The Company’s Form 10-K, which was filed with the SEC on February 27, 2009, contained an audit opinion from PricewaterhouseCoopers LLP, its then registered public accounting firm, that expresses doubt about the ability of the company to continue as a going concern for a reasonable period of time. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Also, secondary response variables of adequate relief over placebo in a Phase 2a clinical trial inof abdominal pain and discomfort and overall IBS (n=141, p=0.033). On June 20, 2007symptoms ratings showed statistical significance and trends favoring the Company announced patient screening had commenced in its Phase 2b clinical trial of dextofisopam, which was plannedDextofisopam 200 mg group compared to enroll approximately 480 female patients with diarrhea-predominant or alternating irritable bowel syndrome (d- and a-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 men. With an absence of safe and effective therapies, dextofisopam’s novel non-serotonergic brain-gut mechanism holds the potential for a unique and innovative treatment approach to d- and a-IBS.placebo.

The Company has recently reevaluated the size of the Phase 2b trialdouble-blind, randomized, placebo-controlled study evaluated the clinical safety, tolerability and has concluded that a smaller trial could achieve the original objectivesefficacy of the Phase 2b Dextofisopam trial. In that the Phase 2b trial is not goingmultiple doses of Dextofisopam. Female outpatients with diarrhea predominant and alternating diarrhea and constipation IBS (according to be a registration /pivotal trial, the objectives that must be achieved in order to make a decision to progressRome III Criteria for IBS) were randomized into a Phase 3 trial are to: (1) determine the best dose to move into Phase 3, (2) replicate the efficacy observed in the Phase 2a trial, (3) determine the optimal endpoints for Phase 3.  In addition, it is to ensure that the Phase 2b package is saleable and attractive to a pharmaceutical company for further development.

In the Phase 2b study, of the current324 patients randomized, 311 (96%) were evaluated in the Intent to Treat (ITT) analysis. Patients who completed the full study numbered 225 (69%), a similar percentage to the Phase 2a study, and 99 (31%) patients discontinued the study. The majority of patients who discontinued did so due to withdrawal of consent or a non serious adverse event.

This Phase 2b study followed a successful 141-patient Phase 2a study in which Dextofisopam with a dose of 200 mg BID demonstrated a statistically significant improvement over placebo on the primary endpoint of adequate overall relief ( p=0.033). In the Phase 2a trial, Dextofisopam was well tolerated and did not cause significant constipation. Dextofisopam also provided benefit on a variety of secondary endpoints. Importantly, the beneficial effects on stool frequency were observable after two days and maintained for 12 weeks of treatment. Overall, similar rates of adverse events were seen with Dextofisopam and placebo. Diarrhea and constipation as adverse events occurred at a very low rate.

Additionally, Dextofisopam has been based on clinical and statistical inputevaluated in three randomized, double-blind, placebo-controlled Phase 1 trials comprising healthy volunteers. Clinical data from the Phase 1 studies demonstrated that Dextofisopam appears to be safe and well tolerated at doses up to 600 mg BID.

As previously communicated, the Company’s expert consultants. An analysisstrategy is now to seek a pharmaceutical partner with the appropriate GI scientific expertise for further development of the trial sizes of other IBS drug candidates in Phase 2b trials indicated that, with approximately 80 patients per cohort,Dextofisopam.  On October 21, 2009 the Company would have sufficient numbers on whichannounced that it had engaged Cowen and Company as advisors to makeassist with accelerating a decision on whether or not the drug can progress into Phase 3 testing. The top line results from the Dextofisopam Phase 2b trial are expected to be available in September 2009.partnership arrangement for Dextofisopam.

The Company’s primary focus is on the development of Dextofisopam and to that end cash resources are being conserved and targeted for that program. On August 29, 2008 the Company announced that effective October 31, 2008 it would cease operations in Rehovot, Israel, and manage those activities out of the Company’s US headquarters in Iselin, New Jersey. The Company’s subsidiary in Israel, Pharmos Ltd. is being voluntarily liquidated.

The Company’s strategy is to seekalso includes  seeking a partner who will take the lead in both operating and funding the research programs other than Dextofisopam. The Company does not plan to invest any further funds into the programs that have been developed in Israel. These programs are available for sale / licensing or some other arrangement with potential partners.

On February 18,March 13, 2009 the Company announced that it had entered into an Asset Purchase Agreement (APA)was officially delisted from the Nasdaq Capital Market, and is currently trading on the OTCBB pink sheets. The Company was not in compliance with Reperio Pharmaceuticals Ltd.the minimum $2,500,000 stockholders’ equity requirement for continued listing and was unable to comply during the grace period extended by Nasdaq. As a result of trading on the OTCBB pink sheets, liquidity for the saleCompany’s common stock may be significantly decreased which could reduce trading price and increase the transaction costs of trading shares of the patent rights and technical know-how related to the compound known as PRS-639,058 and some follow-on molecules. The transaction was subject to a number of closing conditions, including a scientific diligence study and an upfront payment.

Pharmos is currently developing only one compound, Dextofisopam which  hasfor the treatment of irritable bowel syndrome (IBS).

In the Phase 2b study, of the 324 patients randomized, 311 (96%) were evaluated in the Intent to Treat (ITT) analysis. Patients who completed the full study numbered 225 (69%), a double-blind, placebo-controlled diarrhea-predominant or alternating IBSsimilar percentage to the Phase 2a study, and 99 (31%) patients discontinued the study. The majority of patients who discontinued did so due to withdrawal of consent or a non serious adverse event.

This Phase 2b study followed a successful 141-patient Phase 2a study in which Dextofisopam with positive effect on primary efficacy endpoint (n=141, p=0.033). In this study, Dextofisopam was well-tolerated anda dose of 200 mg BID demonstrated a statistically significant improvement over placebo suggestingon the primary endpoint of adequate overall relief ( p=0.033). In the Phase 2a trial, Dextofisopam was well tolerated and did not cause significant constipation. Dextofisopam also provided benefit on a variety of secondary endpoints. Importantly, the beneficial effects on stool frequency were observable after two days and maintained for 12 weeks of treatment. Overall, similar rates of adverse events were seen with Dextofisopam and placebo. Diarrhea and constipation as adverse events occurred at a very low rate.

Additionally, Dextofisopam has been evaluated in three randomized, double-blind, placebo-controlled Phase 1 trials comprising healthy volunteers. Clinical data from the Phase 1 studies demonstrated that Dextofisopam hasappears to be safe and well tolerated at doses up to 600 mg BID.

As previously communicated, the potentialCompany’s strategy is now to becomeseek a novel firstline treatmentpharmaceutical partner with the appropriate GI scientific expertise 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-enantiomerfurther development 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 developed, both of which have significant safety concerns, Dextofisopam’s novel non-serotonergic activity offers a unique and innovative approach to IBS treatment.

On April 21, 2009, Pharmos Corporation completed a private placement of common stock and warrants.  At the closing, the Company issued 18,000,000 shares of common stock and warrants exercisable for an additional 18,000,000 shares of common stock for an aggregate purchase price of $1,800,000.  The proceeds of this financing, together with the Company’s existing cash, will be used to fund completion of the Dextofisopam Phase 2b trial and Company operations through 2009. If the trial is successful, this financing would also support additional efforts to negotiate a strategic partnership or license arrangement with a pharmaceutical company. This is consistent with Pharmos’ strategy as previously communicated, since the Company does not have the resources to continue to develop Dextofisopam through a Phase 3 trial.

The Company also maintains a commitment to out-license proprietary technologies and products not consistent   with our primary corporate focus. Assets involved are Tianeptine to treat IBS or functional dyspepsia.

In the quarter ended JuneSeptember 30, 2009, the Company advancedcompleted a Phase IIb2b trial of its lead compound, dextofisopam,Dextofisopam, in female IBS patients. The Phase IIb2b trial was fully enrolled on April 9, 2009 at 324 patients. Costs of $1,092,000$971,000 were incurred during the quarter in connection with the trial, comprising CRO-related activities and patient recruitment costs.activities. All patients in the trial have completed treatment in July of 2009 and top line clinical data is expectedwas released in September 2009. IfThe results of the Dextofisopam Phase 2b clinical trial were announced on September 14, 2009. The trial did not meet the primary endpoints for any of the three drug dose arms and therefore the trial isdid not meet the definition of a successful trial. On October 21, 2009 the proceeds from the April 2009 financing will also support additional effortsCompany announced that it had engaged Cowen and Company as advisors to negotiateassist with accelerating a partnership or license arrangement with a pharmaceutical company. This is consistent with the Company’s strategy as previously communicated, as the Company’s plan is to seek a pharmaceutical company as a partner for further development of Dextofisopam.

In the first halfnine months of 2009, the Company advancedcompleted a Phase IIb2b trial of its lead compound, dextofisopam,Dextofisopam, in female IBS patients. The Phase IIb2b trial was fully enrolled on April 9, 2009 at 324 patients. Costs of $2,975,000$3,946,000 were incurred during the first halfnine months of 2009 in connection with the trial, comprising CRO-related activities and patient recruitment costs.activities. All patients in the trial completed treatment in July of 2009 and top line clinical data is expectedwas released in September 2009. IfThe results of the Dextofisopam Phase 2b clinical trial were announced on September 14, 2009. The trial did not meet the primary endpoints for any of the three drug dose arms and therefore the trial isdid not meet the definition of a successful trial. On October 21, 2009 the proceeds from the April 2009 financing will also support additional effortsCompany announced that it had engaged Cowen and Company as advisors to negotiateassist with accelerating a partnership or license arrangement with a pharmaceutical company. This is consistent with the Company’s strategy as previously communicated, as the Company’s plan is to seek a pharmaceutical company as a partner for further development of Dextofisopam.

Management believes that the current cash and cash equivalents, totaling $2.9$1.3 million as of JuneSeptember 30, 2009, will be sufficient to support the Company's currently planned continuing operations at least through December 31, 2009. The Company is working on securing cash resources to extend operations beyond December 31, 2009. Cowen and Company have been retained as advisors to help accelerate the process of a partnership arrangement for our lead compound, Dextofisopam. Additionally any proceeds for the sale of the New Jersey NOL’s are expected to extend operations beyond December 31, 2009. The Company’s expected cash expenditures in the second halflast quarter of 2009 will be less than the first halfthree quarters of 2009 as the Dextofisopam Phase 2b trial completed patient treatment in July and statistical analysis is expected to be substantially completewas completed in September 2009. The majority of ongoing costs will be general and administrative which will be significantly less than funding a clinical trial. The Company routinely pursues various funding options, including additional equity offerings, equity-like financing, strategic corporate alliances, business combinations and the establishment of product related research and development limited partnerships, to obtain additional financing to continue the development of its products and bring them to commercial markets.  On April 21, 2009, the Company completed a private placement of common stock and warrants.  At the closing, the Company issued 18,000,000 shares of common stock and warrants exercisable for an additional 18,000,000 shares of common stock for an aggregate purchase price of $1,800,000.  The exercise price of the warrants, which have a five-year term, is $0.12 per share.  The details of the financing, made by existing investors and current board members, are described in Note 2 to the financial statements. If the trial is successful, thisThis financing would also support additional efforts to negotiate a strategic partnership or license arrangement with a pharmaceutical company. This is consistent with Pharmos’ strategy as previously communicated, since the Company does not have the resources to continue to develop Dextofisopam through a Phase 3 trial.

The Company’s Form 10-K, which was filed with the SEC on February 27, 2009, contained an audit opinion from PricewaterhouseCoopers LLP, its then registered public accounting firm, that expresses doubt about the ability of the company to continue as a going concern for a reasonable period of time. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On March 13, 2009 the company was officially delisted from the Nasdaq Capital Market, and is currently trading on the OTCBB pink sheets. The company was not in compliance with the minimum $2,500,000 stockholders’ equity requirement for continued listing and was unable to comply during the grace period extended by Nasdaq. As a result of trading on the OTCBB pink sheets, liquidity for our common stock may be significantly decreased which could reduce trading price and increase the transaction costs of trading shares of the company’s common stock.

The Company realized $4,000,000 in proceeds from the issuance of convertible debentures in January 2008. On April 21, 2009 the Company completed a private placement of common stock and warrants that raised proceeds of $1,779,777 net of issuance costs. In connection with the April 21, 2009 financing, $3,000,000 of the January 2008 convertible debentures was converted at $0.275. The remaining $1,000,000 debenture is outstanding with the original conversion price of $0.70. (See note 2 to the financial statements for further information).

As of JuneSeptember 30, 2009, the Company had the following contractual commitments and long-term obligations:

On June 27, 2007,In the FASB reached a final consensus on Emerging Issues Task Force Issue 07-3, “Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities” (“EITF 07-03”). EITF 07-03 addresses whether such non-refundable advance payments for goods or services that have no alternative future use and that will be used or rendered for research and development activities should be expensed whenquarter ended September 30, 2009, the advance payments are made or when the research and development activities have been performed. The consensus reached by the FASB requires companies involved in research and development activities to capitalize such non-refundable advance payments for goods and services pursuant to an executory contractual arrangement because the right to receive those services in the future represents a probable future economic benefit. Those advance payments will be capitalized until the goods have been delivered or the related services have been performed. Entities will be required to evaluate whether they expect the goods or services to be rendered. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment will be charged to expense. The Company adopted EITF 07-3Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification (ASC) and Hierarchy of Generally Accepted Accounting Principles”, which is now the single source of authoritative US GAAP for interim and annual periods.. The adoption had no effects and the codification supersedes all existing non-SEC standards; new references are included in this interim report on January 1, 2008.  At June 30, 2009 there were $330,221 in capitalized prepayments.  The company expects these amounts to be fully amortized by September 30, 2009.Form 10-Q.

In May 2008 the FASB issued FSP APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement”Settlement)”. The statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The Company has evaluated the impact of this statement now included in ASC Topic 470, and has concluded that it is not applicable to the Company’s convertible debentures.

The Company has adopted the guidance espoused in SFAS No. 165, “Subsequent Events” (“SFAS 165”), now included in ASC Topic 855, effective beginning in the quarter ended June 30, 2009 and have evaluated for disclosure subsequent events that have occurred up to AugustNovember 12, 2009, the date of issuance ofthat our financial statements.statements are available for release.