(e.g.,~~of ~~Irritable~~racemic ~~Bowel~~tofisopam ~~Syndrome),~~and ~~with~~is abeing ~~focus~~developed onfor ~~pain/inflammation, and autoimmune disorders~~IBS.

Pharmos’ ~~owns~~is developing Levotofisopam for the ~~rights~~treatment toof ~~both~~Gout. In Rtwo ~~and~~earlier SPhase 1 studies using S-Tofisopam ~~through~~a ~~two~~significant USand ~~issued~~rapid ~~composition~~lowering of ~~matter~~uric ~~patents~~acid was noted. ~~These~~The ~~are~~Company initiated a proof of concept Phase 2a trial at the ~~two~~Duke ~~enantiomers~~Clinical Research Unit of ~~racemic~~Duke ~~tofisopam~~University ~~that~~and ~~has~~on ~~been~~January ~~used~~10, ~~safely~~2012 ~~outside~~the Company announced that the ~~United~~first ~~States~~patients ~~for~~in ~~over~~this 30clinical ~~years~~trial had been dosed. ~~Dextofisopam~~The istrial ~~the~~expects Rto ~~enantiomer~~enroll ~~and~~20 ispatients ~~being~~in ~~developed~~an ~~for~~open ~~the~~label ~~treatment~~study. As of ~~irritable~~March ~~bowel~~31, ~~syndrome~~2012, ~~(IBS)~~11 ~~and~~patients ashave ~~described~~completed ~~below~~treatment ~~has~~and ~~completed~~all ~~clinical~~patients ~~testing~~showed ~~through~~a ~~Phase~~reduction 2bin uric acid. ItThe ismean areduction ~~large~~was ~~unmet~~over ~~medical~~45% ~~need~~with ~~but~~reductions ~~Pharmos~~seen ~~does~~in ~~not~~all ~~have~~patients. Additionally there was an increase in the ~~financial~~fractional ~~resources~~excretion toof ~~fund~~urate confirming the ~~next~~compound’s ~~trial~~mechanism ~~and~~of ~~therefore~~action ~~seeks~~as aenhancing ~~pharmaceutical~~excretion ~~company~~and not as a ~~partner~~xanthine oxidase inhibitor.

~~Levotofisopam~~The isPhase ~~the~~2a ~~S-enantiomer~~trial ofis ~~the~~expected ~~racemic~~to ~~mixture~~be ~~RS-tofisopam,~~completed ain ~~well~~May ~~tolerated,~~2012 ~~effective,~~and ~~nonsedating agent used outside~~ the ~~United States for the treatment of a variety of disorders associated with stress or autonomic instability. During the quarter, the~~ Company’s ~~completed~~strategy ais ~~non-human primate toxicology study~~ to ~~confirm~~seek ~~the~~a ~~planned~~partner ~~starting~~for ~~dose in~~ the ~~upcoming~~further ~~human~~development ~~trial~~of ~~in Gout patients using~~ Levotofisopam. Two ex-US Phase 1 clinical studies were completed by Vela Pharmaceuticals (merged with Pharmos in October 2006). In these studies, conducted in healthy volunteers in the United Kingdom and The Netherlands, Levotofisopam treatment was generally well tolerated and was associated with a large and rapid reduction in mean uric acid values.

InPharmos’ ~~March~~most ~~2011~~advanced compound is Dextofisopam, ~~the~~which has ~~Company~~completed ~~submitted~~a andouble-blind, ~~Investigational~~placebo-controlled ~~New~~diarrhea-predominant ~~Drug~~or ~~(IND)~~alternating ~~application~~IBS toPhase ~~the~~2a ~~FDA~~study ~~and~~with ~~received~~positive ~~clearance~~effect toon ~~conduct~~primary ~~human~~efficacy ~~clinical~~endpoint ~~trials~~(n=141, ~~subject~~p=0.033). toIn ~~first~~this ~~confirming~~study, ~~the~~Dextofisopam ~~safety~~was ofwell-tolerated ~~the~~and ~~dose~~demonstrated ~~planned~~significant toimprovement beover ~~used~~placebo, insuggesting that Dextofisopam has the ~~proof-of-concept~~potential ~~study~~to inbecome ~~Gout~~a ~~patients.~~novel Tofirst ~~confirm~~line ~~the~~treatment ~~safety~~for ofIBS. Dextofisopam is the ~~planned~~R-enantiomer ~~dose~~of racemic tofisopam, ~~the~~a ~~Company~~molecule ~~conducted~~marketed and ~~successfully~~used ~~completed~~safely aoutside ~~non-human~~the ~~primate~~United ~~toxicology~~States ~~study.~~for ~~The~~over ~~Company~~three isdecades ~~now~~for ~~ready~~multiple toindications ~~commence~~including aIBS. ~~proof~~Unlike the two 5-ofHT3 or 5-~~concept~~HT4 ~~clinical~~IBS ~~trial~~therapies inrecently introduced into the USmarket, inand ~~Gout~~subsequently ~~patients~~withdrawn ~~using~~because ~~Levotofisopam~~of ~~expected~~safety toconcerns, ~~commence~~Dextofisopam’s innovel ~~the~~non-serotonergic ~~fourth~~activity ~~quarter~~offers ofa ~~2011~~unique and innovative approach to IBS treatment.

While the Company has limited cash resources and is unable to fund the next development trial for Dextofisopam, it does have sufficient cash to complete the planned US based clinical proof-of-concept trial using Levotofisopam in Gout patients. This will be a small trial that the Company expects to be able to fund with its current cash resources. The Company’s strategic plan is to partner with a pharmaceutical company upon successful completion of the proof-of-concept clinical trial.

Pharmos’ most advanced compound is Dextofisopam, which has completed a Phase 2a double-blind, placebo-controlled trial with patients having diarrhea-predominant or alternating IBS with positive effect on primary efficacy endpoint (n=141, p=0.033). In this study, Dextofisopam was well-tolerated and demonstrated significant improvement over placebo, suggesting that Dextofisopam has the potential to become a novel first line treatment for IBS. Pharmos initiated a Phase 2b trial in February 2007 and in June 2007 the Company announced patient screening had commenced. Dextofisopam is the R-enantiomer of racemic tofisopam, a molecule marketed and used safely outside the United States for over three decades for multiple indications including IBS. Unlike the two 5-HT3 or 5-HT4 IBS therapies recently introduced into the market, and subsequently withdrawn because of safety concerns, Dextofisopam’s novel non-serotonergic activity offers a unique and innovative approach to IBS treatment.

The results of a Phase 2b study were announced in September 2009. The primary endpoint of overall adequate relief was not met due to a high placebo response, but drug activity was observed in all drug cohorts, especially the 200 mg dose.

The Company now is seeking a pharmaceutical partner with clinical, scientific and financial capabilities to further develop Dextofisopam. The Company has not to date been successful in attracting a partner or securing additional funding for the further development of Dextofisopam.

In research efforts over the past decade, the Company has developed a significant expertise in cannabinoid biology and chemistry, and has generated significant know-how and an intellectual property estate pertaining to multiple areas of cannabinoid biology. The Company closed its operations in Israel effective October 31, 2008. No further development work has been performed on the cannabinoid assets and the focus is to partner or sell these assets. The Company continues to seek, sell or license other CB2 assets, including Cannabinor which was the only CB2 asset to enter human clinical trials.9

~~The~~In ~~Company~~research ~~has~~efforts ~~explored~~over the ~~concept~~past ofdecade, the Company has developed a ~~merger~~significant orexpertise ~~reverse~~in ~~merger~~cannabinoid ~~with~~biology ~~another~~and ~~life~~chemistry, ~~science~~and ~~company~~has ingenerated ~~order~~significant know-how and an intellectual property estate pertaining to ~~build~~multiple ~~greater~~areas ~~pipeline~~of ~~critical~~cannabinoid ~~mass~~biology. With ~~Several~~the ~~possible~~decision ~~candidates~~to ~~were~~focus ~~recently~~resources ~~examined~~on ~~but~~Dextofisopam ~~were~~and ~~not~~with ~~pursued~~the ~~after~~closure ~~preliminary~~of ~~scientific~~the ~~diligence.~~Company’s ~~Suitable~~operations ~~opportunities~~in ~~continue~~Israel effective October 31, 2008, no further development work is being performed on the cannabinoid assets and the focus is to bepartner ~~evaluated~~or sell these assets.

The ~~results~~Company ~~for~~continues ~~the~~to ~~three and nine months ended September 30~~seek, ~~2011~~to ~~and~~sell ~~2010~~or ~~were~~license aother ~~net~~CB2 ~~loss of $0.4 million and $0.5 million and a net loss of $1.5 million and $1.4 million~~assets, ~~respectively.~~including OnCannabinor awhich ~~loss~~was ~~per~~the ~~share~~only ~~basis,~~CB2 ~~this~~asset ~~equates~~ to ~~$(0.01)~~enter ~~and~~human ~~$(0.01)~~clinical ~~for the quarters ended September 30, 2011 and 2010 and $(0~~trials.~~03) and $(0.02) for the first nine months, respectively.~~

~~Except~~The results for ~~2001,~~ the ~~Company~~three ~~has~~months ~~experienced~~ended ~~operating~~March ~~losses every year since inception in funding the research~~31, ~~development~~2012 and ~~clinical~~2011 ~~testing~~were ofa ~~our~~net ~~drug~~loss ~~candidates. The Company had an accumulated deficit~~ of $~~212~~0.96 million ~~as of September 30, 2011~~ and ~~expects to continue to incur losses going forward~~$0.6 ~~Such~~million, ~~losses have resulted principally from costs incurred in research and development and from general and administrative expenses~~respectively. ~~Previously~~On ~~the~~a ~~Company~~loss ~~had~~per ~~financed~~share ~~its operations with public and private offerings of securities~~basis, ~~advances~~this ~~and~~equates ~~other funding pursuant~~ to ~~an earlier marketing agreement with Bausch & Lomb, grants from the Office of the Chief Scientist of Israel, research contracts, the sale of a portion of its New Jersey net operating loss carryforwards~~ $(~~NOL’s~~0.01), and ~~interest income~~$(0.01) ~~During~~for ~~2010~~ the ~~Company~~quarters ~~was~~ended ~~awarded~~March ~~a cash grant of $244~~31,~~000~~ ~~under~~2012 ~~the Federal Qualifying Therapeutic Discovery Project for the further development of Dextofisopam. The Company had approximately $1.8 million of cash~~ and ~~cash equivalents at September 30,~~ 2011~~. However~~, the Company’s ability to continue as a going concern is largely dependent upon achieving a collaboration with a pharmaceutical partner or raising additional capital to advance its lead compounds, Dextofisopam, for the treatment of IBS, and Levotofisopam, for the treatment of Goutrespectively.

11Except for 2001, the Company has experienced operating losses every year since inception in funding the research, development and clinical testing of our drug candidates. The Company had an accumulated deficit of $213.9 million as of March 31, 2012 and expects to continue to incur losses going forward. Such losses have resulted principally from costs incurred in research and development and from general and administrative expenses. Previously the Company had financed its operations with public and private offerings of securities, advances and other funding pursuant to an earlier marketing agreement with Bausch & Lomb, grants from the Office of the Chief Scientist of Israel, research contracts, the sale of a portion of its New Jersey net operating loss carryforwards (NOL’s), and interest income. During 2010 the Company was awarded a cash grant of $244,000 under the Federal Qualifying Therapeutic Discovery Project for the further development of Dextofisopam. The Company had approximately $1.0 million of cash and cash equivalents at March 31, 2012. However, the Company’s ability to continue as a going concern is largely dependent upon achieving a collaboration with a pharmaceutical partner or raising additional capital to advance its lead compounds, Levotofisopam, for the treatment of Gout, and Dextofisopam, for the treatment of IBS.

The Company does not currently have the finances and resources to conduct large clinical trials for its most advanced compound, Dextofisopam and continues to seek a partner. Meanwhile, the Company is pursuing the development of Levotofisopam for the treatment of Gout and ~~will~~is ~~incur~~currently incurring clinical trial costs. The Company expects to have sufficient cash ~~resources~~ to fund the development of Levotofisopam through completion of a proof-of-concept Gout trial ~~and~~(the ~~fund~~Gout ~~other operating expenses through April 2012. The Company will shortly commence a small proof-of-concept~~ trial) ~~using~~based ~~Levotofisopam~~on tocurrent ~~treat patients with Gout~~estimates. During the first ~~quarter~~half of 2012, the Company expects to have more information on the probability of success of the Gout trial. The Company intends to partner Levotofisopam upon successful completion of athis ~~proof-of-concept clinical~~ trial. Should this not occur, the Company ~~may~~will be unable to continue operations, including repayment of the outstanding convertible debenture, unless additional capital can be obtained.

~~The~~As ~~Company~~such, ~~has~~these infactors raise substantial doubt as to the ~~past~~Company’s ~~pursued~~ability ~~various~~to ~~funding~~continue ~~and~~as ~~financing~~a ~~options;~~going ~~however~~concern. ~~management~~The ~~believes~~accompanying ~~that~~condensed ~~future~~consolidated ~~funding~~financial orstatements ~~financing~~do ~~options~~not ~~may~~include beany ~~challenging~~adjustments ~~because~~that ofmight result from the ~~current~~outcome ~~environment~~of this uncertainty.

As such, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern and do not include any adjustments that might result from this uncertainty.

Results of Operations

Three Months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011

Total operating expenses for the ~~third~~first quarter of ~~2011~~2012 decreased by $2925,~~396~~418 or 74%, from $~~450~~576,~~105~~754 in ~~2010~~2011 to $~~420~~551,~~709~~336 in ~~2011~~2012.

Research & development expenses for the ~~third~~first quarter increased by $218,~~540~~880, or 143%, from $~~153~~281,~~806~~783 in ~~2010~~2011 to $~~175~~290,~~346~~663 in ~~2011~~2012. The primary areas include ana $81149,000 increase in clinical study fees which were offset by a $28138,000 reduction in consultant and professional fees and a $312,000 reduction in various other areas. Clinical study fees increased ~~due~~as tothe ~~costs~~Gout ~~related~~trial tocommenced ~~conducting~~in aJanuary ~~non-human~~2012 ~~primate~~and ~~toxicology~~fees ~~study~~were ~~needed~~incurred ~~for~~on ~~the~~completed ~~Gout trial~~patients. Consulting and professional fees have decreased as the Company ~~conducted~~filed ~~work in~~ the ~~preparation of the~~ IND for the Gout trial in ~~2010~~2011 while in ~~2011~~2012 there were ~~lower~~normal expenses ~~for~~in ~~the~~this ~~quarter since the trial has not started yet~~area. ~~There was also a reduction of various facility related expenses as the Company continued to reduce overall facility costs.~~

General and administrative expenses for the third quarter of 2011 decreased by $51,332, or 17%, from $295,936 in 2010 to $244,604 in 2011. The primary reductions were a $14,000 reduction in consultant and professional fees, a $20,000 reduction in salaries and benefits and a $17,000 reduction in various other areas. Professional fees have decreased as there were business development fees in 2010 related to a possible reverse merger candidate which eventually was not pursued. The decrease in payroll costs in 2011 reflects lower stock compensation costs and the elimination of an administrative position in 2010. There was also a reduction of various facility related expenses as the Company continued to reduce overall facility costs.10

NoGeneral ~~tax~~and ~~provision~~administrative isexpenses ~~required~~for atthe ~~this~~first ~~time~~quarter ~~since~~of ~~the~~2012 ~~Company~~decreased ~~expects~~by $34,288, or 12%, from $294,345 in 2011 to be$260,057 in 2012. The primary reductions were a ~~tax~~$15,000 ~~loss~~reduction ~~position~~in atconsultant ~~year-end~~and ~~December~~professional 31fees, ~~2011~~a $6,000 reduction in salaries and ~~has~~benefits ~~net~~and ~~operating~~a ~~losses~~$13,000 ~~from~~reduction ~~previous~~in ~~years~~various other areas. Professional fees have decreased as there were reduced legal fees incurred. The ~~Company~~decrease ~~has~~in ~~established~~payroll costs in 2012 reflects lower stock compensation. There was also a ~~100%~~reduction ~~valuation~~of ~~allowance~~various ~~against~~facility related expenses as the ~~deferred~~Company ~~tax~~continued ~~asset~~to reduce and manage overhead.

~~Results~~No oftax ~~Operations~~provision is required at this time since the Company expects to be in a tax loss position at year-end December 31, 2012 and has net operating losses from previous years. The Company has established a 100% valuation allowance against the deferred tax assets generated primarily from these losses.

Nine Months ended September 30, 2011 and 2010

Total operating expenses for the first nine months of 2011 increased by $155,101 or 12%, from $1,316,919 in 2010 to $1,472,020 in 2011.

Research & development expenses for the first nine months of 2011 increased by $291,436, or 77%, from $380,164 in 2010 to $671,600 in 2011. The primary areas include a $223,000 increase in clinical study fees and a $139,000 increase in consultant and professional fees which were offset by a $71,000 reduction in various other areas. Consulting and professional fees increased substantially as the Company conducted work in preparation for initiating a proof-of-concept trial in Gout patients using Levotofisopam in the first half of the year. Clinical study fees increased due to costs related to manufacturing capsules needed for this trial and costs related to conducting a non-human primate toxicology study. These increases were offset by a reduction of various facility related expenses as the Company continued to reduce overall facility costs.

General and administrative expenses for the first nine months of 2011 decreased by $137,379, or 15%, from $935,742 in 2010 to $798,363 in 2011. The primary reductions were a $62,000 reduction in consultant and professional fees, a $50,000 reduction in salaries and benefits and a $25,000 reduction in various facility related expenses. Accounting fees have decreased as there were higher accounting fees related to the filing of a Registration statement on Form S-1 in 2010. Also professional fees have decreased as there were business development fees in 2010 related to a possible reverse merger candidate which eventually was not pursued. The decrease in payroll costs in 2011 reflects lower stock compensation costs and the elimination of an administrative position in 2010. The decrease in the facility related expenses were a reduction of various facility related expenses as the Company continued to reduce overall facility costs.

Liquidity and Capital Resources

The following table describes the Company's working capital, cash and cash equivalents and convertible debentures on ~~September~~March 3031, ~~2011~~2012, and on December 31, ~~2010~~2011:

	September 30, 2011			December 31, 2010
	March 31, 2012			December 31, 2011
Working capital	$	1(192,~~688,025~~676	)	$	3296,~~015,068~~654
Cash and cash equivalents	$	1,~~799~~016,~~494~~483		$	31,~~139~~535,~~347~~137
Convertible Debenture – due November 2012	$	1,000,000		$	1,000,000
Convertible debenture, due 2012	$	1,000,000		$	1,000,000

Current working capital position

As of ~~September~~March 3031, ~~2011~~2012, the Company had working capital of $1(0.72) million consisting of current assets of $1.91 million and current liabilities of $01.23 million. This represents a decrease of $10.35 million from its working capital of $3.0.3 million on current assets of $31.27 million and current liabilities of $01.24 million as of December 31, ~~2010~~2011. This decrease in working capital of $10.35 million was principally associated with the funding of general and administrative activities and research and development expenses related to ~~advance~~the ~~work to~~ start of a proof-of-concept clinical trial in Gout patients using S-Tofisopam.

Current and future liquidity position

As discussed in the executive summary, the Company does not currently have the finances and resources to conduct large clinical trials for its most advanced compound, Dextofisopam and continues to seek a partner. Meanwhile, the Company is pursuing the development of Levotofisopam for the treatment of Gout and ~~will~~is ~~incur~~currently incurring clinical trial costs. The Company expects to be able to fund the proof-of-concept clinical trial with its current cash resources which are sufficient to support operations through ~~April~~July 2012. The Company intends to partner Levotofisopam upon successful completion of a proof-of-concept clinical trial. Should this not occur, the Company may be unable to continue operations, including repayment of the outstanding convertible debenture, unless additional capital can be obtained.

As such these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from this uncertainty.

Operating activities

Net cash used in operating activities for the first ~~nine~~three months of ~~2011~~2012 was $10.35 million compared to net cash used of $10.4 million for the first ~~nine~~three months of ~~2010~~2011. Overall on a year to year comparison the net cash used was similar. The Company continues to fund research & development activities and general and administrative costs.

Commitments

AsThe table below sets out our current contractual obligations as of ~~September~~March 3031, ~~2011~~2012. However, the ~~Company~~nature ~~had~~of ~~the~~these ~~following~~contracts ~~contractual~~with ~~commitments~~various ~~and~~clinical ~~long-term~~research ~~obligations:~~organizations is such that if work is stopped with very short notice, we will then only be obligated to pay costs incurred to date.

	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		Undetermined
	Payments Due by Period
Operating leases	$	6,387	$	6,387	$	-	$	-	$	-
	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		More Than 5 Years		Undetermined
Convertible debenture		1,000,000		-		1,000,000		-		-
Operating Leases	$	19,823	$	19,823	$	-	$	-	$	-	$	-
Convertible debenture interest		108,333		100,000		8,333		-		-
Convertible Debenture Interest		58,333		58,333		-		-		-		-
Total	$	1,114,720	$	106,387	$	1,008,333	$	-	$	-
Duke University		172,159		172,159		-		-		-		-
Convertible Debenture		1,000,000		1,000,000		-		-		-		-
Total	$	1,250,315	$	1,250,315	$	-	$	-	$	-	$	-

The Company anticipates incurring research and development expenses of approximately $850,000 related to the Gout trial.

In connection with the acquisition of Vela Pharmaceuticals which closed on October 25, 2006 the Company is obligated to pay certain performance based milestones connected to the development of Dextofisopam.

The remaining milestones are as follows:

· $1 million cash: Final patient enrolled in Phase 2b trial (1)

· $2 million + 2 million shares: NDA submission

· $2 million cash +2.25 million shares: FDA approval

· 1 million shares: Approval to market in Europe or Japan

· 4 million shares: $100 million sales of Dextofisopam, when and if approved, in any 12-month period

(1) The milestone was reached when the final patient was enrolled in the Dextofisopam Phase 2b trial and was recognized in the first quarter of 2009 as all probability criteria were met. The milestone had two components, a cash portion of $1,000,000 and a share portion of 2,000,000 shares valued at $180,000. The total charge in the first quarter 2009 was $1,180,000. The shares were issued in November 2009 under the terms of the Amendment #3 to the agreement and plan of merger. Under that amendment the payment of the cash portion was deferred until such time as 1) the Company successfully entered into a strategic collaboration or licensing agreement with a third party for the development of Dextofisopam resulting in an upfront cash fee of at least $10 million, and 2) payment of the cash milestone would still leave the Company with one year’s operating cash.

The Company recorded the milestone in the first quarter of 2009 as it met the accounting requirements of under ACS 450. The results of the Phase 2b trial were announced in September 2009 and reported that while there was clearly drug activity, the trial did not achieve its primary endpoint. Under the terms of the Vela acquisition agreement as amended, the 2 million shares were issued on November 2, 2009. The cash portion that was expensed in Q1 2009 was reversed in Q4 2009 since it is not deemed probable that the amended terms would be achieved. Since the trial results were not successful, no other milestones have been achieved.

1412

New accounting pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We assessed our vulnerability to certain market risks, including interest rate risk associated with financial instruments included in cash and cash equivalents. Due to the relatively short-term nature of these investments the Company has determined that the risks associated with interest rate fluctuations related to these financial instruments do not pose a material risk to us.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures: An evaluation of Pharmos' disclosure controls and procedures (as defined in Section13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) was carried out under the supervision and with the participation of Pharmos' principal executive officer and principal financial officer at ~~September~~March 3031, ~~2011~~2012. Based on this evaluation, Pharmos' principal executive officer and principal financial officer concluded that as of ~~September~~March 3031, ~~2011~~2012, Pharmos' disclosure controls and procedures were effective, at a reasonable level of assurance, 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 principal executive officer and principal 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 Control over Financial Reporting: There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

1514

Part II Other Information

Item 1	Legal Proceedings	NONE

Item 1A	Risk Factors

Need For Additional Capital

Our ability to operate as a going concern is dependent upon raising adequate financing. Management believes that the current cash and cash equivalents, totaling $1.80 million as of ~~September~~March 3031, ~~2011~~2012, will be sufficient to support our currently planned continuing operations through at least ~~April~~July ~~30,~~of 2012. However, the Company’s ability to continue as a going concern is largely dependent upon achieving a collaboration with a pharmaceutical partner or raising additional capital to advance its lead compounds, Dextofisopam, for the treatment of IBS, and Levotofisopam, for the treatment of gout. The Company does not currently have the finances and resources to conduct large clinical trials for its most advanced compound, Dextofisopam and continues to seek a partner. Meanwhile, the Company is pursuing the development of Levotofisopam for the treatment of Gout and ~~will~~is ~~incur~~currently incurring clinical trial costs. The Company intends to partner Levotofisopam upon successful completion of a proof-of-concept clinical trial. Should this not occur, the Company may be unable to continue operations, including repayment of the outstanding convertible debenture, unless additional capital can be obtained.

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	NONE
Item 3	Defaults upon Senior Securities	NONE
Item 4	~~(Removed~~Mine ~~and~~Safety ~~Reserved)~~Disclosures	N/A
Item 5	Other Information	NONE

.15

Item 6

Exhibits

Number		Exhibit
3.1		Restated Articles of Incorporation (Incorporated by reference to Appendix E to the Joint Proxy Statement/Prospectus included in the Form S-4 Registration Statement of the Company dated September 28, 1992 (No. 33-52398)
3.2		Certificate of Amendment of Restated Articles of Incorporation dated January 30, 1995 (Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1994).
3.3		Certificate of Amendment of Restated Articles of Incorporation dated January 16, 1998 (Incorporated by reference to the Company’s Current Report on Form 8-K, dated February 6, 1998).
3.4		Certificate of Amendment of Restated Articles of Incorporation dated October 21, 1999 (Incorporated by reference to exhibit 4(e) to the Form S-3 Registration Statement of the Company filed September 28, 2000 (No. 333-46818)).
3.5		Certificate of Amendment of Restated Articles of Incorporation dated July 19, 2002 (Incorporated by reference to Exhibit 3 to the Company’s Report on Form 10-Q for the quarter ended June 30, 2002).
3.6		Certificate of Amendment of Restated Articles of Incorporation dated July 7, 2004 (Incorporated by reference to Exhibit 3.1 to the Company’s Report on Form 10-Q for the quarter ended June 30, 2004).
3.7		Certificate of Amendment to Articles of Incorporation dated September 23, 2005 (Incorporated by reference to exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
3.8		Certificate of Amendment to Articles of Incorporation dated August 5, 2009 (Incorporated by reference to exhibit 3.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009).
3.9		Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007).
31.1		Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15(d)-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15(d)-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1		The following financial information from Pharmos Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2011~~2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of ~~September~~March 3031, ~~2011~~2012, and December 31, ~~2010~~2011, (ii) Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012, and ~~September~~March 3031, ~~2010~~2011, (iii) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012, and ~~September~~March 3031, ~~2010~~2011 and (iv) Notes to Condensed Consolidated Financial Statements.

1716

SIGNATURE

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
Date: October 31, 2011
Date: April 16, 2012
	by:	/s/ S. Colin Neill
	S. Colin Neill
	President, Chief Financial Officer, Secretary & Treasurer
	(Principal Accounting and Financial Officer)

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