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 June 30, 1998

         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
July 23, 1998:
                         Common Stock 15,564,759 shares


<PAGE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS


                                                                         Page
                                                                         ----
Part I.  Financial Information:

   Consolidated Condensed Balance Sheets - June 30, 1998
     and December 31, 1997 ..............................................   1

   Consolidated Condensed Statements of Operations--Three
     Months and Six Months Ended June 30, 1998 and 1997 ................. 2-3

   Consolidated Condensed Statement of Changes in
     Stockholders' Equity--Six Months Ended
     June 30, 1998 ......................................................   4

   Consolidated Condensed Statements of Cash Flows--Six
     Months Ended June 30, 1998 and 1997 ................................   5

   Notes to Consolidated Condensed Financial Statements ................. 6-8

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

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

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


<PAGE>


<TABLE>

                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                          PART I. FINANCIAL INFORMATION


                      CONSOLIDATED CONDENSED BALANCE SHEETS

<CAPTION>

                                               June 30,          December 31,
                                                1998                1997
                                             (Unaudited)             *
                                            -------------        -------------
<S>                                         <C>                 <C>

ASSETS
Current assets
  Cash and cash equivalents                 $ 3,675,606         $ 14,059,283
Accounts and other receivables                  226,587              989,458
  Inventories, net of reserves
of $10,344,551 and $7,254,710                 1,780,565            3,332,653
  Receivables from GP Strategies
and affiliated companies                                              21,904
  Prepaid expenses and other
current assets                                   49,058               65,353
                                            ------------        -------------
Total current assets                          5,731,816           18,468,651
                                            ------------        -------------
Property, plant and equipment,
at cost                                      13,687,068           13,496,755
Less accumulated depreciation                (8,697,861)          (8,266,892)
                                            ------------        -------------
                                              4,989,207            5,229,863
                                            ------------        -------------
Patent costs, net of accumulated
amortization                                    265,632              280,962
Other assets                                    148,900              173,900
                                            ------------        -------------
Total assets                                $11,135,555         $ 24,153,376
                                            ===========         =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable and
accrued expenses                            $ 3,309,814         $  3,939,736
  Amount due GP Strategies and
affiliated companies                             14,608
                                            ------------        -------------
Total current liabilities                     3,324,422            3,939,736
                                            ------------        -------------
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-15,262,753 and
15,210,405 shares                               152,628              152,104
Capital in excess of par value              124,159,642          123,946,331
Accumulated deficit                        (116,501,137)        (103,884,795)
                                           -------------        -------------
Total stockholders' equity                    7,811,133           20,213,640
                                           -------------        -------------
Total liabilities and stockholders'
equity                                     $ 11,135,555         $ 24,153,376
                                           =============        =============

</TABLE>

     *The consolidated  condensed balance sheet as of December 31, 1997 has been
summarized from the Company's audited balance sheet as of that date.

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

<PAGE>

<TABLE>
                    INTERFERON SCIENCES, INC. AND SUBSIDIARY


                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<CAPTION>

                                                        Three Months Ended
                                                            June 30,
                                                   -----------------------------
                                                       1998             1997
                                                   -------------    ------------
<S>                                                <C>              <C>

Revenues
Alferon N Injection                                $  206,443       $  759,139
Research products and other revenues                   12,101            1,902
                                                   -----------      -----------
Total revenues                                        218,544          761,041
                                                   -----------      -----------
Costs and expenses
Cost of goods sold and idle
production costs                                    2,576,417          603,268
Research and development
 (net of zero and $58,749 of rental
  income received from GP Strategies)               2,162,871        3,135,447
General and administrative
 (includes $30,000 and $58,125
  of payments to GP Strategies for
  management fees and reimbursements of
  certain salaries; net of $6,250 
  received from GP Strategies for the
  three months ended June 30, 1998 for
  reimbursements of certain salaries)               1,078,189        1,147,703
                                                   -----------     ------------

Total costs and expenses                            5,817,477        4,886,418
                                                   -----------     ------------
Loss from operations                               (5,598,933)      (4,125,377)

Interest income                                       66,125           130,645
                                                   -----------     ------------
Net loss                                          $(5,532,808)     $(3,994,732)
                                                  ============     ============

Basic and diluted loss per share                  $      (.36)     $      (.33)
                                                  ============     ============

Weighted average number of
shares outstanding                                  15,245,554      12,285,105

</TABLE>











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

<PAGE>

<TABLE>

                    INTERFERON SCIENCES, INC. AND SUBSIDIARY


                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<CAPTION>

                                                         Six Months Ended
                                                            June 30,
                                                  -----------------------------
                                                   1998                   1997
                                                  -------------    ------------
<S>                                             <C>               <C>

Revenues
Alferon N Injection                             $     458,966     $   1,388,120
  Research products and other revenues                 89,126            27,120
                                                 -------------    -------------
Total revenues                                        548,092         1,415,240
                                                 -------------    -------------
Costs and expenses
Cost of goods sold and idle
  production costs                                  2,779,803         1,104,642
Provision for excess inventory                      3,089,841
Research and development
 (net of $29,375 and $117,498
  of rental income received from
  GP Strategies)                                    4,218,010         5,727,535
General and administrative
 (includes $60,000 and $116,250 of
  payments to GP Strategies for
  management fees and reimbursements 
  of certain salaries; net of $12,500
  received  from GP Strategies for the
  six months ended June 30, 1998 for
  reimbursements of certain salaries)               2,550,588         2,070,138
                                                 -------------    -------------
Total costs and expenses                           12,638,242         8,902,315
                                                 -------------    -------------
Loss from operations
                                                  (12,090,150)       (7,487,075)

 Interest income                                      210,845           307,534

 Loss on repurchase of
 preferred stock                                     (737,037)
                                                 -------------    --------------
Net loss                                         $(12,616,342)    $  (7,179,541)
                                                 =============    ==============

Basic and diluted loss per share                 $       (.83)    $        (.58)
                                                 =============    ==============

Weighted average number of
shares outstanding                                 15,236,114        12,282,574


</TABLE>








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

<PAGE>


<TABLE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY


                 CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
                              STOCKHOLDERS' EQUITY
                         SIX MONTHS ENDED JUNE 30, 1998
                                   (Unaudited)
<CAPTION>



                                                           Capital                                       Total
                              Common Stock                in excess            Accummulated           Stockholders'
                         Shares          Amount         of par value              Deficit                Equity
                         ------          ------         ------------            -----------           ------------
<S>                      <C>            <C>            <C>                     <C>                    <C>

Balance at
 Dec. 31,
 1997                   15,210,405      $  152,104     $ 123,946,331           $ (103,884,795)        $ 20,213,640

Common stock
 issued as
 compensation               16,191             162           116,735                                       116,897

Common stock
 issued under
 Company 401(k)
 Plan                       36,157             362            96,576                                        96,938

Net loss                                                                          (12,616,342)         (12,616,342)
                        -------------------------------------------------------------------------------------------
Balance at
 June 30,
 1998                   15,262,753     $   152,628     $ 124,159,642           $ (116,501,137)        $  7,811,133


</TABLE>














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

<PAGE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

<TABLE>
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<CAPTION>
                                                                       Six Months Ended
                                                                          June 30,
                                                                  --------------------------
                                                                   1998                1997
                                                               --------------------------------
<S>                                                            <C>                <C>

  Cash flows from operations:
    Net loss                                                   $ (12,616,342)     $ (7,179,541)
    Adjustments to reconcile net loss to net
        cash used for operating activities:
        Depreciation and amortization                                446,299           374,668
        Compensation and benefits paid
       with common stock                                             213,835
        Provision for excess inventory                             3,089,841
        Change in operating assets and liabilities:
        Inventories                                               (1,537,753)       (1,800,625)
        Receivables from GP Strategies and
          affiliated companies                                        36,512            19,386
        Accounts and other receivables                               762,871          (575,506)
        Prepaid expenses and other current assets                     16,295            33,282
        Accounts payable and accrued expenses                       (629,922)          116,409
        Loss on repurchase of preferred stock                        737,037
                                                               --------------     -------------
        Net cash used for operations                              (9,481,327)       (9,011,927)
                                                               --------------     -------------

  Cash flows from investing activities:
     Additions to property, plant and equipment                    (190,313)          (331,767)
     Reductions to other assets                                      25,000
                                                               --------------     -------------
     Net cash used for investing activities                        (165,313)          (331,767)
                                                               --------------     -------------
  Cash flows from financing activities:
     Net proceeds from preferred stock offering                   7,179,000
     Repurchase of preferred stock                               (7,916,037)
     Proceeds from exercise of common stock
        options                                                                         52,231
     Purchase of fractional shares of common
        stock                                                                             (633)
                                                               ---------------    -------------
     Net cash (used for) provided by financing
       activities                                                  (737,037)            51,598
                                                               ---------------    -------------
  Net decrease in cash and cash equivalents                     (10,383,677)        (9,292,096)

  Cash and cash equivalents at beginning
     of period                                                   14,059,283         17,491,955
                                                               ---------------    -------------
  Cash and cash equivalents at end of period                   $  3,675,606       $  8,199,859
                                                               ===============    ==============


</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)  which are,  in the  opinion  of  management,  necessary  to a fair
statement  of the  results  for the  interim  periods.  The  results for interim
periods are not necessarily indicative of results to be expected for the year.


Note 2. Earnings per Share

     In the fourth  quarter of 1997,  the  Company  adopted  the  provisions  of
Statement of Financial  Accounting Standards No. 128, "Earnings per Share" (SFAS
128), as required,  and restated the previously  reported  earnings per share in
conformity  with SFAS 128. The Company does have potential  Common Stock, in the
form of  options  and  warrants,  that  would be  dilutive  if the  Company  had
earnings.

Note 3. Inventories

     Inventories,  consisting of material, labor and overhead, are classified as
follows:

                                            June 30,          December 31,
                                             1998                1997
                                         --------------       --------------

Finished goods                           $ 4,365,439           $ 3,720,000
Work in process                            6,516,092             5,621,714
Raw materials                              1,243,585             1,245,649
Less reserve for excess
  inventory                              (10,344,551)           (7,254,710)
                                         ------------          ------------
                                         $ 1,780,565           $ 3,332,653
                                         ============          ============


     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 written-down the
carrying  value of its  inventory  of ALFERON N Injection to its  estimated  net
realizable value. The write-down was the result of the Company's reassessment of
anticipated  near-term  needs for  product to be sold or  utilized  in  clinical
trials  (within  approximately  a  two-year  period  based on  historical  sales
levels).  As a result,  inventories  at December  31, 1997 reflect a reserve for
excess inventory of $7,254,710.  Also,  during the quarter ended March 31, 1998,
the Company  recorded an additional  write-off of $3,089,841 of inventories that
were produced during the three months ended March 31, 1998.

Note 4. Preferred Stock

     On February  5, 1998,  the Company  completed  the sale of 7,500  shares of
Series  A  Convertible  Preferred  Stock  to an  institutional  investor  for an
aggregate amount of $7,500,000.  The $7,179,000 of net proceeds were expected to
augment the  Company's  working  capital  while  awaiting the results of the two
Phase 3 clinical trials of ALFERON N Injection for the treatment of HIV-infected
and  hepatitis C  patients.  After  considering  the  reaction of the  Company's
stockholders to the issuance and the negative impact the issuance apparently had
on the Company's  market  capitalization,  the Board of Directors  determined on
February 13, 1998 to exercise an option to repurchase  the shares of Convertible
Preferred  Stock for $7,894,737  (plus accrued  dividends).  The net loss to the
Company on the  repurchase of the Preferred  Stock  amounted to $737,037 and was
recorded  on the income  statement  under the caption of loss on  repurchase  of
preferred stock for the quarter ended March 31, 1998.

Note 5. Operations and Liquidity

     The  Company  has  experienced   significant  operating  losses  since  its
inception in 1980. As of June 30, 1998, the Company had an  accumulated  deficit
of approximately  $116.5 million. For the six months ended June 30, 1998 and the
years  ended  December  31,  1997,  1996 and 1995,  the  Company had losses from
operations of approximately $12.1 million, $22.4 million, $12.4 million and $7.4
million,  respectively.  Although  the Company  received FDA approval in October
1989 to market  ALFERON N Injection  in the United  States for the  treatment of
certain genital warts and ALFERON N Injection  currently is marketed and sold in
the United States by the Company, in Mexico by Industria Farmaceutica Andromaco,
S.A. De C.V. and in Germany by Cell Pharm GmbH ("Cell  Pharm"),  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,  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.

     The Company has limited financial  resources as of June 30, 1998 with which
to support future operating activities and to satisfy its financial  obligations
as they become  payable.  Consequently,  management  is  continuing  to actively
pursue raising  additional  capital by either (i) issuing securities in a public
or private equity offering, (ii) licensing the rights to its injectable, topical
or oral formulations of alpha interferon,  or (iii) entering into  collaborative
or other arrangements with corporate  partners.  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.  In  addition,  the
Company hopes to  renegotiate  the minimum  purchase  commitment for white blood
cells discussed in Management's  Discussion and Analysis of Financial  Condition
and Liquidity,  but if it is unable to do so such obligation may have a material
adverse effect on the financial condition of the Company.

     Based on the  Company's  estimates  of  revenues,  expenses  and  levels of
production,  management  believes that the cash  available will be sufficient to
enable the Company to continue  operations through  approximately  October 1998.
However,  actual  results,  especially  with  respect  to  revenues,  may differ
materially  from such  estimates,  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.

<PAGE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

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



Financial Condition and Liquidity

     As of July 27,  1998,  the Company had an aggregate of $3.1 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 requires  substantial funds to conduct research and development
and pre-clinical  and clinical  testing and to market its products.  For the six
months ended June 30, 1998,  the cash utilized by the Company's  operations  was
approximately  $9.5 million of which  increases  in  inventories  accounted  for
approximately $1.5 million. The Company had continued to increase its investment
in  inventories of ALFERON N Injection to meet  anticipated  increases in market
demand,  for use in the  Company-sponsored  Phase 3 and Phase 2 clinical trials,
and so that  inventory  would be available in the event  ALFERON N Injection was
subsequently  approved  for the  treatment  of HIV or hepatitis C or both by the
U.S.  Food and Drug  Administration.  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  determined  that it has enough  inventory on hand to
satisfy  its  clinical  and  commercial  needs for the  foreseeable  future  and
therefore  discontinued  production  of ALFERON N Injection  in April 1998.  The
Company  currently  obtains human white blood cells used in the  manufacture  of
ALFERON N Injection  from  several  sources,  including  the  American Red Cross
pursuant to a supply  agreement  dated April 1, 1997.  The Company will not need
more  human  white  blood  cells  until  such time as  production  of  ALFERON N
Injection  is resumed.  Under the terms of the  agreement  with the American Red
Cross,  the Company is  obligated  to  purchase a minimum  number of human white
blood  cells  each  month  through  March  1999.  The  aggregate  commitment  is
approximately  $260,000 per month.  The Company hopes to renegotiate the minimum
purchase  commitment,  but if it is unable to do so such  obligation  may have a
material adverse effect on the financial condition of the Company. 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.

     The  Company  anticipates  that  the  cash  that  will be  utilized  by the
Company's operations in 1998 will be significantly less than in 1997 as a result
of the discontinuance in April 1998 of manufacturing,  the conclusion in 1998 of
the  Company's  Phase 3 studies of ALFERON N Injection in HIV- and  HCV-infected
patients,  and certain other cost reductions  instituted in 1998 by the Company,
offset  in  part by the  expenses  associated  with  the  HIV  and  hepatitis  C
co-infection  study that  commenced  in December  1997.  Based on the  Company's
estimates of revenues,  expenses, and levels of production,  management believes
that the cash  presently  available  will be sufficient to enable the Company to
continue operations through approximately October 1998. However, actual results,
especially with respect to revenues,  may differ materially from such estimates,
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
April 2, 1998 on the Company's  consolidated financial statements ended December
31, 1997 notes that the Company has suffered  recurring  losses from  operations
and has an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern.

Results of Operations

Six Months Ended June 30, 1998 Versus Six Months Ended June 30, 1997

     For the six months ended June 30, 1998, the Company's  revenues of $548,092
included  $458,966  from the sale of ALFERON N Injection  and the  balance  from
sales of research  products and other  revenues.  Revenues of $1,415,240 for the
six months ended June 30, 1997  included  $1,388,120  from the sale of ALFERON N
Injection  and the balance from sales of research  products.  Cost of goods sold
and idle production  costs totaled  $2,779,803 and $1,104,642 for the six months
ended June 30, 1998 and 1997,  respectively.  Idle  production  costs in the six
months ended June 30, 1998 primarily  represented fixed production costs,  which
were incurred after  production of ALFERON N Injection was discontinued in April
1998. There were no idle production costs in the six months ended June 30, 1997.

     In May 1997,  the  Company  appointed  Alternate  Site  Distributors,  Inc.
("ASD"),  a wholly owned  subsidiary of Bergen  Brunswig  Corporation,  the sole
United States distributor of ALFERON N Injection.  Under the agreement with ASD,
the Company sold vials to ASD, which then resold them to the  marketplace.  As a
result, the Company  recognized  revenues when it sold vials to ASD, rather than
when ASD resold them to the marketplace.  In June 1998, the Company replaced ASD
with  Integrated  Commercialization  Solutions  ("ICS"),  another  subsidiary of
Bergen  Brunswig  Corporation  better  able to handle  the  Company's  specialty
distribution  requirements.  Under the new agreement, vials are not sold to ICS,
but are instead sold by the Company directly to the  marketplace,  at which time
revenues are  recognized by the Company.  In the six months ended June 30, 1998,
ASD and the Company sold to wholesalers and other customers in the United States
6,937 vials of ALFERON N Injection,  compared to 7,074 vials sold by ASD and the
Company  during the six months  ended June 30,  1997.  Notwithstanding  the only
slight decrease in vials sold, the Company's revenues from the sale of ALFERON N
Injection  decreased by $929,154,  a 66.9% decline, in the six months ended June
30, 1998  compared to the six months ended June 30, 1997.  This decrease was due
primarily  to (i) ASD's  sales in the 1998  period  were  primarily  from  ASD's
inventory  (and  therefore had been  accounted for as revenues by the Company in
1997), (ii) the Company's  revenues in the 1997 period included sales to ASD for
its inventory, and (iii) a decrease in foreign sales in the 1998 period.

     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 written-down the
carrying  value of its  inventory  of ALFERON N Injection to its  estimated  net
realizable value. The write-down was the result of the Company's reassessment of
anticipated  near-term  needs for  product to be sold or  utilized  in  clinical
trials  (within  approximately  a  two-year  period  based on  historical  sales
levels). As a result,  during the three months ended March 31, 1998, the Company
recorded an inventory  write-off  of  $3,089,841  in addition to the  $7,254,710
inventory write-down which was recorded at December 31, 1997.

     Research and development expenses during the six months ended June 30, 1998
of $4,218,010  decreased by $1,509,525  from  $5,727,535  for the same period in
1997,  principally because the Company has nearly concluded its Phase 3 clinical
studies of ALFERON N Injection in HIV- and  HCV-infected  patients.  The Company
received $29,375 and $117,498, respectively, as rental income from GP Strategies
Corporation  ("GP  Strategies")  for  the  use of a  portion  of  the  Company's
facilities, which offset research and development expenses.

     General and administrative  expenses for the six months ended June 30, 1998
were  $2,550,588  as compared  to  $2,070,138  for the same period in 1997.  The
increase of  $480,450  was  principally  due to  increases  in payroll and other
operating expenses. GP Strategies provides certain  administrative  services for
which the Company paid GP Strategies  $60,000 for each of the six-month  periods
ended June 30, 1998 and 1997.  In  addition,  for the six months  ended June 30,
1998 and 1997, payments to GP Strategies for services provided to the Company by
GP Strategies personnel amounted to zero and $56,250,  respectively. For the six
months ended June 30, 1998 and 1997,  receipts from GP  Strategies  for services
provided to GP  Strategies  by Company  personnel  amounted to $12,500 and zero,
respectively.

     On February  5, 1998,  the Company  completed  the sale of 7,500  shares of
Series  A  Convertible  Preferred  Stock  to an  institutional  investor  for an
aggregate amount of $7,500,000.  The $7,179,000 of net proceeds were expected to
augment the  Company's  working  capital  while  awaiting the results of the two
Phase 3 clinical trials of ALFERON N Injection for the treatment of HIV-infected
and  hepatitis C  patients.  After  considering  the  reaction of the  Company's
stockholders to the issuance and the negative impact the issuance apparently had
on the Company's  market  capitalization,  the Board of Directors  determined on
February 13, 1998 to exercise an option to repurchase  the shares of Convertible
Preferred  Stock for $7,894,737  (plus accrued  dividends).  The net loss to the
Company on the  repurchase of the Preferred  Stock  amounted to $737,037 and was
recorded  on the income  statement  under the caption of loss on  repurchase  of
preferred stock for the quarter ended March 31, 1998.

     Interest  income for the six months  ended June 30,  1998 was  $210,845  as
compared to $307,534  for the same period in 1997.  The  decrease of $96,689 was
due to less funds available for investment in the current period.

     As  a  result  of  the  foregoing,  the  Company  incurred  net  losses  of
$12,616,342  and  $7,179,541  for the six months  ended June 30,  1998 and 1997,
respectively.

Three Months Ended June 30, 1998 Versus Three Months Ended June 30, 1997

     For the three  months  ended  June 30,  1998,  the  Company's  revenues  of
$218,544  included $206,443 from the sale of ALFERON N Injection and the balance
from sales of research products and other revenues. Revenues of $761,041 for the
three months ended June 30, 1997  included  $759,139  from the sale of ALFERON N
Injection  and the balance from sales of research  products.  Cost of goods sold
and idle production  costs totaled  $2,576,417 and $603,268 for the three months
ended June 30, 1998 and 1997,  respectively.  Idle production costs in the three
months ended June 30, 1998 primarily  represented fixed production costs,  which
were incurred after  production of ALFERON N Injection was discontinued in April
1998.  There were no idle  production  costs in the three  months ended June 30,
1997.

     In the three  months  ended  June 30,  1998,  ASD and the  Company  sold to
wholesalers  and other  customers in the United  States 2,613 vials of ALFERON N
Injection,  compared to 3,991 vials sold by ASD and the Company during the three
months ended June 30, 1997, a 34.5%  decline.  The  Company's  revenues from the
sale of ALFERON N Injection decreased by $552,696, a 72.8% decline, in the three
months  ended June 30, 1998  compared to the three  months  ended June 30, 1997.
This  percentage  decline was greater than the percentage  decline in vials sold
primarily due to the facts that ASD's sales in the 1998 period were primarily
from ASD's inventory and the Company's sales in the 1997 period included sales 
to ASD for its inventory.
 

     Research and  development  expenses  during the three months ended June 30,
1998 of $2,162,871  decreased by $972,576 from $3,135,447 for the same period in
1997,  principally because the Company has nearly concluded its Phase 3 clinical
studies of ALFERON N Injection in HIV- and  HCV-infected  patients.  The Company
received zero and $58,749, respectively, as rental income from GP Strategies for
the use of a portion of the  Company's  facilities,  which  offset  research and
development expenses.

     General and  administrative  expenses  for the three  months ended June 30,
1998 were  $1,078,189 as compared to $1,147,703 for the same period in 1997. The
decrease of $69,514 was principally due to decreases in marketing  expenses.  GP
Strategies provides certain  administrative  services for which the Company paid
GP Strategies  $30,000 for each of the  three-month  periods ended June 30, 1998
and 1997.  For the three  months  ended June 30,  1998 and 1997,  payments to GP
Strategies for the services  provided to the Company by GP Strategies  personnel
amounted to zero and $28,125,  respectively. For the three months ended June 30,
1998 and 1997,  receipts  from GP  Strategies  for the  services  provided to GP
Strategies by Company personnel amounted to $6,250 and zero, respectively.

     Interest  income for the three  months  ended June 30,  1998 was $66,125 as
compared to $130,645  for the same period in 1997.  The  decrease of $64,520 was
due to less funds available for investment in the current period.

     As a result of the foregoing, the Company incurred net losses of $5,532,808
and $3,994,732 for the three months ended June 30, 1998 and 1997, respectively.

Recent Tax and Accounting Developments

     The Financial  Accounting Standards Board issued Accounting Standards (SFAS
130),"Reporting  Comprehensive  Income", in June 1997 which requires a statement
of  comprehensive  income to be included in the financial  statements for fiscal
years  beginning after December 15, 1997. The Company has adopted this Statement
and  has no  other  comprehensive  income,  other  than  net  income,  therefore
comprehensive income is the same as net income (loss).

     In addition,  in June of 1997, the FASB issued SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131 requires disclosure
of certain information about operating segments and about products and services,
geographic areas in which a company  operates,  and their major  customers.  The
Company is  presently  in the  process of  evaluating  the effect  that this new
standard will have on disclosures in the Company's financial statements.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This Statement  establishes  accounting and
reporting standards for derivative  instruments 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 is effective  for all fiscal  quarters of fiscal
years  beginning  after June 15,  1999.  The Company  will adopt SFAS No. 133 by
January 1, 2000.  The Company is  currently  evaluating  whether the adoption of
SFAS  No.  133  will  have  a  material  impact  on the  consolidated  financial
statements.

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
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 for the period  ended
             June 30, 1998.


<PAGE>


                            INTERFERON SCIENCES, INC.

                                  JUNE 30, 1998




                                   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: August 14, 1998                      By:   /s/ Lawrence M. Gordon
                                                 -----------------------
                                                     Lawrence M. Gordon
                                                     Chief Executive Officer


DATE: August 14, 1998                      By:   /s/ Donald W. Anderson
                                                 ----------------------
                                                     Donald W. Anderson
                                   Controller