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, 2001

                                          or

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

   For the transition period from ___________ to ________________

   Commission File Number:   0-10379


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


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


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


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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such shorter  period) that the  registrant  was
required  to file  such  reports  and  (2)  has  been  subject  to  such  filing
requirements for the past 90 days.

                                 Yes [X] No [ ]


Number of shares  outstanding of each of issuer's  classes of common stock as of
October 22, 2001.

                   Common Stock               20,254,311 shares



<PAGE>



                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS



Part I.  Financial Information:

   Consolidated Condensed Balance Sheets--
     September 30, 2001 and December 31, 2000. . . . . . . . . . . . . . . . . 1

   Consolidated Condensed Statements of Operations--
     Three Months and Nine Months Ended September 30, 2001 and 2000. . . . . 2-3

   Consolidated Condensed Statement of Changes in Stockholders'
     Equity (Deficiency)--Nine Months Ended September 30, 2001. . . . . . . .  4

   Consolidated Condensed Statements of Cash Flows--
     Nine Months Ended September 30, 2001 and 2000. . . . . . . . . . . . . .  5

   Notes to Consolidated Condensed Financial Statements. . . . . . . . . .  6-11

   Management's Discussion and Analysis of Financial
     Condition and Results of Operations . . . . . . . . . . . . . . . . . 12-19

Part II.  Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 20

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21




                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                          PART I. FINANCIAL INFORMATION

                      CONSOLIDATED CONDENSED BALANCE SHEETS

                                                 September 30,      December 31,
                                                    2001                2000
                                                 (Unaudited)
ASSETS                                            ------------------------------
Current assets
  Cash and cash equivalents                      $  1,596,949       $ 3,658,805
  Receivable from sale of state
   net operating loss carryovers                                      1,483,861
  Accounts and other receivables                      227,573           190,937
  Inventories, net of reserves of $5,286,011          369,853           837,300
  Prepaid expenses and other current assets             9,072            17,488
                                                -------------      -------------
Total current assets                                2,203,447         6,188,391
                                                -------------      -------------
Property, plant and equipment, at cost             12,854,834        12,807,840
Less accumulated depreciation                     (10,656,723)      (10,298,260)
                                                -------------      -------------
                                                    2,198,111         2,509,580
                                                -------------      -------------
Patent costs, net of accumulated amortization         167,688           189,767
Investment in Metacine and other assets                48,282           110,100
                                                -------------      -------------
Total assets                                    $   4,617,528      $  8,997,838
                                                =============      =============
LIABILITIES AND STOCKHOLDERS' EQUITY
  (DEFICIENCY)
Current liabilities
  Accounts payable and accrued expenses         $   2,527,012      $  2,578,827
  Guaranteed value of ISI stock and
   in-kind services due Metacine                    2,100,000
  Note payable and amount due GP Strategies           489,745           566,639
                                                -------------      -------------
Total current liabilities                           5,116,757         3,145,466
                                                -------------      -------------
Commitments and contingencies

Stockholders' equity (deficiency)
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-20,213,039 and
 17,931,838 shares, respectively                      202,130           179,318
Capital in excess of par value                    138,383,417       137,782,655
Accumulated deficit                              (138,692,776)     (131,793,851)
Consideration shares subject to
 guaranteed value                                    (280,000)
Settlement shares                                    (112,000)         (315,750)
                                                -------------      ------------
Total stockholders' equity (deficiency)              (499,229)        5,852,372
                                                -------------      ------------
Total liabilities and stockholders' equity      $   4,617,528     $   8,997,838
                                                =============     =============

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





                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                      Three Months Ended
                                                         September 30,
                                                  -----------------------------
                                                       2001           2000
                                                  -------------   -------------
Revenues
  Alferon N Injection                              $    458,746    $    324,399
                                                  -------------   -------------
Total revenues                                          458,746         324,399
                                                  -------------   -------------
Costs and expenses
Cost of goods sold and excess/idle
  production costs                                      725,786         555,550
Research and development                                500,030         502,206
General and administrative                              559,111         582,354
Other expenses                                          240,000
                                                  -------------   -------------
Total costs and expenses                              2,024,927       1,640,110
                                                  -------------   -------------
Loss from operations                                 (1,566,181)     (1,315,711)

Interest income (expense), net                           (5,504)         43,695

Equity in loss of Metacine                               92,955
                                                  -------------   -------------
Net loss                                           $ (1,664,640)    $(1,272,016)
                                                  =============   =============

Basic and diluted loss per share                   $       (.08)    $      (.08)
                                                  =============   =============
Weighted average number of shares outstanding        20,171,563      15,735,454
                                                  =============   =============



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






                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                        Nine Months Ended
                                                          September 30,
                                                  -----------------------------
                                                       2001           2000
                                                  -------------   -------------
Revenues
  Alferon N Injection                              $  1,173,208    $    645,471
                                                  -------------   -------------
Total revenues                                        1,173,208         645,471
                                                  -------------   -------------
Costs and expenses
Cost of goods sold and excess/idle
  production costs                                    1,765,571       1,210,880
Reduction of inventory reserve                                         (135,271)
Research and development
  (net of $456,998 for settlements on
  various liabilities during the nine
  months ended September 30, 2000)                    1,677,559         960,025
General and administrative                            1,960,399       1,548,531
Acquisition of in-process technology                  2,341,418
Other expenses                                          240,000
                                                  -------------   -------------
Total costs and expenses                              7,984,947       3,584,165
                                                  -------------   -------------
Loss from operations                                 (6,811,739)     (2,938,694)

Interest income (expense), net                           33,214          33,296
Equity in loss of Metacine                              120,400
                                                  -------------   -------------
Net loss                                           $ (6,898,925)    $(2,905,398)
                                                  =============   =============

Basic and diluted loss per share                   $       (.36)    $      (.28)
                                                  =============   =============
Weighted average number of shares outstanding        19,341,419      10,342,756
                                                  =============   =============



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




<TABLE>
<CAPTION>



                                                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                                                 CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
                                                       STOCKHOLDERS' EQUITY (DEFICIENCY)
                                                      NINE MONTHS ENDED SEPTEMBER 30, 2001
                                                                  (Unaudited)

                                                                             Consideration
                                             Capital                         shares subject                     Total
                       Common Stock         in excess       Accumulated      to guaranteed    Settlement     stockholders'
                     Shares      Amount    of par value      deficit             value          shares          equity
                     ------------------    ------------    --------------    -------------    ----------     -------------
<S>                  <C>         <C>        <C>            <C>                <C>             <C>            <C>

Balance at
 Dec. 31, 2000      17,931,838   $179,318   $137,782,655  $(131,793,851)     $                $ (315,750)    $ 5,852,372

Common stock
 issued to
 Metacine            2,000,000     20,000        500,000                       (520,000)

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

Common stock
 issued under
 Company 401(k)
 Plan                  228,957      2,289         87,444                                                          89,733

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

Settlement shares
 sold                                                                                              21,463         21,463

Market value
 adjustment                                                                     240,000           182,287        422,287

Net loss                                                      (6,898,925)                                     (6,898,925)
                 --------------------------------------------------------------------------------------------------------
Balance at
 Sept. 30, 2001     20,213,039   $202,130   $138,383,417   $(138,692,776)    $ (280,000)       $ (112,000)   $  (499,229)


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

</TABLE>


<TABLE>
<CAPTION>



                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                                              Nine Months Ended
                                                                 September 30,
                                                         --------------------------
                                                           2001         2000
                                                         ------------  ------------
<S>                                                      <C>            <C>
Cash flows from operating activities:
  Net loss                                               $(6,898,925)  $(2,905,398)
  Adjustments to reconcile net loss to net
   cash used for operating activities:
    Depreciation and amortization                            380,542       378,230
    Acquisition of in-process research and development     2,341,418
    Equity in loss of Metacine                               120,400
    Gain on settlements of research-related liabilities                   (456,998)
    Noncash compensation expense                             103,013        94,068
    Reduction of inventory reserve                                        (135,271)
    Provision for notes receivable                            87,500
    Market value adjustment                                  422,287      (287,341)
    Change in operating assets and liabilities:
     Accounts and other receivables                        1,447,225      (181,944)
     Inventories                                             467,447       315,882
     Prepaid expenses and other current assets                 8,416        17,615
     Accounts payable and accrued expenses                   (30,352)   (1,184,889)
     Amount due to GP Strategies                              23,106      (110,001)
                                                         ------------  ------------
    Net cash used for operating activities                (1,527,923)   (4,456,047)
                                                         ------------  ------------
Cash flows from investing activities:
  Additions to property, plant and equipment                 (46,994)
  Investments in Metacine and other assets                  (387,500)     (170,000)
                                                         ------------  ------------
  Net cash used for investing activities                    (434,494)     (170,000)
                                                         ------------  ------------
Cash flows from financing activities:
  Net proceeds from sale of common stock                                 7,139,949
  Repayment of note payable to GP Strategies                (100,000)
  Proceeds from exercise of common stock options                 561
                                                         ------------  ------------
Net cash (used for) provided by financing activities         (99,439)    7,139,949
                                                         ------------  ------------
Net increase (decrease) in cash and cash equivalents      (2,061,856)    2,513,902

Cash and cash equivalents at beginning of period           3,658,805     2,273,242
                                                         ------------  ------------
Cash and cash equivalents at end of period               $ 1,596,949   $ 4,787,144
                                                         ============  ============
Supplemental disclosure of noncash investing and financing activities:

 Guaranteed value of common stock issued to
   and in-kind services due Metacine                     $ 2,100,000   $
                                                         ============  ============
 Settlement shares sold                                  $    21,463   $   368,341
                                                         ============  ============
 Forgiveness of amount due GP Strategies                 $             $   129,886
                                                         ===========   ============
The accompanying notes are an integral part of these consolidated condensed
financial statements.

</TABLE>




                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  Basis of Presentation

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

Note 2. Operations and Liquidity

     The  Company  has  experienced   significant  operating  losses  since  its
inception in 1980.  As of September  30,  2001,  the Company had an  accumulated
deficit of approximately $138.7 million. For the nine months ended September 30,
2001 and the years  ended  December  31,  2000,  1999 and 1998,  the Company had
losses from operations of approximately $6.8 million, $4.5 million, $5.4 million
and $20.8 million, respectively. Also, the Company has limited liquid resources.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The consolidated  condensed financial statements do not include
any adjustments that might result from the outcome of this uncertainty. Although
the Company  received FDA approval in 1989 to market  ALFERON N Injection in the
United States for the  treatment of certain  genital  warts,  it has had limited
revenues  from the sale of  ALFERON N  Injection  to date.  For the  Company  to
operate  profitably,   the  Company  must  sell  significantly  more  ALFERON  N
Injection.  Increased sales will depend primarily upon the expansion of existing
markets  and/or  successful  attainment  of FDA  approval  to  market  ALFERON N
Injection for additional indications,  of which there can be no assurance. There
can be no assurance  that  sufficient  quantities of ALFERON N Injection will be
sold to allow the Company to operate profitably.

     At September 30, 2001, the Company had  approximately  $1.6 million of cash
and cash equivalents,  with which to support future operating  activities and to
satisfy its financial obligations as they become payable.

     Based on the  Company's  estimates  of revenues  (including  revenues to be
received from the sale of New Jersey tax loss carryovers),  expenses, the timing
of repayment of creditors,  and levels of production,  management  believes that
the  Company  has  sufficient  resources  to  enable  the  Company  to  continue
operations until March 2002. However, actual results, especially with respect to
revenues,  may differ  materially  from such  estimate,  and no assurance can be
given that additional  funding will not be required  sooner than  anticipated or
that such additional funding, whether from financial markets or collaborative or
other  arrangements  with  corporate  partners  or from other  sources,  will be
available when needed or on terms acceptable to the Company.

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

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

 Note 3.  Inventories

      Inventories consist of the following:

                                             September 30,      December 31,
                                                 2001               2000
                                            --------------     --------------
     Finished goods                         $ 1,271,234         $ 1,073,195
     Work in process                          3,052,070           3,717,556
     Raw materials                            1,332,560           1,332,560
     Less inventory reserve                  (5,286,011)         (5,286,011)
                                            ---------------     -------------
                                            $   369,853         $   837,300
                                            ================     ============


     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.

     During the nine months ended  September 30, 2001,  the Company  converted a
portion  of its  interferon  intermediates  (work  in  process  inventory)  into
finished goods inventory.

     In light of the results to date of the Company's phase 3 studies of ALFERON
N Injection in HIV and HCV-infected patients, the Company has recorded a reserve
against its  inventory  of ALFERON N  Injection  to reflect  its  estimated  net
realizable  value.  The  reserve  was a result of the  Company's  assessment  of
anticipated  near-term projections of product to be sold or utilized in clinical
trials,   giving   consideration  to  historical  sales  levels.  As  a  result,
inventories  at September 30, 2001 and December 31, 2000,  reflect a reserve for
excess inventory of $5,286,011.

Note 4. Agreement with GP Strategies Corporation

     Pursuant to an agreement  dated March 25, 1999, GP  Strategies  Corporation
("GP  Strategies")  loaned the Company $500,000 (the "GP Strategies  Debt").  In
return,  the Company granted GP Strategies (i) a first mortgage on the Company's
real estate, (ii) a two-year option to purchase the Company's real estate (which
has expired),  provided that the Company has  terminated  its  operations  and a
certain  liability  to the American Red Cross (the "Red Cross") has been repaid,
and (iii) a two-year right of first refusal (which has expired) in the event the
Company  desires to sell its real  estate.  In addition,  the Company  issued GP
Strategies  500,000  shares (the "GP  Shares")  of common  stock and a five-year
warrant (the "GP Warrant") to purchase 500,000 shares of common stock at a price
of $1 per share.  The GP Shares  and GP  Warrant  were  valued at  $500,000  and
recorded as a financing  cost and amortized  over the original  period of the GP
Strategies  Debt in 1999.  Pursuant to the  agreement,  the Company has issued a
note to GP  Strategies  representing  the GP  Strategies  Debt,  which  note was
originally  due on September 30, 1999 (but extended to March 15, 2002) and bears
interest, payable at maturity, at the rate of 6% per annum. In addition, at that
time,  the  Company  negotiated  a  subordination  agreement  with the Red Cross
pursuant  to which  the Red Cross  agreed  that its lien on the  Company's  real
estate is subordinate to GP Strategies' lien. On March 27, 2000, the Company and
GP Strategies  entered into an agreement pursuant to which (i) the GP Strategies
Debt was extended until June 30, 2001 and (ii) the Management  Agreement between
the Company and GP  Strategies  was  terminated  and all  intercompany  accounts
between the Company and GP Strategies (other than the GP Strategies Debt) in the
amount of approximately  $130,000 were discharged which was recorded as a credit
to capital in excess of par value in the quarter  ended March 31,  2000.  During
the quarter ended September 30, 2001, the Company paid GP Strategies $100,000 to
reduce the GP Strategies Debt. On August 23, 2001, the Company and GP Strategies
entered into an agreement  pursuant to which the GP Strategies Debt was extended
to March 15, 2002.

Note 5.  Agreement with the Red Cross

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

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

     As the liability to the Red Cross remains  unsettled until such time as the
Red Cross sells the shares they have already  received and could  receive in the
future,  the Company  recorded any shares  issued to the Red Cross as Settlement
Shares within stockholders' equity. Any decreases, or increases up to the amount
of any  previous  decreases,  in the market  value at issuance of the  Company's
common stock issued to the Red Cross, until such time as the Red Cross sells its
shares,  would  impact  the  value  of the  shares  held  by the Red  Cross  and
accordingly  require an adjustment to Settlement  Shares. Due to the increase in
the Company's stock price during the three months ended March 31, 2000 up to the
date of sale by the Red Cross of all remaining  Settlement Shares, an adjustment
for  $287,341 was recorded  with a  corresponding  credit to cost of goods sold.
During  1999,  the Red Cross sold 27,000 of the  Settlement  Shares and sold the
balance of such shares  (273,000  shares) during the first quarter of 2000. As a
result,  the net proceeds from the sales of the  Settlement  Shares,  $33,000 in
1999 and $368,000 in 2000,  were applied against the liability to the Red Cross.
The  remaining  liability to the Red Cross  included in accounts  payable on the
consolidated condensed balance sheet at September 30, 2001 and December 31, 2000
was approximately $1,323,000 and $1,276,000,  respectively. On October 30, 2000,
the Company issued an additional  800,000 shares to the Red Cross (with a market
value of $824,000 on such date). Due to the decline in the Company's stock price
during the nine months ended  September 30, 2001, an adjustment for $182,287 was
recorded  with a  corresponding  charge to cost of goods sold.  The net proceeds
from the sale of such  shares  by the Red  Cross  will be  applied  against  the
remaining liability of $1,323,000 owed to the Red Cross.  However,  there can be
no  assurance  that  the net  proceeds  from  the  sale of such  shares  will be
sufficient to extinguish the remaining liability owed the Red Cross.

Note 6.  Agreement with Metacine, Inc.

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

     On April 9, 2001,  the Company  exercised  its option to acquire a majority
equity interest in Metacine.  Pursuant to the agreement, as amended, the Company
received  700,000  shares of Metacine  common  stock and a five-year  warrant to
purchase,  at a price of $12.48 per share,  282,794  shares of  Metacine  common
stock in exchange for  $300,000 in cash,  $250,000 of services to be rendered by
the Company by June 30, 2002 and 2,000,000 shares of the Company's common stock.
The agreement  contains certain  restrictions on the ability of Metacine to sell
the Company's shares and provides for cash payments  ("Deficiency  Payments") by
the Company to Metacine to the extent Metacine has not received from the sale of
the Company's  common stock,  cumulative net proceeds of $1,850,000 by September
30, 2002 or  $400,000 of net  proceeds  per  quarter  beginning  with the period
ending  September  30, 2001 and $250,000 for the quarter  ending  September  30,
2002. On October 4, 2001,  the Company made a Deficiency  Payment to Metacine in
the amount of $400,000 for the quarter  ending  September 30, 2001. In the event
that  cumulative net proceeds to Metacine from the sale of the Company's  common
stock exceed $1,850,000,  any Deficiency Payments previously made by the Company
would be  repaid to the  Company.  The  Company  was  required  to put in escrow
100,000 Metacine shares to secure its obligations to render $250,000 of services
to Metacine and 462,500  Metacine shares to secure its potential  obligations to
make Deficiency Payments.

     While the Company is the majority owner of Metacine,  the Company must cast
its  votes  on many  matters  in the  same  proportion  as  votes  cast by other
stockholders of Metacine.  In accordance  with EITF Issue No. 96-16,  Investor's
Accounting  for an  Investee  When the  Investor  has a  Majority  of the Voting
Interest but the Minority  Shareholder or Shareholders  have Certain Approval or
Veto Rights,  the minority  holders have  substantive  participating  rights and
therefore, the Company does not control Metacine.  Accordingly,  the acquisition
is being accounted for under the equity method.

     Of the  $2.5  million  consideration  paid  for  Metacine,  $2,341,418  was
recorded as a charge for the acquisition of in-process  research and development
("IPR&D"),  in order to reduce  the  Company's  investment  in  Metacine  to the
Company's  proportionate share of Metacine's net assets. The charge was recorded
as the acquisition of IPR&D as Metacine's  primary asset is technology which has
not  reached  technological   feasibility  and  has  no  alternative  uses.  The
$1,850,000  guaranteed  value of the 2,000,000  shares of common stock issued to
Metacine has been  recorded as a current  liability at September  30, 2001.  The
$250,000  of  services  to be  provided  has also  been  recorded  as a  current
liability.  The investment has been further  reduced to $38,182 at September 30,
2001 by the  Company's  equity in the loss of Metacine for the period from April
9, 2001 through  September  30, 2001,  and is recorded in other  assets.  As the
liability to Metacine  remains  unsettled  until such time as Metacine sells the
shares,  the  Company  has  recorded  the shares  issued to  Metacine as a debit
("Consideration  shares  subject  to  guaranteed  value")  within  stockholders'
equity. Any decreases,  or increases up to the amount of any previous decreases,
in the  market  value at  issuance  of the  Company's  common  stock  issued  to
Metacine,  until such time as Metacine sells its shares,  would impact the value
of the  shares  held by  Metacine  and  accordingly  require  an  adjustment  to
Consideration  shares  subject to  guaranteed  value.  Due to the decline in the
Company's stock price during the period from April 9, 2001 through September 30,
2001, an adjustment  for $240,000 was recorded  with a  corresponding  charge to
other  expenses.  Pro forma  information  as if the  investment  in Metacine had
occurred as of January 1, 2000 has not been  presented as the  inclusion of such
amounts  would be immaterial to the results of operations of the Company for the
year ended December 31, 2000 and the nine months ended September 30, 2001.

 Note 7.  Recent Accounting Developments

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement No. 141,  Business  Combinations,  and Statement No. 142, Goodwill and
Other  Intangible  Assets.  Statement 141 requires  that the purchase  method of
accounting be used for all business  combinations  initiated after June 30, 2001
as well as all purchase  method business  combinations  completed after June 30,
2001.  Statement 141 also specifies the criteria intangible assets acquired in a
purchase  method business  combination  must meet, to be recognized and reported
apart from goodwill,  noting that any purchase  price  allocable to an assembled
workforce may not be accounted for  separately.  Statement 142 will require that
goodwill  and  intangible  assets  with  indefinite  useful  lives no  longer be
amortized,  but instead  tested for  impairment at least  annually in accordance
with the  provisions  of  Statement  142.  Statement  142 will also require that
intangible  assets with definite useful lives be amortized over their respective
estimated  useful lives to their  estimated  residual  values,  and reviewed for
impairment in accordance  with SFAS No. 121,  Accounting  for the  Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
immediately and Statement 142 effective January 1, 2002.  Furthermore,  goodwill
and intangible assets determined to have an indefinite useful life acquired in a
purchase  business  combination  completed  after  June  30,  2001,  but  before
Statement 142 is adopted in full will not be amortized,  but will continue to be
evaluated for impairment in accordance  with the appropriate  pre-Statement  142
accounting  literature.  Goodwill  and  intangible  assets  acquired in business
combinations  completed  before July 1, 2001 will  continue to be amortized  and
tested for  impairment  in accordance  with the  appropriate  pre-Statement  142
accounting requirements prior to the adoption of Statement 142.

     Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing  intangible  assets and goodwill  that were  acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from  goodwill.  Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible  assets acquired
and make any necessary  amortization  period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite  useful life, the Company will be required to
test the intangible  asset for  impairment in accordance  with the provisions of
Statement  142 within the first  interim  period.  Any  impairment  loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim period.

     In  connection  with  Statement  142's  transitional   goodwill  impairment
evaluation,  Statement  142 will require the Company to perform an assessment of
whether  there is an  indication  that  goodwill  is  impaired as of the date of
adoption. Any transitional  impairment loss will be recognized as the cumulative
effect  of a change  in  accounting  principle  in the  Company's  statement  of
operations.

     As of the  date of  adoption,  the  Company  does  not  expect  to have any
goodwill  and does not expect  Statement  141 to have an impact on the  Company,
however the Company expects to have unamoritized  other intangible assets in the
amount of  approximately  $160,000,  which  will be  subject  to the  transition
provisions of Statement 142.  Amortization  expense related to other  intangible
assets was $30,055 and $22,079 for the year ended December 31, 2000 and the nine
months  ended  September  30,  2001,  respectively.  The  Company  is  currently
assessing the impact of adopting  Statement  142 on the  Company's  consolidated
financial statements,  including whether any transitional impairment losses will
be required to be recognized as the cumulative  effect of a change in accounting
principle.








                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

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


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

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

Liquidity and Capital Resources

     As of November 12, 2001, the Company had approximately $850,000 in cash and
cash  equivalents.  Until  utilized,  such cash and cash  equivalents  are being
invested principally in short-term interest-bearing investments.

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

     Based on the  Company's  estimates  of revenues  (including  revenues to be
received from the sale of New Jersey tax loss carryovers),  expenses, the timing
of repayment of creditors,  and levels of production,  management  believes that
the cash  presently  available  will be  sufficient  to enable  the  Company  to
continue operations until March 2002. However,  actual results,  especially with
respect to revenues,  may differ materially from such estimate, and no assurance
can  be  given  that  additional  funding  will  not  be  required  sooner  than
anticipated or that such additional  funding,  whether from financial markets or
collaborative  or other  arrangements  with  corporate  partners  or from  other
sources,  will be available  when needed or on terms  acceptable to the Company.
Insufficient  funds will require the Company to further  delay,  scale back,  or
eliminate certain or all of its research and development  programs or to license
third parties to commercialize  products or technologies  that the Company would
otherwise seek to develop itself. The independent  auditors' report, dated March
9, 2001, on the Company's  consolidated  financial  statements as of and for the
year ended December 31, 2000 includes an explanatory  paragraph that states that
the Company has suffered  recurring losses from  operations,  has an accumulated
deficit and has limited liquid resources that raise  substantial doubt about its
ability to continue as a going concern.

     On April 9, 2001,  the Company  exercised  its option to acquire a majority
equity interest in Metacine.  Pursuant to the agreement, as amended, the Company
received  700,000  shares of Metacine  common  stock and a five-year  warrant to
purchase,  at a price of $12.48 per share,  282,794  shares of  Metacine  common
stock in exchange for  $300,000 in cash,  $250,000 of services to be rendered by
the Company by June 30, 2002 and 2,000,000 shares of the Company's common stock.
The agreement  contains certain  restrictions on the ability of Metacine to sell
the Company's shares and provides for cash payments  ("Deficiency  Payments") by
the Company to Metacine to the extent Metacine has not received from the sale of
the Company's  common stock,  cumulative net proceeds of $1,850,000 by September
30, 2002 or  $400,000 of net  proceeds  per  quarter  beginning  with the period
ending  September  30, 2001 and $250,000 for the quarter  ending  September  30,
2002. On October 4, 2001,  the Company made a Deficiency  Payment to Metacine in
the amount of $400,000 for the quarter  ending  September 30, 2001. In the event
that  cumulative net proceeds to Metacine from the sale of the Company's  common
stock exceed $1,850,000,  any Deficiency Payments previously made by the Company
would be repaid to the Company.

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

     During  December 2000 and December 1999, the Company  completed the sale of
approximately  $19 million and $32 million of its New Jersey tax loss carryovers
and  received  $1.48  million (in January  2001) and $2.35  million (in December
1999),  which  was  recorded  as a gain on  sale of  state  net  operating  loss
carryovers  on its  Consolidated  Statement  of  Operations  in 2000  and  1999,
respectively.  In June 2001,  the Company  submitted an  application  to sell an
additional  $3.45  million  of  tax  benefits  (calculated  by  multiplying  the
Company's  unused New Jersey net operating loss carryovers  through December 31,
1999 of approximately $38 million by 9%). The actual amount of such tax benefits
the Company may sell will depend upon the allocation among qualifying  companies
of an annual pool established by the State of New Jersey. The allocated pool for
fiscal year 2001 and future years is $40 million per year.

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

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

     As the liability to the Red Cross remains  unsettled until such time as the
Red Cross  sells the shares it has  already  received  and could  receive in the
future,  the Company  recorded any shares  issued to the Red Cross as Settlement
Shares within stockholders' equity. Any decreases, or increases up to the amount
of any  previous  decreases,  in the market  value at issuance of the  Company's
common stock issued to the Red Cross, until such time as the Red Cross sells its
shares,  would  impact  the  value  of the  shares  held  by the Red  Cross  and
accordingly  require an adjustment to Settlement  Shares. Due to the increase in
the Company's stock price during the three months ended March 31, 2000 up to the
date of sale by the Red Cross of all remaining  Settlement Shares, an adjustment
for  $287,341 was recorded  with a  corresponding  credit to cost of goods sold.
During  1999,  the Red Cross sold 27,000 of the  Settlement  Shares and sold the
balance of such shares  (273,000  shares) during the first quarter of 2000. As a
result,  the net proceeds from the sales of the  Settlement  Shares,  $33,000 in
1999 and $368,000 in 2000,  were applied against the liability to the Red Cross.
The remaining  liability to the Red Cross at September 30, 2001 and December 31,
2000 was approximately $1,323,000 and $1,276,000,  respectively.  On October 30,
2000, the Company  issued an additional  800,000 shares to the Red Cross (with a
market  value of  $824,000 on such  date).  Due to the decline in the  Company's
stock price during the nine months ended  September 30, 2001, an adjustment  for
$182,287 was recorded with a corresponding charge to cost of goods sold. The net
proceeds  from the sale of such shares by the Red Cross will be applied  against
the remaining liability of $1,323,000 owed to the Red Cross. However,  there can
be no  assurance  that the net  proceeds  from the sale of such  shares  will be
sufficient to extinguish the remaining liability owed the Red Cross.

     Pursuant to an agreement  dated March 25, 1999,  GP  Strategies  loaned the
Company $500,000 (the "GP Strategies  Debt").  In return,  the Company agreed to
grant GP Strategies (i) a first  mortgage on the Company's  real estate,  (ii) a
two-year  option  (which has  expired) to purchase  the  Company's  real estate,
provided  that the  Company  has  terminated  its  operations  and the Red Cross
Liability has been repaid,  and (iii) a two-year  right of first refusal  (which
has  expired)  in the event the  Company  desires  to sell its real  estate.  In
addition,  the Company  agreed to issue GP Strategies  500,000  shares of Common
Stock (the "GP Shares") and a five-year  warrant (the "GP  Warrant") to purchase
500,000 shares of Common Stock at a price of $1 per share.  The common stock and
warrants  issued to GP  Strategies  were  valued at $500,000  and  recorded as a
financing cost and amortized over the original  period of the GP Strategies Debt
in 1999.  The Company also agreed not to increase its payroll during the term of
the GP Strategies  debt without the prior consent of GP Strategies.  Pursuant to
the agreement,  the Company has issued a note to GP Strategies  representing the
GP Strategies Debt, which note was due on September 30, 1999 and bears interest,
payable at maturity,  at the rate of 6% per annum. In addition, at that time the
Company  negotiated a  subordination  agreement  with the Red Cross  pursuant to
which  the Red  Cross  agreed  that its lien on the  Company's  real  estate  is
subordinate  to GP  Strategies'  lien.  On March 27,  2000,  the  Company and GP
Strategies  entered  into an agreement  pursuant to which (i) the GP  Strategies
Debt was extended until June 30, 2001, and (ii) the Management Agreement between
the Company and GP  Strategies  was  terminated  and all  intercompany  accounts
between the Company and GP Strategies (other than the GP Strategies Debt) in the
amount of approximately  $130,000 were discharged which was recorded as a credit
to capital in excess of par value.  During the quarter ended September 30, 2001,
the Company paid GP  Strategies  $100,000 to reduce the GP  Strategies  Debt. On
August 23,  2001,  the  Company  and GP  Strategies  entered  into an  agreement
pursuant to which the GP Strategies Debt was extended to March 15, 2002.

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

Results of Operations

Nine Months Ended September 30, 2001 Versus Nine Months Ended September 30, 2000

     For the nine months  ended  September  30,  2001 and 2000,  the Company had
revenues  from the sale of  ALFERON N  Injection  of  $1,173,208  and  $645,471,
respectively.  In 1999,  the Company  offered price  concessions  to its largest
customers  in an attempt  to raise  cash from the sale of  ALFERON N  Injection,
which resulted in lower than normal sales in the nine months ended September 30,
2000 as compared to the nine months ended  September  30, 2001.  This was due to
the fact that such  customers  were selling out of their  inventory of ALFERON N
Injection (rather than purchasing ALFERON N Injection from the Company).

     In the nine months ended September 30, 2001, the Company sold,  through its
distributor,  to wholesalers  and other  customers in the United  States,  8,819
vials of ALFERON N Injection, compared to 4,882 vials sold by the Company during
the nine months ended September 30, 2000. In addition,  foreign sales of ALFERON
N Injection were 61 vials and 132 vials for the nine months ended  September 30,
2001 and 2000, respectively.

     Cost of goods sold and excess/idle  production costs totaled $1,765,571 and
$1,210,880 for the nine months ended September 30, 2001 and 2000,  respectively.
Excess/idle  production  costs in the nine months ended  September  30, 2001 and
2000 represented fixed production costs, which were incurred after production of
ALFERON N Injection was discontinued in April 1998. Excess/idle production costs
were slightly lower during the nine months ended  September 30, 2001 as compared
to the nine months ended September 30, 2000.  However,  higher unit sales in the
nine months  ended  September  30,  2001 as  compared  to the nine months  ended
September 30, 2000 contributed to higher cost of goods sold. In addition,  based
on changes in the value of the  Settlement  Shares,  for the nine  months  ended
September 30, 2001, cost of goods sold was charged for $182,287 as compared to a
credit of $287,341 to cost of goods sold for the nine months ended September 30,
2000.

     During the nine months ended September 30, 2000, the inventory reserve was
reduced by $135,271.

     Research and  development  expenses  during the nine months ended September
30, 2001 of  $1,677,559  increased by $717,534 from $960,025 for the same period
in 2000,  principally  because  during the second  quarter of 2000,  the Company
settled amounts owed on various research related liabilities at a savings to the
Company of approximately $457,000. Such amount was credited against research and
development  expenses.  The  Company  also  incurred  increases  in payroll  and
research  costs during the nine months ended  September 30, 2001, as compared to
the same period in 2000.

     General and administrative expenses for the nine months ended September 30,
2001 were  $1,960,399 as compared to $1,548,531 for the same period in 2000. The
increase of  $411,868  was  principally  due to  increases  in payroll and other
operating expenses.

     The Company recorded  $2,341,418 as acquisition of in-process  research and
development  expense  related to its  investment in Metacine for the nine months
ended September 30, 2001 as Metacine's primary asset is technology which has not
reached technological feasibility and has no alternative uses.

     Based on  changes  in the  value of the  Consideration  shares  subject  to
guaranteed  value,  for the nine months ended September 30, 2001, other expenses
were charged for $240,000.

     Interest income, net, for the nine months ended September 30, 2001 and 2000
was $33,214 and $33,296, respectively, and primarily represented interest income
on cash and cash equivalents partially offset by interest expense accrued on the
Red Cross Liability and GP Strategies Debt.

     Equity in loss of Metacine for the nine months ended September 30, 2001 was
$120,400 and represents the Company's equity in loss of Metacine for the period
from April 9, 2001 to September 30, 2001.

     As a result of the foregoing, the Company incurred net losses of $6,898,925
and  $2,905,398  for  the  nine  months  ended  September  30,  2001  and  2000,
respectively.

Three Months Ended September 30,2001 Versus Three Months Ended September 30,2000

     For the three months  ended  September  30, 2001 and 2000,  the Company had
revenues  from the  sale of  ALFERON  N  Injection  of  $458,746  and  $324,399,
respectively.  In 1999,  the Company  offered price  concessions  to its largest
customers  in an attempt  to raise  cash from the sale of  ALFERON N  Injection,
which  resulted in lower than normal sales in the three  months ended  September
30, 2000 as compared to the three months ended  September 30, 2001. This was due
to the fact that such customers were selling out of their inventory of Alferon N
Injection (rather than purchasing Alferon N Injection from the Company).

     In the three months ended September 30, 2001, the Company sold, through its
distributor, to wholesalers and other customers in the United States 3,394 vials
of ALFERON N Injection,  compared to 2,246 vials sold by the Company  during the
three months ended  September 30, 2000. In addition,  foreign sales of ALFERON N
Injection  were 36 vials and 132 vials for the three months ended  September 30,
2001 and 2000, respectively.

     Cost of goods sold and excess/idle  production  costs totaled  $725,786 and
$555,550 for the three months ended  September 30, 2001 and 2000,  respectively.
Excess/idle  production  costs in the three months ended  September 30, 2001 and
2000 represented fixed production costs, which were incurred after production of
ALFERON N Injection was discontinued in April 1998. Excess/idle production costs
were lower during the three months ended  September  30, 2001 as compared to the
three months ended September 30, 2000. However, based on changes in the value of
the Settlement  Shares,  for the three months ended  September 30, 2001, cost of
goods sold was charged for  $192,000  compared to no change in market  value for
the three months ended September 30, 2000. Also,  higher unit sales in the three
months ended  September 30, 2001 as compared to the three months ended September
30, 2000 contributed to higher cost of goods sold.

     Research and  development  expenses during the three months ended September
30, 2001 of $500,030  decreased  by $2,176 from  $502,206 for the same period in
2000,  which  reflects  the net  effect  of minor  changes  within  the  various
components making up research and development costs.

     General and  administrative  expenses for the three months ended  September
30, 2001 were $559,111 as compared to $582,354 for the same period in 2000.  The
decrease of $23,243 was principally due to additional payroll expense related to
stock compensation expense in the three months ended September 30, 2000.

     Based on  changes  in the  value of the  Consideration  shares  subject  to
guaranteed  value, for the three months ended September 30, 2001, other expenses
were charged for $240,000.

     Interest  expense,  net, for the three months ended  September 30, 2001 was
$5,504 and primarily represented interest accrued on the Red Cross Liability and
GP  Strategies  Debt  partially  offset  by  interest  income  on cash  and cash
equivalents. Interest income, net, for the three months ended September 30, 2000
was  $43,695  and  primarily  represented  interest  income  on  cash  and  cash
equivalents  partially  offset  by  interest  expense  accrued  on the Red Cross
Liability and GP Strategies Debt.

     Equity in loss of Metacine for the three months  ended  September  30, 2001
was $92,955 and  represents  the  Company's  equity in loss of Metacine for such
period.

     As a result of the foregoing, the Company incurred net losses of $1,664,640
and $1,272,016 for the three months ended September 30, 2001 and 2000,
respectively.

 Recent Accounting Developments

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement No. 141,  Business  Combinations,  and Statement No. 142, Goodwill and
Other  Intangible  Assets.  Statement 141 requires  that the purchase  method of
accounting be used for all business  combinations  initiated after June 30, 2001
as well as all purchase  method business  combinations  completed after June 30,
2001.  Statement 141 also specifies the criteria intangible assets acquired in a
purchase  method business  combination  must meet, to be recognized and reported
apart from goodwill,  noting that any purchase  price  allocable to an assembled
workforce may not be accounted for  separately.  Statement 142 will require that
goodwill  and  intangible  assets  with  indefinite  useful  lives no  longer be
amortized,  but instead  tested for  impairment at least  annually in accordance
with the  provisions  of  Statement  142.  Statement  142 will also require that
intangible  assets with definite useful lives be amortized over their respective
estimated  useful lives to their  estimated  residual  values,  and reviewed for
impairment in accordance  with SFAS No. 121,  Accounting  for the  Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
immediately and Statement 142 effective January 1, 2002.  Furthermore,  goodwill
and intangible assets determined to have an indefinite useful life acquired in a
purchase  business  combination  completed  after  June  30,  2001,  but  before
Statement 142 is adopted in full will not be amortized,  but will continue to be
evaluated for impairment in accordance  with the appropriate  pre-Statement  142
accounting  literature.  Goodwill  and  intangible  assets  acquired in business
combinations  completed  before July 1, 2001 will  continue to be amortized  and
tested for  impairment  in accordance  with the  appropriate  pre-Statement  142
accounting requirements prior to the adoption of Statement 142.

     Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing  intangible  assets and goodwill  that were  acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from  goodwill.  Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible  assets acquired
and make any necessary  amortization  period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite  useful life, the Company will be required to
test the intangible  asset for  impairment in accordance  with the provisions of
Statement  142 within the first  interim  period.  Any  impairment  loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim period.

     In  connection  with  Statement  142's  transitional   goodwill  impairment
evaluation,  Statement  142 will require the Company to perform an assessment of
whether  there is an  indication  that  goodwill  is  impaired as of the date of
adoption. Any transitional  impairment loss will be recognized as the cumulative
effect  of a change  in  accounting  principle  in the  Company's  statement  of
operations.

     As of the  date of  adoption,  the  Company  does  not  expect  to have any
goodwill  and does not expect  Statement  141 to have an impact on the  Company,
however the Company expects to have unamoritized  other intangible assets in the
amount of  approximately  $160,000,  which  will be  subject  to the  transition
provisions of Statement 142.  Amortization  expense related to other  intangible
assets was $30,055 and $22,079 for the year ended December 31, 2000 and the nine
months  ended  September  30,  2001,  respectively.  The  Company  is  currently
assessing the impact of adopting  Statement  142 on the  Company's  consolidated
financial statements,  including whether any transitional impairment losses will
be required to be recognized as the cumulative  effect of a change in accounting
principle.

Forward-Looking Statements

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



<PAGE>


                    INTERFERON SCIENCES, INC. AND SUBSIDIARY

                           PART II. OTHER INFORMATION



Item 6.    Exhibits and Reports on Form 8-K

                (b) Reports on Form 8-K

                    There were no reports on Form 8-K filed during the three
                    months ended September 30, 2001.






<PAGE>


                            INTERFERON SCIENCES, INC.

                               September 30, 2001




                                   SIGNATURES

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



                                                 INTERFERON SCIENCES, INC.




DATE:  November 14, 2001                        By:  /s/ Lawrence M. Gordon
                                                         Lawrence M. Gordon
                                                         Chief Executive Officer




DATE:  November 14, 2001                        By:  /s/ Donald W. Anderson
                                                         Donald W. Anderson
                                                         Controller