SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File No. 0-11550
December 31, 1997
Pharmos Corporation
(Exact name of registrant as specified in its charter)
Nevada 36-3207413
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
33 Wood Avenue South, Suite 466
Iselin, NJ 08830
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (732) 603-3526
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.03 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock at March 13,
1998 held by those persons deemed to be non-affiliates was approximately
$87,691,458
As of March 13, 1998, the Registrant had outstanding 36,296,751 shares of
its $.03 par value Common Stock.
<PAGE>
Pharmos Corporation
Index to Consolidated Financial Statements
Report of Independent Accountants F - 2
Consolidated balance sheets as of December 31, 1997 and 1996 F - 3
Consolidated statement of operations for the years ended
December 31, 1997, 1996 and 1995 F - 4
Consolidated statement of changes in shareholders' (deficit) equity
for the years ended December 31, 1997, 1996 and 1995 F - 5
Consolidated statement of cash flows for the years ended
December 31, 1997, 1996 and 1995 F - 6
Notes to consolidated financial statements F - 7 - F21
F-1
<PAGE>
Report of Independent Accountants
March 16, 1998
To the Board of Directors and
Shareholders of Pharmos Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' (deficit)
equity and of cash flows present fairly, in all material respects, the financial
position of Pharmos Corporation and its subsidiary at December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and at December 31, 1997 has an accumulated deficit of
$72,069,727 that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Price Waterhouse LLP
Melville, New York
F-2
<PAGE>
Pharmos Corporation
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,423,389 $ 5,132,906
Inventories 1,804,627 --
Grants and other receivables 237,655 359,019
Prepaid royalties 143,333 --
Prepaid expenses and other current assets 171,299 247,363
------------ ------------
Total current assets 6,780,303 5,739,288
Fixed assets, net 703,428 629,413
Prepaid royalties, net of current portion 573,334 573,334
Intangible assets, net 291,262 337,786
Other assets 73,514 188,472
------------ ------------
Total assets $ 8,421,841 $ 7,468,293
============ ============
Liabilities and Shareholders' (Deficit) Equity
Current liabilities:
Long term debt, current portion $ 55,253 $ 115,244
Accounts payable 2,576,968 847,415
Accrued expenses 809,869 497,621
Accrued wages and other compensation 401,285 357,981
Advances against future sales 1,000,000 --
------------ ------------
Total current liabilities 4,843,375 1,818,261
Advances against future sales, net of current portion 4,000,000 4,000,000
Long term debt, net of current portion -- 110,648
Other liabilities 100,000 51,119
------------ ------------
Total liabilities 8,943,375 5,980,028
Shareholders' (deficit) equity:
Preferred stock, $.03 par value, 1,250,000 shares authorized:
Series A convertible, with a $1,000 liquidation preference,
0 and 1,900 shares issued and outstanding in 1997
and 1996, respectively -- 57
Series B convertible, with a $1,000 liquidation preference,
2,755 and 0 shares outstanding in 1997 and 1996, respectively 83 --
Common stock, $.03 par value; 50,000,000 shares authorized,
34,391,638 and 30,727,525 shares issued and
outstanding (excluding $551 in 1997 and 1996,
held in Treasury) in 1997 and 1996, respectively 1,031,197 921,274
Paid in capital 70,516,913 62,668,886
Accumulated deficit (72,069,727) (62,101,952)
------------ ------------
Total shareholders' (deficit) equity (521,534) 1,488,265
------------ ------------
Commitments and contingencies
Total liabilities and shareholders' (deficit) equity $ 8,421,841 $ 7,468,293
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Pharmos Corporation
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
License fees, royalties, net $ -- $ -- $ 75,000
Expenses:
Research and development, net 5,463,508 5,604,592 4,679,079
Patents 211,316 281,412 480,859
General and administrative 2,034,092 2,123,392 2,557,718
Marketing 598,385 -- --
Depreciation and amortization 255,718 345,595 536,010
------------ ------------ ------------
Total operating expenses 8,563,019 8,354,991 8,253,666
------------ ------------ ------------
Loss from operations (8,563,019) (8,354,991) (8,178,666)
Other income (expenses):
Interest income 330,453 323,097 209,584
Other income (expenses), net 16,365 (9,393) --
Interest expense (17,346) (35,923) (127,003)
------------ ------------ ------------
Other income (expenses), net 329,472 277,781 82,581
============ ============ ============
Loss before extraordinary item (8,233,547) (8,077,210) (8,096,085)
Extraordinary gain from forgiveness of debt,
net of $0 of income taxes (Note 3) 416,248 -- --
------------ ------------ ------------
Net loss (7,817,299) (8,077,210) (8,096,085)
------------ ------------ ------------
Less: Dividend embedded in convertible preferred
stock (Note 9) (1,952,767) -- --
Preferred stock dividends (240,375) -- --
------------ ------------ ------------
Net loss applicable to common shareholders $(10,010,441) $ (8,077,210) $ (8,096,085)
============ ============ ============
Loss per share applicable to common shareholders
before extraordinary gain - basic (.32) (.28) (.37)
Extraordinary gain per share .01 -- --
------------ ------------ ------------
Net loss per share applicable to common shareholders - basic $ (.31) $ (.28) $ (.37)
============ ============ ============
Weighted average shares outstanding - basic 32,442,981 29,291,401 21,885,862
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Pharmos Corporation
Consolidated Statement of Changes in Shareholders' (Deficit) Equity (Note 9)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Common Stock Preferred Stock Preferred Stock
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 14,631,726 $ 438,952 -- $ -- -- $ --
-------- ------- -------
Issuance of common stock to purchase Oculon Corp. 6,000,000 180,000 -- -- -- --
Conversion of debentures to common stock 2,442,309 73,269 -- -- -- --
Warrant exercise 75,000 2,250 -- -- -- --
Issuance of common stock, net of offering costs
of $900,000 6,000,000 180,000 -- -- -- --
Warrant grant to consultants -- -- -- -- -- --
Share adjustment for reverse split 4 -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- -------- -------- ------- -------
December 31, 1995 29,149,039 874,471 -- -- -- --
Warrant exercise 99,286 2,978 -- -- -- --
Issuance of Series A preferred stock, net of offering costs
of $18,000 -- -- 1,900 57 -- --
Private placement of common stock 1,479,200 44,376 -- -- -- --
Warrant grant to consultants -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- -------- -------- ------- -------
December 31, 1996 30,727,525 921,825 1,900 57 -- --
Issuance of Series B preferred stock,
net of offering costs of $260,000 -- -- -- -- 6,000 180
Warrant exercises 37,500 1,125 -- -- -- --
Conversion of Series A preferred stock 1,492,943 44,788 (1,900) (57) -- --
Preferred stock dividend paid with common stock 133,455 4,004 -- -- -- --
Conversion of Series B preferred stock 2,000,215 60,006 -- -- (3,245) (97)
Dividend embedded in convertible preferred stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- -------- -------- ------- -------
December 31, 1997 34,391,638 $1,031,748 -- $ -- 2,755 $ 83
========== ========== ======== ======== ======= =======
<CAPTION>
Total
Treasury Shareholders'
Paid-in Accumulated Stock (Deficit)
Capital Deficit Shares Amount Equity
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $ 46,669,890 $(45,928,657) 18,356 $ (551) $ 1,179,634
Issuance of common stock to purchase Oculon Corp. 2,892,426 -- -- -- 3,072,426
Conversion of debentures to common stock 1,196,731 -- -- -- 1,270,000
Warrant exercise 36,750 -- -- -- 39,000
Issuance of common stock, net of offering costs
of $900,000 7,920,000 -- -- -- 8,100,000
Warrant grant to consultants 48,000 -- -- -- 48,000
Share adjustment for reverse split -- -- -- -- --
Net loss -- (8,096,085) -- -- (8,096,085)
------------ ------------ ----------- --------- ------------
December 31, 1995 58,763,797 (54,024,742) 18,356 (551) 5,612,975
Warrant exercise 55,522 -- -- -- 58,500
Issuance of Series A preferred stock, net of offering costs
of $18,000 1,881,943 -- -- -- 1,882,000
Private placement of common stock 1,955,624 -- -- -- 2,000,000
Warrant grant to consultants 12,000 -- -- -- 12,000
Net loss -- (8,077,210) -- -- (8,077,210)
------------ ------------ ----------- --------- ------------
December 31, 1996 62,668,886 (62,101,952) 18,356 (551) 1,488,265
Issuance of Series B preferred stock,
net of offering costs of $260,000 5,739,820 -- -- -- 5,740,000
Warrant exercises 66,375 -- -- -- 67,500
Conversion of Series A preferred stock (44,731) -- -- -- --
Preferred stock dividend paid with common stock 193,705 (197,709) -- -- --
Conversion of Series B preferred stock (59,909) -- -- -- --
Dividend embedded in convertible preferred stock 1,952,767 (1,952,767) -- -- --
Net loss -- (7,817,299) -- -- (7,817,299)
------------ ------------ ----------- --------- ------------
December 31, 1997 $ 70,516,913 $(72,069,727) 18,356 $ (551) $ (521,534)
============ ============ =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Pharmos Corporation
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,817,299) $ (8,077,210) $ (8,096,085)
Adjustments to reconcile net loss to net
cash flow used in operating activities:
Depreciation and amortization 255,718 345,595 536,010
Loss on disposal of fixed assets 41,560 -- --
Warrant grant to consultants -- 12,000 48,000
Extraordinary gain from forgiveness of debt (416,248)
Changes in operating assets and liabilities, net of effects of acquisition
in 1995:
Inventories (1,804,627) -- --
Grants receivable 121,364 (254,758) 158,389
Prepaid expenses and other current assets 76,064 239,000 202,240
Advanced royalties (143,333) (573,334) --
Other assets 114,958 -- --
Accounts payable 2,145,801 108,059 (1,180,748)
Accrued expenses 312,248 (18,413) 89,219
Accrued wages and other compensation 43,304 152,645 --
Other liabilities 48,881 (184,360) --
------------ ------------ ------------
Net cash used in operating activities (7,021,609) (8,250,776) (8,242,975)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of fixed assets, net (324,769) (73,028) (56,647)
------------ ------------ ------------
Net cash used in investing activities (324,769) (73,028) (56,647)
------------ ------------ ------------
Cash flows from financing activities:
Advances against future sales 1,000,000 2,122,859 1,877,141
Proceeds from issuance of common stock
and exercise of warrants, net 67,500 2,058,500 8,139,000
Proceeds from issuance of preferred stock, net 5,740,000 1,882,000 --
Proceeds from issuance of convertible debentures -- -- 1,270,000
Proceeds from acquisition of Oculon, net -- -- 3,072,426
Payments of loans payable (170,639) (49,440) (480,219)
------------ ------------ ------------
Net cash provided by financing activities 6,636,861 6,013,919 13,878,348
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (709,517) (2,309,885) 5,578,726
Cash and cash equivalents at beginning of year 5,132,906 7,442,791 1,864,065
------------ ------------ ------------
Cash and cash equivalents at end of year $ 4,423,389 $ 5,132,906 $ 7,442,791
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. The Company
Pharmos Corporation (the "Company") is a bio-pharmaceutical company
incorporated under the laws of the state of Nevada and is engaged in the
design and development of novel pharmaceutical products in various fields
including: site specific drugs for ophthalmic indications,
neuroprotective agents for treatment of central nervous system ("CNS")
disorders, systemic drugs designed to avoid CNS related side effects, and
emulsion-based products for topical and systemic applications. The
Company uses a variety of patented and proprietary technologies to
improve the efficacy and/or safety of drugs. The Company's compounds are
in various stages of development, from preclinical to advanced clinical
trials. On of March 9, 1998, the Company received approval for two
separate New Drug Applications ("NDA") from the U.S. Food and Drug
Administration ("FDA"). These approvals were for LotemaxTM and AlrexTM.
Lotemax has been approved for the treatment of several ocular
inflammatory indications, including uveitis and for post-operative
inflammation. Alrex has been approved for the treatment of seasonal
allergic conjunctivitis. In conjunction with its development efforts, the
Company has also undertaken research and development contracts in the
past and has sold fine chemicals to the pharmaceutical research
community. The Company's administrative offices are located in Iselin,
New Jersey and conducts operations through its wholly owned subsidiary,
Pharmos, Ltd., in Rehovot, Israel.
2. Liquidity and Business Risks
The Company currently has had no sources of recurring revenues and has
incurred operating losses since its inception. At December 31, 1997, the
Company has an accumulated deficit of $72,069,727. Such losses have
resulted principally from costs incurred in research and development and
from general and administrative expenses. The Company has funded its
operations through the use of cash obtained principally from third party
financing. Management believes that cash and cash equivalents of $4.4
million as of December 31, 1997, combined with anticipated cash inflows,
including revenues expected to be derived from sales of Lotemax and Alrex
(See Notes 4 and 17) and the proceeds from the February 4, 1998 private
placement (see "Subsequent Events") will be sufficient to support
operations through first quarter of 1999. The Company's success depends
upon many factors that are beyond the Company's immediate control,
including market acceptance of Lotemax and Alrex, competition, and the
ability to obtain additional financing. The Company is continuing to
actively pursue various funding options, including equity offerings,
strategic corporate alliances, business combinations, and the
establishment of research and development partnerships to obtain the
additional financing necessary to complete the development of its product
candidates and bring them to commercial markets. There can be no
assurance that Lotemax or Alrex will achieve market acceptance or that
the Company will be successful in obtaining additional financing or
commercializing its product candidates.
3. Significant Accounting Policies
Basis of consolidation The accompanying consolidated financial statements
include the Company's wholly owned subsidiary, Pharmos Ltd. All
significant intercompany transactions are eliminated in consolidation.
F-7
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues, costs and
expenses during the reporting period. Actual results could differ from
those estimates.
Net loss per common share
The Company adopted Statement of Financial Accounting Standards No.128,
"Earnings per Share" ("SFAS 128") effective December 1997.
Basic net loss per common share is computed by dividing net loss
applicable to common shareholders for the period, reduced by any
preferred stock dividends (embedded, declared or in arrears), by the sum
of the weighted average number of shares of common stock issued and
outstanding. Diluted earnings per share is computed by dividing net loss
for the period by the sum of the weighted average number of shares of
common stock issued and outstanding, increased to include the number of
common shares that would have been issued if all outstanding preferred
stock, stock options, and stock warrants were converted. Diluted common
shares are based on the most advantageous convertible rate or exercise
price available to the security holder.
At December 31, 1997, outstanding shares of Series B Convertible
Preferred Stock, convertible into 1,721,875 shares of common stock and
outstanding options and warrants to purchase 5,568,411 shares of common
stock, with exercise prices ranging from $.75 to $5.20 could potentially
dilute basic earnings per share in the future but have not been included
in the computation of diluted net loss per share because to do so would
be antidilutive for the periods presented.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents. Cash
equivalents primarily consist of commercial paper and money market
accounts in 1997 and 1996, respectively.
Revenue recognition
Revenue for contracted research and development services is recognized as
performed. Revenue from these contracts is recognized as costs are
incurred (as defined in the contract), generally direct labor and
supplies plus agreed overhead rates. Any advance payments on contracts
are deferred until the related services are performed. License fees and
royalties are recognized when earned in accordance with the underlying
agreements. Sales revenue is recognized upon shipment of products.
Inventories
Inventories consist of loteprednol etabonate, the compound used in the
Company's products, Lotemax and Altrex and is stated at the lower of cost
or market with cost determined on a weighted average basis.
F-8
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Certain purchases of Loteprednol Etabonate, totaling $598,385, have been
expensed in 1997. This amount represents inventory to be used in testing,
manufacturing and various marketing programs.
Fixed assets
Fixed assets are recorded at cost. Property, furniture and equipment are
depreciated on a straight-line basis over their estimated useful lives
which range from three to fourteen years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the lease term or
the estimated lives of the related assets. Maintenance and repairs are
expensed as incurred.
Intangible assets
Intangible assets represent the Company's rights to develop and
commercialize certain products derived from certain licensed
technologies. The assets are being amortized over fifteen years. As of
December 31, 1997 and 1996, accumulated amortization was $748,518 and
$701,994, respectively. Amortization expense amounted to $46,524 in each
of the years ended December 31, 1997, 1996 and 1995.
As a result of the current period operating loss combined with a history
of operating losses, management assessed whether or not the Company's
intangible assets were recoverable. As of December 31, 1997, management
estimates that the net future cash inflows expected to result from the
commercial marketing of the licensed technologies will exceed the
carrying amount of the Company's intangible assets and accordingly, no
impairment loss was recognized.
On a periodic basis, the Company will assess whether there are conditions
present that indicate an impairment of long lived assets and long lived
assets to be disposed of. In the event such an impairment is present,
management will consider the undiscounted cash flows from such assets to
quantify the amount of such impairment and the loss to be recorded.
Research and development costs
All research and development costs are expensed when incurred. The
Company has accounted for reimbursements of research and development
costs as a reduction of research and development expense.
Income taxes
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under the asset and liability method of SFAS
109, 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. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
F-9
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Foreign exchange
The Company's foreign operations are principally conducted in U.S.
dollars. Any transactions or balances in currencies other than U.S.
dollars are remeasured and any resultant gains and losses are included in
the determination of current period income and loss. To date, such gains
and losses have been insignificant.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents. The Company maintains some of its cash balances in accounts
which exceed federally insured limits. It has not experienced any losses
to date resulting from this practice.
Equity Based Compensation
The Company accounts for its employee stock option plans in accordance
with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense related to employee stock options is recorded
only if, on the date of grant, the fair value of the underlying stock
exceeds the exercise price. The Company adopted the disclosure-only
requirements of SFAS No. 123 Accounting for Stock-Based Compensation,
which allows entities to continue to apply the provisions of APB Opinion
No. 25 for transactions with employees and provide pro forma net income
and pro forma earnings per share disclosures for employee stock grants
made in 1996 and future years as if the fair-value-based method of
accounting in SFAS No. 123 had been applied to these transactions.
Reclassifications
Certain amounts for 1996 and 1995 have been reclassified to conform to
the fiscal 1997 presentation. Such reclassifications did not have an
impact on the Company's financial position or results of operations.
Recent Accounting Standards
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") On June 30, 1997, the FASB issued SFAS
No. 130. This statement establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS No.
130 requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of
a statement of financial position.
This statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. It is not expected that
the adoption of SFAS No. 130 will have a material impact on the Company.
F-10
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise" ("SFAS 131")
In June 1997, the FASB issued SFAS No. 131. This statement requires that
public business enterprises report certain information about operating
segments in complete sets of financial statements of the enterprise and
in condensed financial statements of interim periods to shareholders. It
also requires that enterprises report certain information about their
products and services, the geographic areas in which they operate and
their major customers. This statement is effective for fiscal years
beginning after December 15, 1997. The effect of the adoption of this
statement is not expected to have a significant impact on the Company.
4. Collaborative Agreements
In June 1995, the Company entered into a marketing agreement (the
"Marketing Agreement") with Bausch & Lomb Pharmaceuticals, Inc. ("Bausch
& Lomb") to market Lotemax, on an exclusive basis in the United States
following receipt of FDA approval. The Marketing Agreement also covers
the Company's two other Loteprednol etabonate based products, which are
referred to as Alrex and LE-T. Under the Marketing Agreement, Bausch &
Lomb will purchase the active drug substance (loteprednol etabonate) from
the Company. Through December 31, 1997, Bausch and Lomb has provided the
Company with $5 million in cash advances against future sales. An
additional $1 million is due upon the receipt of regulatory approval for
LE-T in the United States. Bausch & Lomb will be entitled to credits
against future purchases or sales of the active drug substance based on
the advances made, until all the advances have been repaid. The Company
may be obligated to repay such advances if it is unable to supply Bausch
& Lomb with certain specified quantities of the active drug substance.
The portion of advances expected to be recouped by Bausch and Lomb in
1998, based on management's estimate of product sales to Bausch & Lomb in
1998, has been presented as a current liability in the accompanying
balance sheet at December 31, 1997.
Bausch & Lomb also collaborates in the development of products by making
available amounts up to 50% of the Phase III clinical trial costs. The
Company has retained certain conditional co-marketing rights to all of
the products covered by the Marketing Agreement. Net reimbursements from
Bausch & Lomb were approximately $.2 million, $1.2 million and $0.1
million in 1997, 1996 and 1995, respectively, and were offset against
research and development in the accompanying consolidated statements of
operations.
In December 1996, the Company and Bausch & Lomb signed an international
marketing agreement for the marketing of Lotemax, Alrex and LE-T in
certain territories outside of the U.S. The Company expects to receive an
additional $1.6 million of advances that will follow the receipt of
regulatory clearance in those markets.
F-11
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. Fixed Assets
Fixed assets consist of the following:
December 31,
1997 1996
Laboratory, pilot plant and other equipment $ 1,339,688 $ 1,810,310
Leasehold improvements 240,462 402,936
Office furniture and fixtures 107,251 235,663
Computer equipment 78,795 133,973
Vehicles 53,307 52,873
----------- -----------
1,819,503 2,635,755
Less - Accumulated depreciation and amortization (1,116,075) (2,006,342)
----------- -----------
$ 703,428 $ 629,413
=========== ===========
Depreciation and amortization of fixed assets was $209,194, $299,071 and
$489,486 in 1997, 1996 and 1995, respectively.
6. Grants for Research and Development
The Company has entered into agreements with U.S. federal agencies and
the State of Israel which provide for grants for research and development
relating to certain projects. Amounts received pursuant to these
agreements have been reflected as a reduction of research and development
expense. Such reductions amounted to $418,245, $245,302 and $331,546
during 1997, 1996 and 1995, respectively. The agreements with agencies of
the State of Israel place certain legal restrictions on the transfer of
technology and manufacture of resulting products outside Israel. The
Company will be required to pay royalties, at rates ranging from 2% to
5%, to such agencies from the sale of products, if any, developed as a
result of the research activities carried out with the grant funds.
As of December 31, 1997, the total amounts received under such grants
amounted to $2,952,972, of which $2,752,972 pertain to grants that
contain royalty provisions. Aggregate future royalty payments related to
sales of products developed, if any, as a result of these grants will be
limited to $3,215,862 based on grants received through December 31, 1997.
As of December 31, 1997, the products for which grants have been
received, are still under development.
In April 1997, the Company also signed an agreement with Consortium
Magnet for developing generic technologies for design and development of
drugs and diagnostic kits, operated by the Office of the Chief Scientist.
Under such agreements the Company is entitled to a non-refundable grant
amounting
F-12
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
to approximately 60% of actual research and development and equipment
expenditures on approved projects. No royalty obligations are required
within the framework. The Company received grants totaling $200,000 in
1997 pursuant to this agreement.
7. Licensing Arrangements
The Company is both a licensor and licensee of certain research
technologies.
As a licensor, the Company has entered into various agreements under
which the rights to certain of its technologies are licensed to others.
The Company is to be compensated by receipt of its share of defined
future product sales or royalties earned by the licensee. These
agreements have provided for funding of research, either in whole or in
part by the licensee.
As a licensee, the Company has various license agreements wherein the
Company has acquired exclusive or co-exclusive rights to develop and
commercialize certain research technologies. These agreements, which
include agreements related to Lotemax, generally require the Company to
pay royalties on the sale of products developed from the licensed
technologies and fees on revenues from sublicenses, where applicable. The
royalty rates, as defined in the respective license agreements, are
customary and usual in the pharmaceutical industry. The royalties will be
payable for periods up to fifteen years from the date of specified
events, including the date of the first sale of such products, or the
date from which the first registered patent from the developed
technologies is in force, or the year following the date on which
approval from the FDA received for a developed product. No amounts have
been recorded as a liability with respect to any contingent royalties as
of December 31, 1997.
Certain of the license agreements require annual payments for periods
extending through 2012. Minimum annual payments under licensing
agreements are $103,500. License fee expense amounted to approximately
$103,500 during 1997 and 1996, and $355,000 in 1995.
In March 1997, the Company paid a licensor, who is a former director,
$143,333. This payment represented prepaid royalties to the former
director against future royalties on sales of Lotemax. Prepayments
totaled $716,667 and $573,334 and are reflected as an asset on the
balance sheet at December 31, 1997 and 1996, respectively. The Company
has agreed to prepay additional royalties based on future advances and
other non-royalty payments from Bausch & Lomb or other parties with whom
the Company enters into marketing or similar arrangements.
8. Common and Preferred Stock Transactions
1997 transactions
On February 12, 1997, the Company issued warrants to purchase an
aggregate of 955,000 shares of common stock at an exercise price of $1.59
per share, the fair market value of the common stock on the date of
grant, to 14 employees of the Company. Prior to December 31, 1997, 65,000
of these warrants were canceled in connection with the termination of 2
employees. Such warrants become exercisable in increments of 25% each on
February 12, 1998, February 12, 1999, February 12, 2000 and February 12,
2001. All of such warrants expire on February 12, 2007. Also, on February
12, 1997, the
F-13
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Company issued warrants to purchase an aggregate of 115,000 shares of
common stock at an exercise price of $1.59 per share to the Company's
five outside directors and one outside consultant. These warrants become
exercisable on the same basis as the warrants issued to employees, but
expire on February 12, 2003. Upon termination of employment or
termination as a director, all warrants held by such employee or director
will expire, except that any warrant that was exercisable on the date of
termination may, to the extent then exercisable, be exercised within
three months thereafter (or one year thereafter if the termination is the
result of death or permanent disability of such employee or director).
In March 1997, the Company issued warrants to purchase an aggregate of
75,000 shares of common stock at an exercise price of $1.66 per share,
the fair market value of the common stock on the date of grant, to an
employee of the Company. Such warrants become exercisable in increments
of 25% each on March 1, 1998, March 1, 1999, March 1, 2000 and March 1,
2001. All of such warrants expire on March 1, 2007. Upon termination of
employment, all warrants held by such employee will expire, except that
any warrant that was exercisable on the date of termination may, to the
extent then exercisable, be exercised within three months thereafter (or
one year thereafter if the termination is the result of death or
permanent disability of such employee).
On March 31, 1997, the Company completed a private placement with
institutional investors of Series B Convertible Preferred Stock and
warrants to purchase common stock, generating gross proceeds of $6
million. The Series B preferred stock carries a 5% dividend rate payable
in cash or common stock, at the option of the Company, and is convertible
into common shares over a period ranging from 90 to 270 days subsequent
to March 31, 1997. The conversion price will be based on the share price
at the time of conversion less discounts ranging from 17% to 20%. Until
converted into common stock, the preferred stock has no voting rights.
The 159,000 warrants issued to the investors are exercisable at a price
of $1.75 per share, commencing March 31, 1998, for a three year period.
The Company also issued warrants to purchase an aggregate of 239,473
shares of common stock at an exercise price of $1.38 per share to certain
parties who assisted in the completion of the private placement. The
warrants are exercisable from March 31, 1998 and will expire in 2007.
On April 30, 1997, the Company issued warrants to purchase an aggregate
of 15,000 shares of common stock at an exercise price of $1.22 per share
to an outside consultant of the Company. Such warrants became exercisable
on April 30, 1998 and expire on April 30, 2003.
During 1997, the Company issued 3,493,158 shares of its common stock upon
conversion of 5,145 shares of the Company's Series A and Series B
Convertible Preferred Stock. The shares were issued with conversion
prices ranging from $.93 per share to $2.04 per share. The Company also
issued 133,455 shares of common stock in payment of dividends on the
Series A and Series B Convertible Preferred Stock. As of the date of such
issuances, these dividends are valued at $197,709. The Company issued
37,500 shares of its common stock upon exercise of warrants to purchase
shares of the Company's common stock at $1.80 per share.
As of December 31, 1997, cumulative dividends in arrears on the Company's
outstanding Series B Convertible Preferred Stock were $42,666.
F-14
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In connection with the issuances of the Series A and B convertible
preferred stock, the Company was required to recognize in the calculation
of earnings per share (EPS), the value of the conversion discount as a
dividend to the preferred stockholders. The dividend has been recognized
in the EPS calculation on a pro rata basis over the period beginning with
issuance to the earliest date that conversion can occur. For the year
ended December 31, 1997, the Company recorded a preferred stock dividend
of $1,952,767 on the outstanding shares of Series A and B convertible
preferred stock in connection with the conversion discount.
1996 transactions
In January 1996, the Company issued 89,286 shares of its common stock as
a result of the exercise of certain warrants. Of this amount, 75,000
shares were issued at an exercise price of $.52 per share and 14,286
shares were issued at an exercise price of $.84 per share.
On September 30, 1996, the Company completed a private placement of
Series A convertible preferred stock and warrants to purchase common
stock, with institutional investors generating gross proceeds of $1.9
million. The Series A preferred stock carried a 5% dividend rate payable
in cash or common stock, at the option of the Company, and was
convertible into common shares over a period ranging from 80 days to 360
days subsequent to September 30, 1996. The conversion price was based on
the share price at the time of conversion less discounts ranging from 17%
to 20%. Until converted into common stock, the preferred stock had no
voting rights. The 50,000 warrants issued to the investors are
exercisable at a price of $1.75 per share, commencing one year after the
closing for a three year period. The investors were granted limited
rights to approve certain financing by the Company for 180 days from
closing.
In December 1996, the Company issued 10,000 shares of its common stock as
a result of the exercise of warrants to purchase shares of the Company's
common stock. The 10,000 shares were issued at an exercise price of $.75
per share.
In December 1996, Bausch & Lomb purchased 1,479,200 shares of common
stock from the Company for $2 million in a private placement. The
purchase price of $1.35 per share was equal to the average closing price
for the prior 15 days.
During 1996, the Company issued warrants to consultants who assisted the
Company on various business and financial matters as follows: warrants to
purchase 15,000 shares at an exercise price of $2.31 per share, which
expire in March 2002; warrants to purchase 65,000 shares of the Company's
common stock at an exercise price of $1.34 per share, which expire in
September 2007; warrants to purchase 10,000 shares at an exercise price
of $1.39 per share, which expire in November 2006. The Company recognized
compensation expense of $12,000 related to warrants in 1996.
1995 transactions
On January 18, 1995, the Company's stockholders authorized an amendment
to the Company's Restated Articles of Incorporation which provided for an
increase in the number of shares of authorized common stock from 20
million shares to 50 million shares, and the elimination of the Class B
convertible common stock.
F-15
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In February 1995, the Company completed the sale of $1,270,000 principal
amount convertible debentures in a private placement transaction to
several accredited investors, including a large institutional
shareholder. A member of the Company's Board of Directors purchased
$70,000 of such debentures. During 1995, all of the debentures were
converted into 2,442,309 shares of the Company's common stock at an
exchange price of $.52 per share. Imputed interest associated with the
below market conversion price was not recorded as it did not have a
material impact on the results of operations in 1995. In connection with
this transaction the Company issued warrants to purchase 150,000 shares
of common stock at an exercise price of $.52 per share. During 1995,
warrants to purchase 75,000 shares were exercised and the remaining
75,000 warrants were exercised in January 1996.
The Company issued 6,000,000 shares of its common stock and warrants to
purchase 500,000 shares of common stock in connection with the
acquisition of Oculon.
On September 14, 1995, the Company completed a private offering of
6,000,000 units at $1.50 per unit. The proceeds of the private offering,
net of costs of $900,000, were $8,100,000. Each unit consisted of one
share of the Company's common stock and one warrant to purchase 0.075 of
one share of common stock (450,000 shares). In addition the Company
issued warrants to purchase 450,000 shares of common stock to the two
finders who assisted in this transaction. Both groups of warrants have an
exercise price of $1.80 per share and may be exercised commencing
September 14, 1996 and expire on September 14, 2000. During 1995, the
Company issued warrants to consultants who assisted the Company on
various business and financial matters as follows: warrants to purchase
10,000 shares at an exercise price of $1.88 per share, which expire on
October 31, 2001; warrants to purchase 10,000 shares of the Company's
common stock at an exercise price of $.78 per share, which expire on
April 10, 2005; warrants to purchase 75,000 shares, 25,000 each of which
have an exercise price of $.75, $1.00 and $1.50 per share, respectively,
and may be exercised beginning May 1, 1996 and expire on April 30, 2000.
The Company recognized compensation expense of $48,000 related to
warrants in 1995.
F-16
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. Warrants
Many of the warrants issued in connection with various equity financing
and related transactions during 1991 through 1997 contain anti-dilution
provisions requiring adjustment, if at a later date securities are issued
at prices below the respective warrant's exercise price. The following
table summarizes the shares issuable upon exercise of warrants
outstanding at December 31, 1996 as adjusted for the events which have
triggered anti-dilution provisions contained in the respective warrant
agreements:
Shares
Issuable
Issuance Date Expiration Upon Exercise
Date Exercise Price
November 1991
March 1998 269,490 $ 2.01
March 1998 303,338 2.50
August 1993 March 1998 361,844 1.52
September 1994 August 1998 454,121 2.67
October 1994 September 1999 65,044 2.26
April 1995 October 1999 200,000 .84
April 2005 500,000 2.75
April 2005 10,000 .78
April 2000 15,000 .75
April 2000 25,000 1.00
September 1995 April 2000 25,000 1.50
October 1995 September 2000 862,500 1.80
March 1996 October 2001 10,000 1.88
September 1996 March 2002 15,000 2.31
September 2000 50,000 1.75
November 1996 September 2007 65,000 1.34
February 1997 November 2006 10,000 1.39
February 2003 115,000 1.59
March 1997 February 2007 890,000 1.59
March 2001 159,000 1.75
March 2007 75,000 1.66
April 1997 March 2007 239,473 1.38
April 2003 15,000 1.22
-------------- --------- --------
Total shares and average
exercise price 4,734,810 $ 1.90
--------- --------
F-17
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Stock Option Plans
The Company's shareholders have approved incentive stock option plans for
officers and employees. Options granted are generally exercisable over a
specified period, not less than one year from the date of grant, and
generally expire ten years from the date of grant. The following table
summarizes activity in approved incentive stock options approved by the
Company's Board of Directors:
Under Exercise
Option Price
Options outstanding at 12/31/95 544,186 $2.20
Granted 4,000 2.28
Expired (34,933) 2.18
-------- -----
Options Outstanding at 12/31/96 513,253 2.13
Expired (86,834) 1.74
-------- -----
Options outstanding at 12/31/97 426,419 $2.21
-------- -----
Options exercisable at 12/31/97 306,935 $2.26
-------- -----
The Company's Board of Directors approved nonqualified stock options for
key employees, directors and certain non-employee consultants. The
following table summarizes activity in Board-approved nonqualified stock
options:
Under Exercise
Option Price
Options outstanding at 12/31/95 442,182 $ 3.10
Expired (10,000) 1.94
------- ------
Options Outstanding at 12/31/96 432,182 3.12
Expired (25,000) 10.50
------- ------
Options outstanding at 12/31/97 407,182 $ 2.67
------- ------
Options exercisable at 12/31/97 357,566 $ 2.65
------- ------
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans. As all options and warrants granted to
employees were granted with exercise prices equal to the fair value of
the common stock on the
F-18
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
respective grant dates, no compensation expense has been recognized for
its stock-based compensation plans. Had compensation cost for the
Company's stock option plans and warrant grants been determined based
upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation,
the Company's net loss and loss per share would have been increased by
approximately $305,000, or $.01. per share in 1997 and $203,000, or $.01
per share in 1996 and $320,000 or $.01 per share in 1995 before deducting
the value of stock options that were canceled in 1995. The fair value of
options and warrants granted to employees, officers, and directors from
1995 through 1997 are estimated at $.51 to $1.17 on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%, volatility of 50%, risk-free interest
rate of 6.5%, assumed forfeiture rate of 3%, and an expected life of 3 to
5 years.
11. Long Term Debt
As of December 31, 1997, Pharmos Limited has an unused line of credit of
$50,000 denominated in New Israeli Shekels.
In 1996, the Company incurred a liability relating to the negotiated
buy-out of a lease obligation. The termination agreement provides for
monthly installment payments of $4,375 through December 1998. At December
31, 1997, the outstanding balance was $52,233 and has been classified as
a current liability in the accompanying balance sheet.
12. Income Taxes
No provision for income taxes was recorded for the three years ended
December 31, 1997 due to net operating losses incurred. Net operating
loss carryforwards for U.S. tax purposes of approximately $50,485,000
expire from 2000 through 2012.
The Company's gross deferred tax assets of $25,087,000 and $22,870,000 at
December 31, 1997 and 1996, respectively, represented primarily the tax
effect of both the net operating loss carryforwards and deferred research
and development costs, and research and development tax credit
carryforwards. As a result of previous business combinations and changes
in stock ownership, substantially all of these net operating losses and
tax credit carryforwards are subject to significant restriction with
regard to annual utilization. A full valuation allowance has been
established with regard to the gross deferred tax assets.
13. Commitments and Contingencies
Leases
The Company leases research and office facilities in Israel and New
Jersey. The facilities in Israel are used in the operation of the
Company's research and administration activities. The New Jersey facility
which serves as the corporate headquarters is leased under an agreement
which expires in September 1998 and contains unlimited one year renewal
options. The research and development facility in Israel is leased under
an agreement which expires in May 1998.
F-19
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company also has a long term lease on office facilities in New York,
which previously served as the Company's executive headquarters, which
expires in March 2000. The Company has entered into a non-cancelable
sublease agreement for this facility which expires in March 2000.
All of the leases and subleases described above call for base rentals,
payment of certain building maintenance costs (where applicable) and
future increases based on the consumer price indices.
At December 31, 1997, the future minimum lease commitments and sublease
rental receivables with respect to non-cancelable operating leases with
initial terms in excess of one year are as follows:
Lease Sublease
Commitments Rentals
1998 $279,347 $145,834
1999 145,834 145,834
2000 36,458 36,458
-------- --------
$461,639 $328,126
-------- --------
Rent expense during 1997, 1996 and 1995 amounted to $410,856, $371,526
and $542,885, respectively. Rent expense in 1997, 1996 and 1995 is net of
$308,608, $499,106 and $88,698 of sublease income, respectively.
Consulting contracts and employment agreements
In the normal course of business, the Company enters into annual
employment and consulting contracts with various employees and
consultants.
Dividend restrictions
Dividends may be paid by the Company's subsidiary, Pharmos Limited, only
out of retained earnings as determined for Israeli statutory purposes.
There are no retained earnings in Israel available for distribution as
dividends as of December 31, 1997, 1996 or 1995. The Company does not
intend to pay a cash dividend in the foreseeable future.
14. Employee Benefit Plan
The Company has a 401-K defined contribution profit-sharing plan covering
certain employees. Contributions to the plan are based on salary
reductions by the participants, matching employer contributions as
determined by the Company, and allowable discretionary contributions, as
determined by the Company's Board of Directors, subject to certain
limitations. Contributions by the Company to the plan amounted to
$10,090, $11,363 and $10,731 and in 1997, 1996 and 1995, respectively.
F-20
<PAGE>
Pharmos Corporation
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
15. Estimated Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, grants and other
receivables, accounts payable and accrued expenses are reasonable
estimates of their fair values. Due to the uncertainty of the timing of
future product sales it is not practical to estimate the fair value of
advances against future sales which have a carrying value of $5,000,000
at December 31, 1997. The estimated fair values of all other financial
instruments approximate, or are not materially different, than their
carrying values.
16. Subsequent Events
In January 1998, the shareholders of the Company approved the increase in
the number of authorized shares of common stock from 50,000,000 to
60,000,000 and adopted the 1997 Incentive and Non-Qualified Stock Option
Plan, which has reserved for issuance up to 600,000 shares of common
stock upon the exercise of stock options to be granted to employees,
directors, consultants and other key personnel.
On February 4, 1998, the Company completed a private placement with
institutional investors of Series C Convertible Preferred Stock and
warrants to purchase 650,000 shares of common stock, generating gross
proceeds of $5 million. The preferred stock carries a 5% dividend payable
in common stock and is convertible into common shares of the Company, 60
days subsequent to the date of issuance. For the period ending 180 days
after the date of issuance, the conversion price is 90% of the average of
the low trade prices of the Common Stock for the five consecutive trading
days ending on the day immediately prior to the conversion date (the
"Variable Conversion Price"). Following such period, the conversion price
is the lower of the Variable Conversion Price or 120% of the average of
the closing bid prices of the Common Stock for the trading days beginning
on the date which is 151 days, and ending on the date which is 180 days,
following the date of issuance. Until converted into common stock, the
preferred stock has no voting rights. The warrants issued to the
investors are exercisable at prices ranging from $2.28 to $2.67 per
share, commencing one year after the closing for a three year period.
On March 10, 1998, the Company received approval, from the FDA, of its
NDA's for Lotemax and Alrex.
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ HAIM AVIV
----------------------------
Dr. Haim Aviv, Chairman of the Board and Chief
Executive Officer (Principal Executive Officer)
Date: July 10, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert Cook Chief Financial Officer (Principal July 10, 1998
- ----------------------------
Robert Cook Financial and Accounting Officer),
and Secretary
/s/ Dr. Gad Riesenfeld President, Chief Operating Officer July 10, 1998
- ----------------------------
Dr. Gad Riesenfeld
/s/ Marvin P. Loeb Director July 10, 1998
- ------------------
Marvin P. Loeb
/s/ E. Andrews Grinstead III Director July 10, 1998
- ----------------------------
E. Andrews Grinstead III
/s/ Stephen C. Knight Director July 10, 1998
- ----------------------------
Stephen C. Knight
/s/ David Schlachet Director July 10, 1998
- ----------------------------
David Schlachet
/s/ Fredric D. Price Director July 10, 1998
- ----------------------------
Fredric D. Price
/s/ Mony Ben Dor Director July 10, 1998
- ----------------------------
Mony Ben Dor
</TABLE>
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Pharmos Corporation
We hereby consent to the incorporation by reference in the Registration
Statements of Pharmos Corporation (Forms S-3 Nos. 33-68762, 33-74638, 33-86720,
33-91918, 33-93466, 33-64289, 333-15165, 333-26155 and Form S-8 No. 333-38373)
of our report dated March 16, 1998 appearing in Pharmos Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
New York, New York
July 9,1998