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 September 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
October 16, 1998:

                         Common Stock 16,099,698 shares




<PAGE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS


                                                                          Page
                                                                          ----

Part I.  Financial Information:

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

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

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

   Consolidated Condensed Statements of Cash Flows--Nine
     Months Ended September 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 ................................ 9-15


Part II.  Other Information .............................................   16

Signatures ..............................................................   17




<PAGE>


<TABLE>

                                                        
                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                          PART I. FINANCIAL INFORMATION

<CAPTION>
                      CONSOLIDATED CONDENSED BALANCE SHEETS


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

ASSETS                                      
Current assets                          
Cash and cash equivalents                   $ 1,796,552           $ 14,059,283
  Accounts and other receivables                301,822                989,458
  Inventories, net of reserves
    of $10,344,551 and $7,254,710             1,222,085              3,332,653
  Receivables from GP Strategies
    and affiliated companies                                            21,904
  Prepaid expenses and other
    current assets                               79,631                 65,353
                                            ------------          -------------
Total current assets                          3,400,090             18,468,651
                                            ------------          -------------
Property, plant and equipment,
  at cost                                    13,703,452             13,496,755
Less accumulated depreciation                (8,914,038)            (8,266,892)
                                            ------------          -------------
                                              4,789,414              5,229,863
                                            ------------          -------------
Patent costs, net of accumulated
  amortization                                  257,967                280,962
Other assets                                    138,900                173,900
                                            ------------          -------------
Total assets                                $ 8,586,371           $ 24,153,376
                                            ============          =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable and
    accrued expenses                        $ 3,728,509           $  3,939,736
  Amount due GP Strategies and
    affiliated companies                         57,027
                                            ------------          -------------
Total current liabilities                     3,785,536              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-16,099,598 and
 15,210,405 shares                              160,996                152,104
Capital in excess of par value               24,646,734            123,946,331
Accumulated deficit                        (120,006,895)          (103,884,795)
                                           -------------          -------------
Total stockholders' equity                    4,800,835             20,213,640
                                           -------------          -------------
Total liabilities and stockholders'
  equity                                   $  8,586,371           $ 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  condensed
financial statements.


<PAGE>


<TABLE>

                    INTERFERON SCIENCES, INC. AND SUBSIDIARY
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)


<CAPTION>
                                                         Three Months Ended
                                                             September 30,
                                                   -----------------------------
                                                       1998             1997
                                                   -------------    ------------
<S>                                                <C>              <C>    
Revenues
  Alferon N Injection                              $    634,612     $  868,574
  Research products and other revenues                    4,022          1,097
                                                   -------------    ------------
Total revenues                                          638,634        869,671
                                                   -------------    ------------
Costs and expenses
Cost of goods sold and idle                                      
  production costs                                    1,165,238        469,055
Research and development 
 (net of zero and $58,749 of rental
  income received from GP Strategies)                 1,943,198      2,666,507
 General and administrative 
 (includes $30,000 and $60,000
  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 September 30, 1998 for reimbursements
  of certain salaries)                                1,065,389       1,059,358
                                                   -------------    ------------

Total costs and expenses                              4,173,825       4,194,920
                                                   -------------    ------------
 Loss from operations                                (3,535,191)     (3,325,249)

 Interest income                                         29,433         153,891
                                                   -------------    ------------
Net loss                                           $ (3,505,758)    $(3,171,358)
                                                   =============    ============

Basic and diluted loss per share                   $       (.22)    $      (.23)
                                                   =============    ============

Weighted average number of
shares outstanding                                   15,626,776      13,532,891



</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>


                                                          Nine Months Ended
                                                             September 30,
                                                   -----------------------------
                                                       1998             1997
                                                   -------------    ------------
<S>                                               <C>              <C>    
Revenues
  Alferon N Injection                             $  1,093,578     $  2,256,694
  Research products and other revenues                  93,148           28,217
                                                  -------------    -------------
Total revenues                                       1,186,726        2,284,911
                                                  -------------    -------------
Costs and expenses
Cost of goods sold and idle
  production costs                                   3,945,041        1,573,697
Provision for excess inventory                       3,089,841
Research and development
 (net of $29,375 and $176,247
 of rental income received from
 GP Strategies)                                      6,161,208        8,394,042
General and administrative
 (includes $90,000 and $176,250
  of payments to GP Strategies for
  management fees and reimbursements
  of certain salaries; net of $18,750
  received  from GP Strategies for the
  nine months ended September 30, 1998 for
  reimbursements of certain salaries)                3,615,977        3,129,496
                                                  -------------    -------------
Total costs and expenses                            16,812,067       13,097,235
                                                  -------------    -------------
 Loss from operations                              (15,625,341)     (10,812,324)

 Interest income                                       240,278          461,425

 Loss on repurchase of
 preferred stock                                      (737,037)
                                                  -------------    -------------
Net loss                                          $(16,122,100)    $(10,350,899)
                                                  =============    =============

Basic and diluted loss per share                  $      (1.05)    $       (.81)
                                                  =============    =============

Weighted average number of
shares outstanding                                  15,389,715       12,782,448


</TABLE>









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


<PAGE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY
                 CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
                              STOCKHOLDERS' EQUITY
                      NINE MONTHS ENDED SEPTEMBER 30, 1998
                                   (Unaudited)

<TABLE>






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

<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

Net proceeds
 from sale of
 common stock               800,000        8,000             446,500                                      454,500

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

Common stock
 issued under
 Company 401(k)
 Plan                        73,002          730             137,168                                      137,898

Net loss                                                                         (16,122,100)         (16,122,100)
               ---------------------------------------------------------------------------------------------------
Balance at
 Sept.30,
 1998                    16,099,598   $  160,996      $  124,646,734          $ (120,006,895)       $   4,800,835



</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 CASH FLOWS
                                   (Unaudited)


<CAPTION>
                                                          Nine Months Ended
                                                             September 30,
                                                      --------------------------
                                                         1998            1997
                                                      --------------------------

<S>                                                  <C>           <C>    

  Cash flows from operations:                        
    Net loss                                         $(16,122,100) $(10,350,899)
    Adjustments to reconcile net loss to net
      cash used for operating activities:
      Depreciation and amortization                       670,141       568,173
      Compensation and benefits paid
      with common stock                                   254,795
      Provision for excess inventory                    3,089,841
      Change in operating assets and liabilities:
      Inventories                                        (979,273)   (3,572,395)
      Receivables from GP Strategies and
      affiliated companies                                 78,931        22,890
      Accounts and other receivables                      687,636      (943,919)
      Prepaid expenses and other current assets           (14,278)       (4,570)
      Accounts payable and accrued expenses              (211,227)      232,637
      Loss on repurchase of preferred stock               737,037
                                                     ------------- -------------
      Net cash used for operations                    (11,808,497)  (14,048,083)
                                                     ------------- -------------

  Cash flows from investing activities: 
    Additions to property, plant and equipment           (206,697)     (604,485)
    Reductions to other assets                             35,000
                                                     ------------- -------------
    Net cash used for investing activities               (171,697)     (604,485)
                                                     ------------- -------------
  Cash flows from financing activities:
    Net proceeds from sale of common stock                454,500    16,346,919
    Net proceeds from preferred stock offering          7,179,000
    Repurchase of preferred stock                      (7,916,037)
    Proceeds from exercise of common stock
     options                                                             70,044
     Purchase of fractional shares of common
        stock                                                              (633)
                                                     ------------- -------------
    Net cash (used for) provided by financing
     activities                                          (282,537)   16,416,330
                                                     ------------- -------------
  Net (decrease) increase in cash and cash
    equivalents                                       (12,262,731)    1,763,762

  Cash and cash equivalents at beginning
    of period                                          14,059,283    17,491,955
                                                     ------------- -------------
  Cash and cash equivalents at end of period         $  1,796,552   $19,255,717
                                                     ============= =============

</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:

<TABLE>
                                 September 30,         December 31,
                                     1998                 1997
                                 --------------       --------------
<CAPTION>
<S>                              <C>                  <C>   

Finished goods                   $  3,869,888         $  3,720,000
Work in process                     6,516,092            5,621,714
Raw materials                       1,180,656            1,245,649
Less reserve for 
  excess inventory                (10,344,551)          (7,254,710)
                                 --------------       --------------
                                 $  1,222,085         $  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.

<PAGE>



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 September  30,  1998,  the Company had an  accumulated
deficit of approximately $120.0 million. For the nine months ended September 30,
1998 and the years  ended  December  31,  1997,  1996 and 1995,  the Company had
losses from  operations of  approximately  $15.6 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 September 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  December 31,
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

     During the three months ended September 30, 1998, the Company  received net
proceeds  of $454,500  from the sale of 800,000  shares of common  stock.  As of
November  13,  1998,  the Company had an  aggregate of $800,000 in cash and cash
equivalents.  Until utilized,  such cash and cash equivalents are being invested
principally in short-term interest-bearing investments.

     The  Company   intends  to   participate  in  the  State  of  New  Jersey's
coroporation  business tax benefit certificate transfer program (the "Program"),
which when  effective  will allow  certain  high  technology  and  biotechnology
companies to transfer  unused New Jersey net operating loss  carryovers to other
New  Jersey  corporation   business  taxpayers.   The  Company  will  submit  an
application  to the New Jersey  Economic  Development  Authority  (the "EDA") to
participate in the Program. The EDA will then issue 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 will be able to transfer its New Jersey net  operating
losses from the last seven years.  The Company  estimates that, as of January 1,
1999, it will have  approximately $66 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.
Applying the maximum New Jersey  corporate income tax rate of 9% and the minimum
statutory  transfer  price of 75%,  such  unused New Jersey net  operating  loss
carryovers  would have a value of at least $4.45 million.  This assumes that (i)
the EDA certifies the Company's  eligibility  to  participate in the Program and
that the  Company has at least $66  million of  available  unused New Jersey net
operating  loss  carryovers and (ii) the Company is able to find a purchaser for
all of its available unused New Jersey net operating loss carryovers,  as to all
of which there can be no assurance.  In addition, the administrative  procedures
for participation in the Program have not yet been finalized by the EDA, and the
Company is unable to predict how such procedures may affect the amount or timing
of any benefit the Company may receive from participating in the Program.  While
the Program is effective  for tax years  beginning on or after  January 1, 1999,
the Company anticipates that it will attempt to monetize the value of its rights
under the Program,  at least in part, prior to such date,  although there can be
no assurance that the Company will be able to do so.

     The Company requires  substantial funds to conduct research and development
and pre-clinical  and clinical testing and to market its products.  For the nine
months ended  September 30, 1998, the cash utilized by the Company's  operations
was approximately $11.8 million of which increases in inventories  accounted for
approximately $1.0 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 (the
"Red Cross")  pursuant to a supply  agreement  dated April 1, 1997.  The Company
will not need a substantial amount of human white blood cells until such time as
production  of ALFERON N Injection is resumed.  Under the terms of the agreement
with the 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  has  not  purchased  any
buffycoats from the Red Cross since April 1, 1998, representing unfilled minimum
purchase commitments of $1,560,000 as of September 30, 1998. Although it has not
done so as of the date of this report, the Red Cross may assert that the Company
has breached the minimum purchase  commitment and is liable to the Red Cross for
damages.  The Company is  negotiating  with the Red Cross to amend the agreement
with the Red Cross to, among other things,  eliminate this potential  liability,
but there can be no assurance that such  negotiations  will be  successful.  The
Company believes the amount of its potential liability, if any, for such damages
is not presently determinable, but would in any event be less than the amount of
the aggregate unfilled minimum purchase commitment. Any such potential liability
nevertheless  may have a material  adverse effect on the financial  condition of
the  Company.  No  provision  has been made for the  unfilled  minimum  purchase
commitment or any other related potential  liability on the Company's  financial
statements.  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.

<PAGE>

     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  December 31, 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.

     The  Company  has  received a letter  from the Nasdaq  Stock  Market,  Inc.
notifying the Company that its Common Stock had failed to maintain a closing bid
price of at least $1 per share (one of the requirements for continued listing on
Nasdaq) for 30  consecutive  trading days. The letter stated that if the closing
bid price of the Common  Stock is not at least $1 per share for a minimum of ten
consecutive  trading days (the "Minimum Price  Condition") by November 29, 1998,
the Common  Stock  would be  delisted  from Nasdaq at the opening of business on
December 1, 1998.  The letter went on to say that the delisting  would be stayed
if Nasdaq  receives a request  for a hearing  and the  applicable  fees prior to
November 29,  1998.  The closing bid price of the Common Stock has been at least
$1 per share since  November 6, 1998,  and the Minimum Price  Condition  will be
satisfied  if the  closing  bid  price  remains  at least $1 per  share  through
November 19, 1998, of which there can be no assurance.  If the closing bid price
falls below $1 per share on or before  November 19, 1998, the Company intends to
request a hearing from Nasdaq and to submit to its  stockholders  for approval a
proposal to reverse split the Common Stock.  There can be no assurance  that the
reverse stock would be approved by stockholders  or, if it is approved,  that it
would  result in the  satisfaction  of the  Minimum  Price  Condition.  Based on
informal advice received from Nasdaq, the Company believes that the Common Stock
would not be delisted if the Minimum Price  Condition were satisfied  before the
scheduled  hearing  date.  If the Company  fails to satisfy  the  Minimum  Price
Condition by the  scheduled  hearing  date,  the Company  believes  that, if the
Company  proposes to the hearing  panel a plan (such as a reverse  stock  split)
that is  reasonably  likely to result in the  satisfaction  of the Minimum Price
Condition in the  following 30 to 45 days,  the panel would be likely to extend
the stay for that period.  However,  there can be no  assurance  that the Common
Stock  would not be  delisted  after the hearing for failure to meet the Minimum
Price Condition or another of the Nasdaq maintenance  standards,  such as having
tangible net assets of at least $4 million. If it were delisted from Nasdaq, the
Common  Stock would trade 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

Nine Months Ended September 30, 1998 Versus Nine Months Ended September 30,1997

     For the nine months ended  September 30, 1998,  the  Company's  revenues of
$1,186,726  included  $1,093,578  from the sale of ALFERON N  Injection  and the
balance  from  sales of  research  products  and  other  revenues.  Revenues  of
$2,284,911 for the nine months ended September 30, 1997 included $2,256,694 from
the sale of ALFERON N Injection and the balance from sales of research products.
Cost of goods sold and idle production  costs totaled  $3,945,041 and $1,573,697
for the nine  months  ended  September  30,  1998 and 1997,  respectively.  Idle
production  costs  in  the  nine  months  ended  September  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 nine months ended September 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 nine months ended  September 30,
1998, ASD and the Company sold to wholesalers  and other customers in the United
States 11,839 vials of ALFERON N Injection, compared to 12,002 vials sold by ASD
and the Company during the nine months ended September 30, 1997. Notwithstanding
the only slight decrease in vials sold, the Company's  revenues from the sale of
ALFERON N Injection decreased by $1,163,116, a 51.5% decline, in the nine months
ended  September 30, 1998 compared to the nine months ended  September 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.

<PAGE>

     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 nine months ended September
30, 1998 of $6,161,208  decreased by  $2,232,834  from  $8,394,042  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 $176,247,  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 nine months ended September 30,
1998 were  $3,615,977 as compared to $3,129,496 for the same period in 1997. The
increase of  $486,481  was  principally  due to  increases  in payroll and other
operating expenses. GP Strategies provides certain  administrative  services for
which the Company paid GP Strategies  $90,000 for each of the nine-month periods
ended  September  30, 1998 and 1997.  In  addition,  for the nine  months  ended
September  30, 1997,  payments to GP  Strategies  for  services  provided to the
Company by GP  Strategies  personnel  amounted to  $86,250.  For the nine months
ended September 30, 1998,  receipts from GP Strategies for services  provided to
GP Strategies by Company personnel amounted to $18,750.

     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.

<PAGE>

     Interest  income for the nine months ended  September 30, 1998 was $240,278
as compared to $461,425  for the same period in 1997.  The  decrease of $221,147
was due to less funds  available  for  investment  in the current  period.  As a
result of the  foregoing,  the Company  incurred net losses of  $16,122,100  and
$10,350,899 for the nine months ended September 30, 1998 and 1997, respectively.
Three Months Ended  September  30, 1998 Versus Three Months Ended  September 30,
1997

     For the three months ended  September 30, 1998,  the Company's  revenues of
$638,634  included $634,612 from the sale of ALFERON N Injection and the balance
from sales of research products and other revenues. Revenues of $869,671 for the
three months ended September 30, 1997 included $868,574 from the sale of ALFERON
N Injection and the balance from sales of research products.  Cost of goods sold
and idle production  costs totaled  $1,165,238 and $469,059 for the three months
ended September 30, 1998 and 1997,  respectively.  Idle production  costs in the
three months ended  September 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 September 30, 1997.

     In the  three  months  ended  September  30,  1998,  the  Company  sold  to
wholesalers  and other  customers in the United  States 4,902 vials of ALFERON N
Injection,  compared  to 4,928 vials sold by ASD during the three  months  ended
September  30, 1997, a 0.5%  decline.  The  Company's  revenues from the sale of
ALFERON N Injection decreased by $233,962,  a 26.9% decline, in the three months
ended  September 30, 1998 compared to the three months ended September 30, 1997.
This  percentage  decline was greater than the percentage  decline in vials sold
primarily due to the fact that the Company's  sales in the 1997 period  included
sales to ASD for its inventory.

     Research and  development  expenses during the three months ended September
30, 1998 of $1,943,198 decreased by $723,309 from $2,666,507 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  $58,749,  as rental income from GP Strategies for the use of a
portion  of  the  Company's  facilities  in  1997,  which  offset  research  and
development expenses.

     General and  administrative  expenses for the three months ended  September
30, 1998 were  $1,065,389 as compared to $1,059,358 for the same period in 1997.
The increase of $6,031 was  principally  due to increases in payroll,  partially
offset by  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 September 30, 1998 and 1997. For the three
months ended  September  30, 1997,  payments to GP  Strategies  for the services
provided to the Company by GP Strategies  personnel amounted to $30,000. For the
three months ended  September  30, 1998,  receipts  from GP  Strategies  for the
services provided to GP Strategies by Company personnel amounted to $6,250.

<PAGE>

     Interest  income for the three months ended  September 30, 1998 was $29,433
as compared to $153,891  for the same period in 1997.  The  decrease of $124,458
was due to less funds available for investment in the current period.

     As a result of the foregoing, the Company incurred net losses of $3,505,758
and  $3,171,358  for the  three  months  ended  September  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  does  not  expect  this  statement  to have a  material  impact  on the
consolidated 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 does not expect this  statement to have a material
impact on the consolidated financial statements.

<PAGE>

Year 2000

     Many computer  systems ("IT  systems") and equipment and  instruments  with
embedded  microprocessors ("non-IT systems") were designed to only recognize the
last two digits of a calendar  year.  With the  arrival of the Year 2000,  these
systems  and  microprocessors  may  encounter  operating  problems  due to their
inability to distinguish years after 1999 from years preceding 1999.  Failure to
properly  recognize such information  could generate  inaccurate data or cause a
system to fail, resulting in business interruption.

     The Company is currently  developing a plan to address Year 2000  concerns.
The first phase,  which the Company  expects to complete by the end of the first
quarter  of 1999,  is to  inventory  the IT systems  and  non-IT  systems of the
Company,  determine  which systems are not Year 2000  compliant,  and, among any
systems that are not Year 2000 compliant,  distinguish  "critical"  systems from
"non-critical"  systems. The second phase, which the Company expects to complete
by the end of 1999,  is to remediate or replace  critical IT and non-IT  systems
that are non- compliant and then test such remediated or replaced  systems.  The
Company believes,  based on preliminary  information,  that the costs to address
the Company's  Year 2000 issues will not be material,  although  there can be no
assurance that this will be the case.

     The  Company's  operations  may also be impacted in the event third parties
with whom the Company conducts significant  business experience  disruptions due
to  Year  2000  problems.  These  third  parties  include  vendors,   suppliers,
distributors,  clinical researchers, contract manufacturers,  research partners,
utility companies, financial institutions, and government agencies. Prior to the
end of 1998,  the Company  intends to initiate  communications  with these third
parties to assess their state of readiness.  The Company currently believes that
the most reasonably likely worst case scenario concerning the Year 2000 involves
potential  business  disruption among these third parties.  The Company could be
materially  adversely affected if any of these third parties experience business
disruption  due to a Year 2000  problem.  While the  Company  intends to develop
contingency  plans to address  potential  business  disruptions  at these  third
parties,  there  can be no  assurance  that  it  will be able to do so and it is
unlikely that any contingency  plan will be able to fully mitigate the impact of
significant business disruptions among these third parties.

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
September 30, 1998.





<PAGE>


                            INTERFERON SCIENCES, INC.

                               SEPTEMBER 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: November 16, 1998                           By:   /s/ Lawrence M. Gordon
                                                        -----------------------
                                                            Lawrence M. Gordon
                                                         Chief Executive Officer




DATE: November 16, 1998                           By:   /s/ Donald W. Anderson
                                                        ------------------------
                                                            Donald W. Anderson
                                                              Controller



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