10-Q

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 30, 2011

or

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 31, 2011, the Registrant had outstanding 59,879,391 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 Statements of Operations for the three and nine months ended September 30, 2011 and 2010		2
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010		3
	Notes to Condensed Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15
Item 4	Controls and Procedures		15
PART II  OTHER INFORMATION
Item 1.	Legal Proceedings		16
Item 1A.	Risk Factors		16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3.	Defaults Upon Senior Securities		16
Item 4.	(Removed and Reserved)		16
Item 5.	Other Information		16
Item 6.	Exhibits		17
SIGNATURES			18

Part I. Financial Information

Item 1 Financial Statements

PHARMOS CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
	September 30, 2011			December 31, 2010
Assets
Cash and cash equivalents	$	1,799,494		$	3,139,347
Prepaid expenses and other current assets		52,065			46,833
Total current assets		1,851,559			3,186,180
Fixed assets, net		5,156			5,613
Total assets	$	1,856,715		$	3,191,793
Liabilities and Shareholders’ Equity
Accounts payable	$	88,381		$	67,199
Accrued interest and expenses		75,153			103,913
Total current liabilities		163,534			171,112
Convertible debenture		1,000,000			1,000,000
Total liabilities		1,163,534			1,171,112
Shareholders’ Equity
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
September 30, 2011 and December 31, 2010, respectively		1,796,382			1,787,558
Paid-in capital in excess of par		211,800,662			211,587,386
Accumulated deficit		(212,903,437	)		(211,353,837	)
Treasury stock, at cost, 2,838 shares		(426	)		(426	)
Total shareholders' equity		693,181			2,020,681
Total liabilities and shareholders' equity	$	1,856,715		$	3,191,793

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

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PHARMOS CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

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

	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.

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Pharmos Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine months ended September 30,
	2011			2010
Cash flows from operating activities
Net loss	$	(1,549,600	)	$	(1,393,657	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,057			1,013
Amortization of deferred financing fees		2,788			8,768
Stock based compensation		122,101			151,097
Interest expense to be paid in common stock		75,000			75,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(8,021	)		(31,106	)
Accounts payable		21,182			14,377
Accrued expenses		(3,760	)		(37,451	)
Accrued wages and other compensation		-			(195,000	)
Net cash used in operating activities		(1,338,253	)		(1,406,959	)
Cash flows from investing activities
Purchases of fixed assets		(1,600	)		(2,619	)
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

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

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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 month period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The December 31, 2010 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 consolidated financial statements have been prepared assuming it will continue as a going concern. At September 30, 2011, the Company had approximately $1.8 million in cash and cash equivalents. Management believes that the current cash and cash equivalents will be sufficient to support our currently planned continuing operations through at least April 30, 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 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 incur clinical trial costs. The Company expects to have sufficient cash to fund the development of Levotofisopam through completion of a 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 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 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.

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 of the nervous system, including 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.

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Gout: Levotofisopam (S-Tofisopam) for treatment of Gout.

Levotofisopam is the S-enantiomer of the racemic mixture RS-tofisopam, a well-tolerated, effective, nonsedating agent used outside the United States for the treatment of a variety of disorders associated with stress or autonomic instability.

The Company has submitted an Investigational 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 in a proof-of-concept study in Gout patients. To confirm the safety of the planned dose, the Company conducted a successful non-human primate toxicology study. The Company now plans to conduct a proof-of-concept clinical trial in the US in Gout 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 lowering of uric acid is believed to be a key treatment in Gout patients. The precise mechanism by which Levotofisopam lowers uric acid is unknown. However, unlike allopurinol, a drug commonly used to treat Gout patients, Levotofisopam does not inhibit xanthine oxidase. Available data indicate that the predominant mechanism of the serum-urate lowering effect of Levotofisopam in humans is through uricosuric activity rather than inhibition of urate synthesis.  A precondition leading in some cases to Gout is hyperuricemia, which leads to increased pools of insoluable urate. Chronic hyperuricemia can lead to destructive gouty arthritis, formation of kidney stones, urate nephropathy, and/or tophi (crystal aggregates), which can produce grotesque malformations of the hands, feet, or other portions of the body. Hyperuricemia is caused either by an overproduction of or, more usually (80-90% of cases), underexcretion of uric acid, the metabolic product of purine metabolism.

IBS –D: Dextofisopam for Irritable Bowel Syndrome.

The Company's most advanced product is Dextofisopam for the treatment of irritable bowel syndrome (IBS). IBS is a chronic and sometimes debilitating condition that affects roughly 10%-15% of U.S. adults and is two to three times more prevalent in women than in men. With an absence of safe and effective therapies, Dextofisopam’s novel non-serotonergic activity holds the potential for a unique and innovative treatment approach to IBS with diarrheapredominant and alternating patients.

Dextofisopam has completed a statistically significant Phase 2a trial (N=141, p=0.033) and a Phase 2b trial  (N=324) which did not meet the primary endpoint of overall adequate relief. Although the primary efficacy variable (% of weeks responding for adequate overall relief of IBS symptoms) did not reach statistical significance, the percentage responding for the Dextofisopam 200 mg group was higher than that observed for the Phase 2a trial. However, the placebo response rate was also higher than expected compared to the Phase 2a placebo response.

This result was similarly demonstrated across all other secondary efficacy variables associated with the adequate overall relief question. In all cases except in the first month, the response rates for the Dextofisopam 200 mg group were essentially the same as or in most cases better than the response rates observed for the Phase 2a trial. Also, secondary response 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.

The Company’s strategy is to seek a pharmaceutical partner with the appropriate GI clinical and scientific expertise for further development of Dextofisopam.

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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 30, 2011 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 30, 2011 and 2010, 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.

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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.

Equity based compensation

During the nine months ended September 30, 2011 and 2010, the Company recognized equity based compensation expense of $122,101 and $151,097, respectively, for restricted stock and stock options. As of September 30, 2011, the total compensation costs related to non-vested stock options not yet recognized is $133,504 which will be recognized over the next three and one half years. Also, the Executive Chairman of the Board non-vested restricted stock not yet recognized is $104,500 which will be recognized over the next two years.

During the nine months ended September 30, 2011 and 2010, 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
September 30, 2010		490,000	$	0.11	$	0.09

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 Company is currently evaluating the impact ASU 2011-04 will have on its consolidated financial statements.

5.      Convertible Debentures

On January 3, 2008, Pharmos Corporation completed a private placement of its 10% Convertible Debentures due November 2012. At the closing the Company issued $4,000,000 principal amount of the Debentures, at par, and received gross proceeds in the same amount. The purchasers consisted of certain existing investors in the Company, namely Venrock Associates (which is affiliated with Anthony B. Evnin), New Enterprise Associates (which is affiliated with Charles W. Newhall, III), Lloyd I. Miller, III and Robert F. Johnston.

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The Debentures mature the earlier of November 1, 2012 or the sale of the Company. The Debentures, together with all accrued and unpaid interest thereon, may be repaid, without premium or penalty, 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 or common stock of the Company at the option of the Company, provided that an effective registration statement is in effect.

On April 21, 2009, Venrock Associates (which is affiliated with Anthony B. Evnin, a Director 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.

A registration statement covering the resale of the shares underlying the debenture held by Lloyd I. Miller, III, was declared effective in February 2011.

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.

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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,
	2011		2010
Stock options		4,339,312		3,460,499
Convertible debenture		1,428,571		1,428,571
Restricted stock		525,000		825,000
Warrants		18,000,000		18,000,000
Total potential dilutive securities not included in loss per share		24,292,883		23,714,070

8.      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 months of 2011, the Company expensed $49,500 for Mr. Johnston’s restricted stock.

On September 3, 2010, Steven Leventer Ph.D., board member, was awarded 350,000 shares of non-qualified stock options. One-third of the options shall be exercisable as of the date hereof, one-third of the options shall be exercisable as of the first anniversary of the date hereof and one-third of the options shall be exercisable as of the second anniversary of the date hereof. In the first nine months of 2011, the Company expensed $8,766 for Dr. Leventer’s stock options.

In the first quarter of 2011, the Company elected to pay the interest on its 10% Convertible Debentures due November 2012 incurred through the sixth interest payment date, January 15, 2011, in common stock to the remaining debenture holder. The dollar amount of interest incurred from July 15, 2010 to January 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.

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.

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.

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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 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 Strategy and Operating Plan

Pharmos Corporation (the Company or Pharmos) is a biopharmaceutical company that discovers and develops novel therapeutics to treat a range of diseases of the nervous system, including 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 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 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 completed a non-human primate toxicology study to confirm the planned starting dose in the upcoming human trial 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.

In March 2011, the Company submitted an Investigational 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 in the proof-of-concept study in Gout patients. To confirm the safety of the planned dose, the Company conducted and successfully completed a non-human primate toxicology study. The Company is now ready to commence a proof-of-concept clinical trial in the US in Gout patients using Levotofisopam expected to commence in the fourth quarter of 2011.

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.

10

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.

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.

The Company has explored the concept of a merger or reverse merger with another life science company in order to build greater pipeline critical mass. Several possible candidates were recently examined but were not pursued after preliminary scientific diligence. Suitable opportunities continue to be evaluated.

The results for the three and nine months ended September 30, 2011 and 2010 were a net loss of $0.4 million and $0.5 million and a net loss of $1.5 million and $1.4 million, respectively. On a loss per share basis, this equates to $(0.01) and $(0.01) for the quarters ended September 30, 2011 and 2010 and $(0.03) and $(0.02) for the first nine months, respectively.

Except 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 $212.9 million as of September 30, 2011 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 $1.8 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 Gout.

11

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 incur clinical trial costs. The Company expects to have sufficient cash resources to fund the development of Levotofisopam through completion of a proof-of-concept trial and fund other operating expenses through April 2012. The Company will shortly commence a small proof-of-concept trial using Levotofisopam to treat patients with Gout. During the first quarter of 2012, the Company expects to have more information on the probability of success. 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.

The Company has in the past pursued various funding and financing options; however management believes that future funding or financing options may be challenging because of the current environment.

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 30, 2011 and 2010

Total operating expenses for the third quarter of 2011 decreased by $29,396 or 7%, from $450,105 in 2010 to $420,709 in 2011.

Research & development expenses for the third quarter increased by $21,540, or 14%, from $153,806 in 2010 to $175,346 in 2011. The primary areas include an $81,000 increase in clinical study fees which were offset by a $28,000 reduction in consultant and professional fees and a $31,000 reduction in various other areas. Clinical study fees increased due to costs related to conducting a non-human primate toxicology study needed for the Gout trial. Consulting and professional fees have decreased as the Company conducted work in the preparation of the IND for the Gout trial in 2010 while in 2011 there were lower expenses for the quarter since the trial has not started yet. 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.

No tax provision is required at this time since the Company expects to be in a tax loss position at year-end December 31, 2011 and has net operating losses from previous years. The Company has established a 100% valuation allowance against the deferred tax asset.

Results of Operations

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.

12

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 30, 2011, and on December 31, 2010:

	September 30, 2011		December 31, 2010
Working capital	$	1,688,025	$	3,015,068
Cash and cash equivalents	$	1,799,494	$	3,139,347
Convertible Debenture – due November 2012	$	1,000,000	$	1,000,000

Current working capital position

As of September 30, 2011, the Company had working capital of $1.7 million consisting of current assets of $1.9 million and current liabilities of $0.2 million. This represents a decrease of $1.3 million from its working capital of $3.0 million on current assets of $3.2 million and current liabilities of $0.2 million as of December 31, 2010. This decrease in working capital of $1.3 million was principally associated with the funding of general and administrative activities and research and development expenses related to advance work to start 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 incur 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 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.

13

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 months of 2011 was $1.3 million compared to net cash used of $1.4 million for the first nine months of 2010. 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

As of September 30, 2011, the Company had the following contractual commitments and long-term obligations:

	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		Undetermined
Operating leases	$	6,387	$	6,387	$	-	$	-	$	-
Convertible debenture		1,000,000		-		1,000,000		-		-
Convertible debenture interest		108,333		100,000		8,333		-		-
Total	$	1,114,720	$	106,387	$	1,008,333	$	-	$	-

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 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.

14

New 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 Company is currently evaluating the impact ASU 2011-04 will have on its consolidated financial statements.

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 30, 2011. Based on this evaluation, Pharmos' principal executive officer and principal financial officer concluded that as of September 30, 2011, 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.

15

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 $1.8 million as of September 30, 2011, will be sufficient to support our currently planned continuing operations through at least April 30, 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 incur 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 and Reserved)
Item 5	Other Information	NONE

.

16

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 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i)  Condensed Consolidated Balance Sheets as of September 30, 2011, and December 31, 2010, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011, and September 30, 2010, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011, and September 30, 2010 and (iv) Notes to Condensed Consolidated Financial Statements.

17

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
	by:	/s/ S. Colin Neill
	S. Colin Neill
	President, Chief Financial Officer, Secretary & Treasurer
	(Principal Accounting and Financial Officer)

 18

EX-31.1

EXHIBIT 31.1

CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER

I, Robert F. Johnston, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pharmos Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Robert F. Johnston

Robert F. Johnston

Executive Chairman

(Principal Executive Officer)

Date:  October 31, 2011

EX-31.2

EXHIBIT 31.2

CERTIFICATE OF CHIEF FINANCIAL OFFICER

I, S. Colin Neill, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pharmos Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ S. Colin Neill

S. Colin Neill

Chief Financial Officer

Date:  October 31, 2011

EX-32.1

EXHIBIT 32.1

PHARMOS CORPORATION

SECTION 1350 CERTIFICATION

In connection with the quarterly report of PHARMOS CORPORATION, a Nevada corporation (the “Company”), on Form 10-Q for the quarter ended September 30, 2011, as filed with the Securities and Exchange Commission (the “Report”), I, ROBERT F. JOHNSTON, Executive Chairman (Principal Executive Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date:  October 31, 2011

By: /s/ Robert F. Johnston

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to Pharmos Corporation and will be retained by Pharmos Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

PHARMOS CORPORATION

SECTION 1350 CERTIFICATION

In connection with the quarterly report of PHARMOS CORPORATION, a Nevada corporation (the “Company”), on Form 10-Q for the quarter ended September 30, 2011, as filed with the Securities and Exchange Commission (the “Report”), I, S. COLIN NEILL, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: October 31, 2011

By: /s/ S. Colin Neill

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to Pharmos Corporation and will be retained by Pharmos Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Condensed Consolidated Balance Sheets [Abstract]
Preferred stock, par value	$ 0.03	$ 0.03
Preferred stock, authorized	1,250,000	1,250,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value	$ 0.03	$ 0.03
Common stock, authorized	120,000,000	120,000,000
Common stock, issued	59,879,391	59,585,273
Treasury stock, shares	2,838	2,838

XML

Condensed Consolidated Statements Of Operations (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 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

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2011	Oct. 31, 2011
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2011
Entity Registrant Name	PHARMOS CORP
Entity Central Index Key	0000713275
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		59,879,391

XML

Net Loss Per Common Share

9 Months Ended

Sep. 30, 2011

Net Loss Per Common Share [Abstract]

Net Loss Per Common Share

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,
	2011		2010
Stock options		4,339,312		3,460,499
Convertible debenture		1,428,571		1,428,571
Restricted stock		525,000		825,000
Warrants		18,000,000		18,000,000
Total potential dilutive securities not included in loss per share		24,292,883		23,714,070

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The Company

9 Months Ended

Sep. 30, 2011

The Company [Abstract]

The Company

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 of the nervous system, including 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: Levotofisopam (S-Tofisopam) for treatment of Gout.

Levotofisopam is the S-enantiomer of the racemic mixture RS-tofisopam, a well-tolerated, effective, nonsedating agent used outside the United States for the treatment of a variety of disorders associated with stress or autonomic instability.

The Company has submitted an Investigational 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 in a proof-of-concept study in Gout patients. To confirm the safety of the planned dose, the Company conducted a successful non-human primate toxicology study. The Company now plans to conduct a proof-of-concept clinical trial in the US in Gout 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 lowering of uric acid is believed to be a key treatment in Gout patients. The precise mechanism by which Levotofisopam lowers uric acid is unknown. However, unlike allopurinol, a drug commonly used to treat Gout patients, Levotofisopam does not inhibit xanthine oxidase. Available data indicate that the predominant mechanism of the serum-urate lowering effect of Levotofisopam in humans is through uricosuric activity rather than inhibition of urate synthesis.  A precondition leading in some cases to Gout is hyperuricemia, which leads to increased pools of insoluable urate. Chronic hyperuricemia can lead to destructive gouty arthritis, formation of kidney stones, urate nephropathy, and/or tophi (crystal aggregates), which can produce grotesque malformations of the hands, feet, or other portions of the body. Hyperuricemia is caused either by an overproduction of or, more usually (80-90% of cases), underexcretion of uric acid, the metabolic product of purine metabolism.

IBS –D: Dextofisopam for Irritable Bowel Syndrome.

The Company's most advanced product is Dextofisopam for the treatment of irritable bowel syndrome (IBS). IBS is a chronic and sometimes debilitating condition that affects roughly 10%-15% of U.S. adults and is two to three times more prevalent in women than in men. With an absence of safe and effective therapies, Dextofisopam's novel non-serotonergic activity holds the potential for a unique and innovative treatment approach to IBS with diarrheapredominant and alternating patients.

Dextofisopam has completed a statistically significant Phase 2a trial (N=141, p=0.033) and a Phase 2b trial (N=324) which did not meet the primary endpoint of overall adequate relief. Although the primary efficacy variable (% of weeks responding for adequate overall relief of IBS symptoms) did not reach statistical significance, the percentage responding for the Dextofisopam 200 mg group was higher than that observed for the Phase 2a trial. However, the placebo response rate was also higher than expected compared to the Phase 2a placebo response.

This result was similarly demonstrated across all other secondary efficacy variables associated with the adequate overall relief question. In all cases except in the first month, the response rates for the Dextofisopam 200 mg group were essentially the same as or in most cases better than the response rates observed for the Phase 2a trial. Also, secondary response 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.

The Company's strategy is to seek a pharmaceutical partner with the appropriate GI clinical and scientific expertise for further development of Dextofisopam.

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.

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Common Stock Transactions

9 Months Ended

Sep. 30, 2011

Common Stock Transactions [Abstract]

Common Stock Transactions

8.     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 months of 2011, the Company expensed $49,500 for Mr. Johnston's restricted stock.

On September 3, 2010, Steven Leventer Ph.D., board member, was awarded 350,000 shares of non-qualified stock options. One-third of the options shall be exercisable as of the date hereof, one-third of the options shall be exercisable as of the first anniversary of the date hereof and one-third of the options shall be exercisable as of the second anniversary of the date hereof. In the first nine months of 2011, the Company expensed $8,766 for Dr. Leventer's stock options.

In the first quarter of 2011, the Company elected to pay the interest on its 10% Convertible Debentures due November 2012 incurred through the sixth interest payment date, January 15, 2011, in common stock to the remaining debenture holder. The dollar amount of interest incurred from July 15, 2010 to January 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.

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.

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.

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Basis Of Presentation

9 Months Ended

Sep. 30, 2011

Basis Of Presentation [Abstract]

Basis Of Presentation

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 month period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The December 31, 2010 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.

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Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Significant Accounting Policies [Abstract]

Significant Accounting Policies

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 30, 2011 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 30, 2011 and 2010, 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.

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.

Equity based compensation

During the nine months ended September 30, 2011 and 2010, the Company recognized equity based compensation expense of $122,101and $151,097, respectively, for restricted stock and stock options. As of September 30, 2011, the total compensation costs related to non-vested stock options not yet recognized is $133,504 which will be recognized over the next three and one half years. Also, the Executive Chairman of the Board non-vested restricted stock not yet recognized is $104,500 which will be recognized over the next two years.

During the nine months ended September 30, 2011 and 2010, 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
September 30, 2010		490,000	$	0.11	$	0.09

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 Company is currently evaluating the impact ASU 2011-04 will have on its consolidated financial statements.

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Convertible Debentures

9 Months Ended

Sep. 30, 2011

Convertible Debentures [Abstract]

Convertible Debentures

5.     Convertible Debentures

On January 3, 2008, Pharmos Corporation completed a private placement of its 10% Convertible Debentures due November 2012. At the closing the Company issued $4,000,000 principal amount of the Debentures, at par, and received gross proceeds in the same amount. The purchasers consisted of certain existing investors in the Company, namely Venrock Associates (which is affiliated with Anthony B. Evnin), New Enterprise Associates (which is affiliated with Charles W. Newhall, III), Lloyd I. Miller, III and Robert F. Johnston.

The Debentures mature the earlier of November 1, 2012 or the sale of the Company. The Debentures, together with all accrued and unpaid interest thereon, may be repaid, without premium or penalty, 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 or common stock of the Company at the option of the Company, provided that an effective registration statement is in effect.

On April 21, 2009, Venrock Associates (which is affiliated with Anthony B. Evnin, a Director 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.

A registration statement covering the resale of the shares underlying the debenture held by Lloyd I. Miller, III, was declared effective in February 2011.

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Acquisition Of Vela Pharmaceuticals, Inc.

9 Months Ended

Sep. 30, 2011

Acquisition Of Vela Pharmaceuticals, Inc. [Abstract]

Acquisition Of Vela Pharmaceuticals, Inc.

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.

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Condensed Consolidated Statements Of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities
Net loss	$ (1,549,600)	$ (1,393,657)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,057	1,013
Amortization of deferred financing fees	2,788	8,768
Stock based compensation	122,101	151,097
Interest expense to be paid in common stock	75,000	75,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(8,021)	(31,106)
Accounts payable	21,182	14,377
Accrued expenses	(3,760)	(37,451)
Accrued wages and other compensation		(195,000)
Net cash used in operating activities	(1,338,253)	(1,406,959)
Cash flows from investing activities
Purchases of fixed assets	(1,600)	(2,619)
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

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Liquidity, Business Risks And Going Concern

9 Months Ended

Sep. 30, 2011

Liquidity Business Risks and Going Concern [Abstract]

Liquidity Business Risks and Going Concern

2.Liquidity, Business Risks and Going Concern

The Company's consolidated financial statements have been prepared assuming it will continue as a going concern. At September 30, 2011, the Company had approximately $1.8 million in cash and cash equivalents. Management believes that the current cash and cash equivalents will be sufficient to support our currently planned continuing operations through at least April 30, 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 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 incur clinical trial costs. The Company expects to have sufficient cash to fund the development of Levotofisopam through completion of a 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 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 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.

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Condensed Consolidated Balance Sheets (USD $)	Sep. 30, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 1,799,494	$ 3,139,347
Prepaid expenses and other current assets	52,065	46,833
Total current assets	1,851,559	3,186,180
Fixed assets, net	5,156	5,613
Total assets	1,856,715	3,191,793
Liabilities and Shareholders' Equity
Accounts payable	88,381	67,199
Accrued interest and expenses	75,153	103,913
Total current liabilities	163,534	171,112
Convertible debenture	1,000,000	1,000,000
Total liabilities	1,163,534	1,171,112
Shareholders' Equity
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 September 30, 2011 and December 31, 2010, respectively	1,796,382	1,787,558
Paid-in capital in excess of par	211,800,662	211,587,386
Accumulated deficit	(212,903,437)	(211,353,837)
Treasury stock, at cost, 2,838 shares	(426)	(426)
Total shareholders' equity	693,181	2,020,681
Total liabilities and shareholders' equity	$ 1,856,715	$ 3,191,793