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 quarter ended March 31, 2001

                                          or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

       For the transition period from ___________ to ________________

       Commission File Number:   0-10379


                            INTERFERON SCIENCES, INC.
                          (Exact Name of Registrant as Specified in its Charter)


Delaware                                                           22-2313648
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification No.)


783 Jersey Avenue, New Brunswick, New Jersey                            08901
(Address of principal executive offices)                           (Zip code)


(732) 249-3250
(Registrant's telephone number, including area code)


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 [ ]


Number of shares outstanding of each of issuer's classes of common stock as of
April 26, 2001.

                   Common Stock               20,013,252 shares



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                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS


                                                                           Page
Part I.  Financial Information:

<S>                                                                         <C>
   Consolidated Condensed Balance Sheets--
     March 31, 2001 and December 31, 2000. . . . . . . . . . . . . . . . . . .1

   Consolidated Condensed Statements of Operations--
     Three Months Ended March 31, 2001 and 2000. . . . . . . . . . . . . . . .2

   Consolidated Condensed Statement of Changes in
     Stockholders' Equity--Three Months Ended March 31, 2001 . . . . . . . . .3

   Consolidated Condensed Statements of Cash Flows--
     Three Months Ended March 31, 2001 and 2000. . . . . . . . . . . . . . . .4

   Notes to Consolidated Condensed Financial Statements. . . . . . . . . . .5-8

   Management's Discussion and Analysis of Financial
     Condition and Results of Operations . . . . . . . . . . . . . . . . . 9-13

Part II.  Other Information . . . . . . . . . . . . . . . . . . . . . . . . .14

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


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                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                          PART I. FINANCIAL INFORMATION

                      CONSOLIDATED CONDENSED BALANCE SHEETS

                                                March 31,         December 31,
                                                  2001               2000
                                               (Unaudited)
ASSETS                                        -------------------------------
Current assets
<S>                                           <C>                 <C>
  Cash and cash equivalents                   $  3,787,394        $ 3,658,805
  Receivable from sale of state
   net operating loss carryovers                                    1,483,861
  Accounts and other receivables                   217,620            190,937
  Inventories, net of reserves
   of $5,286,011                                   677,766            837,300
  Prepaid expenses and other
   current assets                                   33,613             17,488
                                             -------------      -------------
Total current assets                             4,716,393          6,188,391
                                             -------------      -------------
Property, plant and equipment,
  at cost                                       12,850,410         12,807,840
Less accumulated depreciation                  (10,417,595)       (10,298,260)
                                             -------------      -------------
                                                 2,432,815          2,509,580
                                             -------------      -------------
Patent costs, net of accumulated
  amortization                                     182,407            189,767
Other assets                                       197,600            110,100
                                             -------------      -------------
Total assets                                 $   7,529,215      $   8,997,838
                                             =============      =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable and accrued expenses      $   2,460,356      $   2,578,827
  Note payable and amount due
   GP Strategies                                   574,139            566,639
                                             -------------      -------------
Total current liabilities                        3,034,495          3,145,466
                                             -------------      -------------
Commitments and contingencies

Stockholders' equity
Preferred stock, par value $.01 per share;
 authorized-5,000,000 shares; none issued
 and outstanding
Common stock, par value $.01 per share;
 authorized-55,000,000 shares; issued
 and outstanding-18,029,424 and
 17,931,838 shares, respectively                   180,294           179,318
Capital in excess of par value                 137,818,480       137,782,655
Accumulated deficit                           (133,291,574)     (131,793,851)
Settlement shares                                 (212,480)         (315,750)
                                             -------------      ------------
Total stockholders' equity                       4,494,720         5,852,372
                                             -------------      ------------
Total liabilities and stockholders'
  equity                                     $   7,529,215     $   8,997,838
                                             =============     =============

</TABLE>

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


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<TABLE>
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                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                      Three Months Ended
                                                           March 31,
                                                  -----------------------------
                                                       2001           2000
                                                  -------------   -------------
Revenues
<S>                                                <C>             <C>
  Alferon N Injection                              $    370,645    $    163,150
                                                  -------------   -------------
Total revenues                                          370,645         163,150
                                                  -------------   -------------
Costs and expenses
Cost of goods sold and excess/idle
  production costs                                      640,108         230,153
Reversal of reserve for excess inventory                               (135,271)
Research and development                                587,233         423,819
General and administrative                              673,107         448,074
                                                  -------------   -------------
Total costs and expenses                              1,900,448         966,775
                                                  -------------   -------------
Loss from operations                                 (1,529,803)       (803,625)

Interest income (expense), net                           32,080          (9,620)
                                                  -------------   -------------
Net loss                                           $ (1,497,723)    $  (813,245)
                                                  =============   =============

Basic and diluted loss per share                   $       (.08)    $      (.15)
                                                  =============   =============
Weighted average number of shares outstanding        17,962,372       5,360,979
                                                  =============   =============
</TABLE>



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

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<TABLE>
<CAPTION>




                                        INTERFERON SCIENCES, INC. AND SUBSIDIARY

                                      CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
                                                   STOCKHOLDERS' EQUITY
                                             THREE MONTHS ENDED MARCH 31, 2001
                                                        (Unaudited)

                                             Capital                                           Total
                       Common Stock         in excess       Accumulated     Settlement     stockholders'
                     Shares      Amount    of par value      deficit          shares          equity
                     ------------------    ------------    --------------    ----------     -------------
<S>                <C>          <C>          <C>           <C>              <C>            <C>
Balance at
 Dec. 31, 2000    17,931,838   $179,318     $137,782,655  $(131,793,851)   $ (315,750)    $ 5,852,372

Common stock
 issued as
 compensation         50,000        500           12,780                                       13,280

Common stock
 issued under
 Company 401(k)
 Plan                 45,342        453           22,507                                       22,960

Proceeds from
 exercise of common
 stock options         2,244         23              538                                          561

Settlement shares
 sold                                                                           21,463         21,463

Market value
 adjustment                                                                     81,807         81,807

Net loss                                                      (1,497,723)                  (1,497,723)
                 --------------------------------------------------------------------------------------
Balance at
 March 31, 2001   18,029,424   $180,294     $137,818,480   $(133,291,574)   $ (212,480)   $ 4,494,720


</TABLE>


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



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<TABLE>
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                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                             Three Months Ended
                                                                 March 31,
                                                         --------------------------
                                                           2001             2000
                                                         ------------  ------------
Cash flows from operations:
<S>                                                      <C>           <C>
  Net loss                                               $(1,497,723)  $  (813,245)
  Adjustments to reconcile net loss to net
   cash used for operating activities:
    Depreciation and amortization                            126,695       133,306
    Noncash compensation expense                              36,240        50,928
    Reversal of reserve for excess inventory                              (135,271)
    Market value adjustment                                   81,807      (287,341)
    Change in operating assets and liabilities:
     Inventories                                             159,534        89,271
     Accounts and other receivables                        1,457,178       (16,578)
     Prepaid expenses and other current assets               (16,125)       (4,944)
     Accounts payable and accrued expenses                   (97,008)     (296,423)
     Amount due to GP Strategies                               7,500      (125,001)
                                                         ------------  ------------
    Net cash provided by (used for) operations               258,098    (1,405,298)
                                                         ------------  ------------
Cash flows from investing activities:
  Additions to property, plant and equipment                 (42,570)
  Investments in other assets                                (87,500)
                                                         ------------  ------------
  Net cash used for investing activities                    (130,070)
                                                         ------------  ------------
Cash flows from financing activities:
  Proceeds from exercise of common stock options                 561
                                                         ------------  ------------
Net cash provided by financing activities                        561
                                                         ------------  ------------
Net increase (decrease) in cash and cash equivalents         128,589    (1,405,298)

Cash and cash equivalents at beginning of period           3,658,805     2,273,242
                                                         ------------  ------------
Cash and cash equivalents at end of period               $ 3,787,394   $   867,944
                                                         ============  ============
Noncash items:
 Settlement shares sold                                  $    21,463   $   368,341
                                                         ============  ============
 Forgiveness of amount due GP Strategies                 $             $   129,886
                                                         ===========   ============


</TABLE>


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

<PAGE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  Basis of Presentation

     The financial  information included herein is unaudited.  Such information,
however,  reflects  all  adjustments  (consisting  solely  of  normal  recurring
adjustments)  that are,  in the  opinion  of  management,  necessary  for a fair
presentation  of the financial  position and  operating  results for the interim
periods.   The  operating  results  for  interim  periods  are  not  necessarily
indicative of operating results to be expected for the year.

Note 2. Operations and Liquidity

     The  Company  has  experienced   significant  operating  losses  since  its
inception in 1980. As of March 31, 2001, the Company had an accumulated  deficit
of approximately  $133.3 million.  For the three months ended March 31, 2001 and
the years ended  December 31, 2000,  1999 and 1998,  the Company had losses from
operations of approximately $1.5 million,  $4.5 million,  $5.4 million and $20.8
million,  respectively.  Also, the Company has limited liquid  resources.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  The consolidated  condensed financial  statements do not include
any adjustments that might result from the outcome of this uncertainty. Although
the Company  received FDA approval in 1989 to market  ALFERON N Injection in the
United States for the  treatment of certain  genital  warts,  it has had limited
revenues  from the sale of  ALFERON N  Injection  to date.  For the  Company  to
operate  profitably,   the  Company  must  sell  significantly  more  ALFERON  N
Injection.  Increased sales will depend primarily upon the expansion of existing
markets  and/or  successful  attainment  of FDA  approval  to  market  ALFERON N
Injection for additional indications,  of which there can be no assurance. There
can be no assurance  that  sufficient  quantities of ALFERON N Injection will be
sold to allow the Company to operate profitably.

     At March 31, 2001, the Company had  approximately  $3.8 million of cash and
cash  equivalents,  with which to support  future  operating  activities  and to
satisfy its financial obligations as they become payable.

     Based on the  Company's  estimates  of  revenues,  expenses,  the timing of
repayment of creditors,  and levels of production,  management believes that the
Company has  sufficient  resources to enable the Company to continue  operations
until  November  2001.  However,  actual  results,  especially  with  respect to
revenues,  may differ  materially  from such  estimate,  and no assurance can be
given that additional  funding will not be required  sooner than  anticipated or
that such additional funding, whether from financial markets or collaborative or
other  arrangements  with  corporate  partners  or from other  sources,  will be
available when needed or on terms acceptable to the Company.

     Management plans to pursue raising additional capital by either (i) issuing
securities in a private or public equity  offering or (ii)  licensing the rights
to its injectable,  topical or oral  formulations  of natural alpha  interferon.
Management  is  seeking  to  enter  into  mergers,   joint   ventures  or  other
collaborations that could provide the additional  resources necessary to advance
the Company's most valuable programs. There can be no assurances,  however, that
the Company will be successful in obtaining an adequate  level of financing,  on
terms that are acceptable to the Company, needed to continue operations.

     Insufficient  funds will require the Company to further delay,  scale back,
or eliminate  certain or all of its  activities  or to license  third parties to
commercialize  products or technologies that the Company would otherwise seek to
develop itself.

 Note 3.  Inventories
<TABLE>
<CAPTION>

      Inventories consist of the following:

                                               March 31,        December 31,
                                                 2001               2000
                                            --------------     --------------
<S>                                         <C>                 <C>
     Finished goods                         $   913,661         $ 1,073,195
     Work in process                          3,717,556           3,717,556
     Raw materials                            1,332,560           1,332,560
     Less reserve for excess inventory       (5,286,011)         (5,286,011)
                                           ---------------     --------------
                                            $   677,766         $   837,300
                                             ================     ===============
</TABLE>


     Finished  goods  inventory  consists  of  vials  of  ALFERON  N  Injection,
available  for  commercial  and  clinical use either  immediately  or upon final
release by quality assurance.

     In light of the results to date of the Company's phase 3 studies of ALFERON
N Injection in HIV and HCV-infected patients, the Company has recorded a reserve
against its  inventory  of ALFERON N  Injection  to reflect  its  estimated  net
realizable  value.  The  reserve  was a result of the  Company's  assessment  of
anticipated  near-term projections of product to be sold or utilized in clinical
trials,   giving   consideration  to  historical  sales  levels.  As  a  result,
inventories  at March 31,  2001 and  December  31,  2000,  reflect a reserve for
excess inventory of $5,286,011.

     During the three  months ended March 31, 2000, a portion of the reserve for
excess inventory was reversed in the amount of $135,271 to reflect  inventory at
its estimated net realizable value.

Note 4. Agreement with GP Strategies Corporation

     Pursuant to an agreement  dated March 25, 1999, GP  Strategies  Corporation
("GP  Strategies")  loaned the Company $500,000 (the "GP Strategies  Debt").  In
return,  the Company granted GP Strategies (i) a first mortgage on the Company's
real  estate,  (ii) a two-year  option to purchase  the  Company's  real estate,
provided that the Company has terminated its operations and a certain  liability
to the  American  Red  Cross  (the "Red  Cross")  has been  repaid,  and (iii) a
two-year  right of first  refusal in the event the  Company  desires to sell its
real estate. In addition,  the Company issued GP Strategies  500,000 shares (the
"GP  Shares")  of common  stock and  five-year  warrant  (the "GP  Warrant")  to
purchase  500,000  shares of  common  stock at a price of $1 per  share.  The GP
Shares and GP Warrant were valued at $500,000  and recorded as a financing  cost
and  amortized  over the  original  period  of the GP  Strategies  Debt in 1999.
Pursuant  to the  agreement,  the  Company  has  issued a note to GP  Strategies
representing  the GP Strategies Debt, which note was originally due on September
30,  1999  (but  extended  to June 30,  2001)  and bears  interest,  payable  at
maturity,  at the rate of 6% per annum.  In addition,  at that time, the Company
negotiated a  subordination  agreement  with the Red Cross pursuant to which the
Red Cross agreed that its lien on the Company's real estate is subordinate to GP
Strategies' lien. On March 27, 2000, the Company and GP Strategies  entered into
an agreement  pursuant to which (i) the GP  Strategies  Debt was extended  until
June 30,  2001 and (ii) the  Management  Agreement  between  the  Company and GP
Strategies was terminated and all intercompany  accounts between the Company and
GP Strategies (other than the GP Strategies Debt) in the amount of approximately
$130,000 were discharged  which was recorded as a credit to capital in excess of
par value in the quarter ended March 31, 2000.  The agreement also provides that
(i)  commencing  on May 1, 2001 and ending on June 30, 2001,  on any day ISI may
require GP Strategies to exercise the GP Warrant and sell the underlying shares,
if the market price of ISI common stock  exceeds  $1.00 per share on each of the
10 trading days prior to any such day,  and (ii) any  proceeds  from the sale of
the shares  issuable  upon exercise of the GP Warrant in excess of the aggregate
amount paid by GP Strategies to purchase such shares,  would be deemed to reduce
the then outstanding  amount of principal and interest of the GP Strategies Debt
until such amount is reduced to zero.

Note 5.  Agreement with the Red Cross

     Pursuant to an agreement  dated November 23, 1998, the Company  granted the
Red  Cross a  security  interest  in  certain  assets  to  secure  the Red Cross
Liability,  issued to the Red Cross 300,000 shares of common stock and agreed to
issue  additional  shares at some future date as  requested  by the Red Cross to
satisfy any remaining  amount of the Red Cross  Liability.  The Red Cross agreed
that any net  proceeds  received by it upon sale of such shares would be applied
against the Red Cross Liability and that at such time as the Red Cross Liability
was paid in full, the Minimum  Purchase  Commitment  would be deleted  effective
April 1,1998 and any then existing  breaches of the Minimum Purchase  Commitment
would be waived.  In January  1999 the Company  granted the Red Cross a security
interest (the "Security  Interest")  in, among other things,  the Company's real
estate,  equipment  inventory,  receivables,  and New Jersey net operating  loss
carryovers  to secure  repayment of the Red Cross  Liability,  and the Red Cross
agreed to  forbear  from  exercising  its  rights  under the  Supply  Agreement,
including with respect to collecting the Red Cross Liability until June 30, 1999
(which was subsequently extended until December 31, 1999). On December 29, 1999,
the Company, the Red Cross and GP Strategies entered in an agreement pursuant to
which the Red Cross agreed that until  September  30, 2000 it would forbear from
exercising its rights under (i) the Supply Agreement,  including with respect to
collecting the Red Cross Liability,  and (ii) the Security  Interest.  As of the
date  hereof,  the Red Cross has not given the  Company  notice of its intent to
exercise its rights to collect the Red Cross Liability.  Under the terms of such
agreement, the Red Cross has the right to sell the Company's real estate. In the
event the Red Cross is  successful  in selling the  Company's  real estate,  the
Company would hope to be able to enter into a lease with the new owner, although
there can be no assurance that this would occur.

     As the liability to the Red Cross remains  unsettled until such time as the
Red Cross sells the shares they have already  received and could  receive in the
future,  the Company  recorded any shares issued to the Red Cross as "Settlement
Shares"  within  stockholders'  equity.  Any  decreases,  or increases up to the
amount  of any  previous  decreases,  in the  market  value at  issuance  of the
Company's common stock issued to the Red Cross, until such time as the Red Cross
sells its shares, would impact the value of the shares held by the Red Cross and
accordingly require an adjustment to "Settlement Shares". Due to the increase in
the Company's stock price during the three months ended March 31, 2000 up to the
date of sale by the Red Cross of all remaining  Settlement Shares, an adjustment
for  $287,341 was recorded  with a  corresponding  credit to cost of goods sold.
During  1999,  the Red Cross sold 27,000 of the  Settlement  Shares and sold the
balance of such shares  (273,000  shares) during the first quarter of 2000. As a
result,  the net proceeds from the sales of the  Settlement  Shares,  $33,000 in
1999 and $368,000 in 2000,  were applied against the liability to the Red Cross.
The  remaining  liability to the Red Cross  included in accounts  payable on the
consolidated condensed balance sheet at March 31, 2001 and December 31, 2000 was
approximately $1,292,000 and $1,276,000,  respectively. On October 30, 2000, the
Company  issued an  additional  800,000  shares to the Red Cross  (with a market
value of $824,000 on such date). Due to the decline in the Company's stock price
during the three  months  ended March 31, 2001,  an  adjustment  for $81,807 was
recorded  with a  corresponding  charge to cost of goods sold.  The net proceeds
from the sale of such  shares  by the Red  Cross  will be  applied  against  the
remaining liability of $1,292,000 owed to the Red Cross.  However,  there can be
no  assurance  that  the net  proceeds  from  the  sale of such  shares  will be
sufficient to extinguish the remaining liability owed the Red Cross.

 Note 6.  Recent Accounting Developments

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting Standard No. 133 (SFAS 133),  "Accounting for
Derivative  Instruments  and Hedging  Activities".  This  Statement  establishes
accounting and reporting standards for derivative instruments, including certain
derivative  instruments  embedded in other contracts and for hedging activities.
It  requires  that an entity  recognize  all  derivatives  as  either  assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement,  as amended by SFAS 137 and 138, is effective for
all  fiscal  quarters  of  fiscal  years  beginning  after  June 15,  2000.  The
implementation  of SFAS 133, as amended,  did not have a material  effect on the
Company's results of operations or financial position.

Note 7.  Agreement with Metacine, Inc.

     On July 28, 2000,  the Company  acquired for $100,000 an option to purchase
certain securities of Metacine, Inc. ("Metacine"), a company engaged in research
using dendritic cell technology, on the terms set forth below. The $100,000 paid
for the  option  has been  recorded  as other  assets on the March 31,  2001 and
December 31, 2000 consolidated condensed balance sheets.

     On April 9, 2001, the Company exercised its option to acquire a significant
equity interest in Metacine.  Pursuant to the agreement, as amended, the Company
received  700,000  shares of Metacine  common  stock and a five-year  warrant to
purchase,  at a price of $12.48 per share,  282,794  shares of  Metacine  common
stock in exchange for  $300,000 in cash,  $250,000 of services to be rendered by
the Company to Metacine,  and 2,000,000 shares of the Company's common stock. As
a result of this investment,  the Company will take a substantial  charge in the
second quarter of 2001 which will approximate the total  consideration  paid for
this investment in Metacine.

     The agreement  contains certain  restrictions on the ability of Metacine to
sell the Company's shares and provides for cash payments ("Deficiency Payments")
by the Company to Metacine to the extent Metacine has not received $1,850,000 of
cumulative net proceeds from the sale of Company shares by September 30, 2002 or
$400,000 of net proceeds per quarter  beginning with the period ending September
30, 2001 and $250,000 for the quarter ending September 30, 2002.

     The Company is required to put in escrow 100,000  Metacine shares to secure
its obligations to render $250,000 of services to Metacine and 462,500  Metacine
shares to secure its potential obligations to make Deficiency Payments.

     The Company and the other  stockholders  of Metacine  have  entered  into a
stockholders' agreement providing for rights of first refusal, tag-along rights,
and  preemptive  rights.  The agreement also provides that the Company will have
one  representative  on  Metacine's  board and will vote its  shares in the same
manner as votes of Metacine's  other  stockholders,  and that certain  corporate
actions will not be taken without the Company's consent.



<PAGE>



                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


     Since 1981,  the Company has been  primarily  engaged in the  research  and
development of pharmaceutical products containing Natural Alpha Interferon.  The
Company has experienced  significant  operating losses since its inception.  The
Company  received  FDA  approval in 1989 to market  ALFERON N  Injection  in the
United States for the treatment of certain genital warts.  However,  the Company
has had limited  revenues from the sale of ALFERON N Injection to date.  For the
Company to operate profitably,  the Company must sell significantly more ALFERON
N  Injection.  Increased  sales will  depend  primarily  upon the  expansion  of
existing markets and/or successful  attainment of FDA approval to market ALFERON
N Injection for additional  indications.  The future revenues and  profitability
of, and availability of capital for, biotechnology  companies may be affected by
the continuing  efforts of  governmental  and  third-party  payors to contain or
reduce the costs of health care through various means. The Company has primarily
financed its operations to date through private  placements and public offerings
of the Company's securities.

     Management is continuing to pursue raising additional capital by either (i)
issuing  securities in a private or public equity offering or (ii) licensing the
rights  to its  injectable,  topical  or  oral  formulations  of  natural  alpha
interferon.  This may be more  difficult  in the  future  in light of the  FDA's
requirement for the Company to conduct  additional  Phase 3 studies of ALFERON N
Injection in the treatment of patients infected with the human  immunodeficiency
virus and hepatitis C virus.  Management  also is seeking to enter into mergers,
joint  ventures  or other  collaborations  that  could  provide  the  additional
resources  necessary  to advance  the  Company's  most  valuable  programs.  The
Company's strategy is to utilize its expertise in regulatory  affairs,  clinical
trials,   manufacturing,   and  research  and   development  to  acquire  equity
participations  in early stage companies.  There can be no assurances,  however,
that the Company will be successful in obtaining an adequate level of financing,
on terms that are acceptable to the Company, needed to continue operations.

Liquidity and Capital Resources

     As of April 27, 2001,  the Company had  approximately  $3.3 million in cash
and cash equivalents.  Until utilized,  such cash and cash equivalents are being
invested principally in short-term interest-bearing investments.

     The  Company's  future  capital  requirements  will depend on many factors,
including:  continued scientific progress in its drug development programs;  the
magnitude of these  programs;  progress with  pre-clinical  testing and clinical
trials; the time and costs involved in obtaining regulatory approvals; the costs
involved  in  filing,  prosecuting,   and  enforcing  patent  claims;  competing
technologies  and  market   developments;   changes  in  its  existing  research
relationships;  and  the  ability  of the  Company  to  establish  collaborative
arrangements and effective commercialization activities and arrangements.

     Based on the  Company's  estimates  of  revenues,  expenses,  the timing of
repayment of creditors,  and levels of production,  management believes that the
cash  presently  available  will be sufficient to enable the Company to continue
operations  until  November,  2001.  However,  actual  results,  especially with
respect to revenues,  may differ materially from such estimate, and no assurance
can  be  given  that  additional  funding  will  not  be  required  sooner  than
anticipated or that such additional  funding,  whether from financial markets or
collaborative  or other  arrangements  with  corporate  partners  or from  other
sources,  will be available  when needed or on terms  acceptable to the Company.
Insufficient  funds will require the Company to further  delay,  scale back,  or
eliminate certain or all of its research and development  programs or to license
third parties to commercialize  products or technologies  that the Company would
otherwise seek to develop itself. The independent  auditors' report, dated March
9, 2001, on the Company's  consolidated  financial  statements as of and for the
year ended December 31, 2000 includes an explanatory  paragraph that states that
the Company has suffered  recurring losses from  operations,  has an accumulated
deficit and has limited liquid resources that raise  substantial doubt about its
ability to continue as a going concern.

     On April 9, 2001, the Company exercised its option to acquire a significant
equity interest in Metacine.  Pursuant to the agreement, as amended, the Company
received  700,000  shares of Metacine  common  stock and a five-year  warrant to
purchase,  at a price of $12.48 per share,  282,794  shares of  Metacine  common
stock in exchange for  $300,000 in cash,  $250,000 of services to be rendered by
the Company to Metacine,  and 2,000,000 shares of the Company's common stock. As
a result of this investment,  the Company will take a substantial  charge in the
second quarter of 2001 which will approximate the total  consideration  paid for
this investment in Metacine.

     The agreement  contains certain  restrictions on the ability of Metacine to
sell the Company's shares and provides for cash payments ("Deficiency Payments")
by the Company to Metacine to the extent Metacine has not received $1,850,000 of
cumulative net proceeds from the sale of Company shares by September 30, 2002 or
$400,000 of net proceeds per quarter  beginning with the period ending September
30, 2001 and $250,000 for the quarter ending September 30, 2002.

     The Company  participates in the State of New Jersey's corporation business
tax benefit certificate  transfer program (the "Program"),  which allows certain
high  technology and  biotechnology  companies to transfer unused New Jersey net
operating loss carryovers to other New Jersey  corporation  business  taxpayers.
During 1999, the Company  submitted an  application  to the New Jersey  Economic
Development  Authority  (the  "EDA")  to  participate  in the  Program  and  the
application  was  approved.  The EDA then issued a  certificate  certifying  the
Company's eligibility to participate in the Program and the amount of New Jersey
net operating loss  carryovers the Company has available to transfer.  Since New
Jersey law  provides  that net  operating  losses can be carried  over for up to
seven years,  the Company may be able to transfer  its New Jersey net  operating
losses from the last seven years.  The Company  estimated that, as of January 1,
1999, it had  approximately  $85 million of unused New Jersey net operating loss
carryovers available for transfer under the Program. The Program requires that a
purchaser pay at least 75% of the amount of the surrendered tax benefit.

     During  December 2000 and December 1999, the Company  completed the sale of
approximately  $19 million and $32 million of its New Jersey tax loss carryovers
and  received  $1.48  million (in January  2001) and $2.35  million (in December
1999),  which  was  recorded  as a gain on  sale of  state  net  operating  loss
carryovers  on its  Consolidated  Statement  of  Operations  in 2000  and  1999,
respectively.  In June 2001,  the Company will submit an  application to sell an
additional $3.6 million of tax benefits (calculated by multiplying the Company's
unused New Jersey net operating  loss  carryovers  through  December 31, 2000 of
approximately  $40 million by 9%).  The actual  amount of such tax  benefits the
Company may sell will depend upon the allocation among  qualifying  companies of
an annual pool  established  by the State of New Jersey.  The allocated pool for
fiscal year 2001 and future years is $40 million per year.

     The Company  obtained  human white blood cells used in the  manufacture  of
ALFERON N Injection from several sources,  including the Red Cross pursuant to a
supply agreement dated April 1, 1997 (the "Supply Agreement").  The Company will
not need to purchase  more human white blood cells until such time as production
of crude alpha  interferon is resumed,  and has not purchased any since April 1,
1998.  Under the terms of the Supply  Agreement,  the Company was  obligated  to
purchase a minimum  amount of human white blood cells each month  through  March
1999 (the "Minimum  Purchase  Commitment"),  with an aggregate  Minimum Purchase
Commitment  during the period  from April 1998  through  March 1999 in excess of
$3,000,000.   As  of  November  23,  1998,   the  Company  owed  the  Red  Cross
approximately  $1.46 million plus interest at the rate of 6% annum accruing from
April 1, 1998 (the "Red  Cross  Liability")  for  white  blood  cells  purchased
pursuant to the Supply Agreement.

     In an agreement  dated  November 23, 1998,  the Company agreed to grant the
Red  Cross a  security  interest  in  certain  assets  to  secure  the Red Cross
Liability and to issue to the Red Cross  300,000  shares of Common Stock (with a
market value of  $1,171,875 at December 4, 1998) and  additional  shares at some
future date as requested by the Red Cross to satisfy any remaining amount of the
Red Cross Liability.  The Red Cross agreed that any net proceeds  received by it
upon sale of such shares would be applied  against the Red Cross  Liability  and
that at such  time as the Red  Cross  Liability  was paid in full,  the  Minimum
Purchase  Commitment  would be  deleted  effective  April  1,  1998 and any then
existing breaches of the Minimum Purchase Commitment would be waived. In January
1999 the  Company  granted  the Red Cross a  security  interest  (the  "Security
Interest")  in,  among  other  things,  the  Company's  real  estate,  equipment
inventory,  receivables,  and New Jersey net operating loss carryovers to secure
repayment of the Red Cross  Liability,  and the Red Cross agreed to forbear from
exercising  its rights  under the Supply  Agreement,  including  with respect to
collecting the Red Cross Liability,  until June 30, 1999 (which was subsequently
extended  until December 31, 1999).  On December 29, 1999, the Company,  the Red
Cross and GP Strategies  entered in an agreement pursuant to which the Red Cross
agreed that until September 30, 2000 it would forbear from exercising its rights
under (i) the Supply  Agreement,  including  with respect to collecting  the Red
Cross Liability,  and (ii) the Security Interest. As of the date hereof, the Red
Cross has not given the Company  notice of its intent to exercise  its rights to
collect  the Red Cross  Liability.  Under the terms of such  agreement,  the Red
Cross  has the right to sell the  Company's  real  estate.  In the event the Red
Cross is successful in selling the Company's real estate, the Company would hope
to be able to enter into a lease with the new  owner,  although  there can be no
assurance that this would occur.

     As the liability to the Red Cross remains  unsettled until such time as the
Red Cross  sells the shares it has  already  received  and could  receive in the
future,  the Company  recorded any shares issued to the Red Cross as "Settlement
Shares"  within  stockholders'  equity.  Any  decreases,  or increases up to the
amount  of any  previous  decreases,  in the  market  value at  issuance  of the
Company's common stock issued to the Red Cross, until such time as the Red Cross
sells its shares, would impact the value of the shares held by the Red Cross and
accordingly require an adjustment to "Settlement Shares". Due to the increase in
the Company's stock price during the three months ended March 31, 2000 up to the
date of sale by the Red Cross of all remaining  Settlement Shares, an adjustment
for  $287,341 was recorded  with a  corresponding  credit to cost of goods sold.
During  1999,  the Red Cross sold 27,000 of the  Settlement  Shares and sold the
balance of such shares  (273,000  shares) during the first quarter of 2000. As a
result,  the net proceeds from the sales of the  Settlement  Shares,  $33,000 in
1999 and $368,000 in 2000,  were applied against the liability to the Red Cross.
The remaining liability to the Red Cross at March 31, 2001 and December 31, 2000
was approximately $1,292,000 and $1,276,000,  respectively. On October 30, 2000,
the Company issued an additional  800,000 shares to the Red Cross (with a market
value of $824,000 on such date). Due to the decline in the Company's stock price
during the three  months  ended March 31, 2001,  an  adjustment  for $81,807 was
recorded  with a  corresponding  charge to cost of goods sold.  The net proceeds
from the sale of such  shares  by the Red  Cross  will be  applied  against  the
remaining liability of $1,292,000 owed to the Red Cross.  However,  there can be
no  assurance  that  the net  proceeds  from  the  sale of such  shares  will be
sufficient to extinguish the remaining liability owed the Red Cross.

     Pursuant to an agreement  dated March 25, 1999,  GP  Strategies  loaned the
Company $500,000 (the "GP Strategies  Debt").  In return,  the Company agreed to
grant GP Strategies (i) a first  mortgage on the Company's  real estate,  (ii) a
two-year option to purchase the Company's real estate, provided that the Company
has terminated its operations and the Red Cross  Liability has been repaid,  and
(iii) a two-year right of first refusal in the event the Company desires to sell
its real estate. In addition,  the Company agreed to issue GP Strategies 500,000
shares of Common  Stock  (the "GP  Shares")  and a  five-year  warrant  (the "GP
Warrant") to purchase 500,000 shares of Common Stock at a price of $1 per share.
The common stock and warrants  issued to GP  Strategies  were valued at $500,000
and recorded as a financing cost and amortized  over the original  period of the
GP Strategies  Debt in 1999. The Company also agreed not to increase its payroll
during  the term of the GP  Strategies  debt  without  the prior  consent  of GP
Strategies.  Pursuant  to the  agreement,  the  Company  has issued a note to GP
Strategies  representing the GP Strategies Debt, which note was due on September
30, 1999 and bears interest,  payable at maturity,  at the rate of 6% per annum.
In addition, at that time the Company negotiated a subordination  agreement with
the Red  Cross  pursuant  to which  the Red  Cross  agreed  that its lien on the
Company's real estate is subordinate to GP Strategies'  lien. On March 27, 2000,
the Company and GP  Strategies  entered into an agreement  pursuant to which (i)
the GP Strategies Debt was extended until June 30, 2001, and (ii) the Management
Agreement  between  the  Company  and  GP  Strategies  was  terminated  and  all
intercompany  accounts between the Company and GP Strategies  (other than the GP
Strategies Debt) in the amount of  approximately  $130,000 were discharged which
was recorded as a credit to capital in excess of par value.  The agreement  also
provides that (i)  commencing on May 1, 2001 and ending on June 30, 2001, on any
day ISI may  require GP  Strategies  to  exercise  the GP  Warrant  and sell the
underlying  shares,  if the market price of ISI Common Stock  exceeds  $1.00 per
share  on each of the 10  trading  days  prior  to any  such  day,  and (ii) any
proceeds from the sale of the shares issuable upon exercise of the GP Warrant in
excess of the  aggregate  amount paid by GP  Strategies to purchase such shares,
would be deemed to reduce the then outstanding  amount of principal and interest
of the GP Strategies Debt until such amount is reduced to zero.

     The Company's Common Stock now trades on the OTC Bulletin Board,  which may
have a material  adverse  effect on the  ability of the  Company to finance  its
operations and on the liquidity of the Common Stock.

Results of Operations

Three Months Ended March 31, 2001 Versus Three Months Ended March 31, 2000

     For the three  months  ended  March  31,  2001 and 2000,  the  Company  had
revenues  from the  sale of  ALFERON  N  Injection  of  $370,645  and  $163,150,
respectively.  In 1999,  the Company  offered price  concessions  to its largest
customers  in an attempt  to raise  cash from the sale of  ALFERON N  Injection,
which  resulted in lower than normal  sales in the three  months ended March 31,
2000 as compared to the three months  ended March 31, 2001.  This was due to the
fact that such  customers  were  selling  out of their  inventory  of  Alferon N
Injection (rather than purchasing Alferon N Injection from the Company).

     In the three  months ended March 31, 2001,  the Company  sold,  through its
distributor, to wholesalers and other customers in the United States 2,827 vials
of ALFERON N Injection,  compared to 1,417 vials sold by the Company  during the
three  months  ended March 31, 2000.  In  addition,  foreign  sales of ALFERON N
Injection were 25 vials and zero vials for the three months ended March 31, 2001
and 2000, respectively.

     Cost of goods sold and excess/idle  production  costs totaled  $640,108 and
$230,153  for the three  months  ended  March 31,  2001 and 2000,  respectively.
Excess/idle  production  costs in the three months ended March 31, 2001 and 2000
represented  fixed  production  costs,  which were incurred after  production of
ALFERON N Injection was discontinued in April 1998. Excess/idle production costs
were slightly  lower during the three months ended March 31, 2001 as compared to
the three months ended March 31, 2000.  However,  higher unit sales in the three
months ended March 31, 2001 as compared to the three months ended March 31, 2000
contributed  to higher cost of goods sold. In addition,  based on changes in the
value of the Settlement  Shares, for the three months ended March 31, 2001, cost
of goods sold was  charged  for  $81,807 as  compared to a credit of $287,341 to
cost of goods sold for the three months ended March 31, 2000.

     During the three  months ended March 31, 2000, a portion of the reserve for
excess  inventory was reversed in the amount of $135,271 in order to reflect the
inventory at its estimated net realizable value.

     Research and  development  expenses during the three months ended March 31,
2001 of $587,233  increased  by $163,414  from  $423,819  for the same period in
2000, principally due to increases in payroll and research costs.

     General and  administrative  expenses  for the three months ended March 31,
2001 were  $673,107 as compared  to  $448,074  for the same period in 2000.  The
increase of  $225,033  was  principally  due to  increases  in payroll and other
operating expenses.

     Interest income, net, for the three months ended March 31, 2001 was $32,080
and primarily represented interest income on cash and cash equivalents partially
offset by interest  expense accrued on the Red Cross Liability and GP Strategies
Debt.  Interest  expense,  net,  for the three  months  ended March 31, 2000 was
$9,620 and primarily  represented  interest  accrued on the Red Cross  Liability
partially offset by interest income.

     As a result of the foregoing, the Company incurred net losses of $1,497,723
     and  $813,245  for  the  three  months  ended  March  31,  2001  and  2000,
respectively.

Forward-Looking Statements

     This  report  contains  certain   forward-looking   statements   reflecting
management's   current  views  with  respect  to  future  events  and  financial
performance.  These forward-looking  statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, including, but not limited to, the risk that the
Company will run out of cash;  uncertainty of obtaining  additional  funding for
the Company; uncertainty of obtaining United States regulatory approvals for the
Company's  products under development and foreign  regulatory  approvals for the
Company's  FDA-approved  product and  products  under  development  and, if such
approvals are obtained,  uncertainty of the successful commercial development of
such products; substantial competition from companies with substantially greater
resources than the Company in the Company's present and potential businesses; no
guaranteed source of required materials for the Company's  products;  dependence
on certain distributors to market the Company's products; potential adverse side
effects from the use of the Company's  products;  potential patent  infringement
claims  against the  Company;  possible  inability of the Company to protect its
technology;   uncertainty  of  pharmaceutical   pricing;   substantial   royalty
obligations  payable  by  the  Company;  limited  production  experience  of the
Company;  risk  of  product  liability;  and  risk  of  loss  of key  management
personnel,  all of which are  difficult  to predict and many of which are beyond
the control of the Company.



<PAGE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                           PART II. OTHER INFORMATION



Item 6.    Exhibits and Reports on Form 8-K

                (b) Reports on Form 8-K

               There were no reports on Form 8-K filed during the three months
               ended March 31, 2001.



<PAGE>


                            INTERFERON SCIENCES, INC.

                                 March 31, 2001




                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.



                                                 INTERFERON SCIENCES, INC.




DATE:  May 15, 2001                              By: /s/ Lawrence M. Gordon
                                                         Lawrence M. Gordon
                                                         Chief Executive Officer




DATE:  May 15, 2001                              By:  /s/ Donald W. Anderson
                                                          Donald W. Anderson
                                                          Controller