10-K

                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2002
                                       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 No. 0-27072

                           HEMISPHERX BIOPHARMA, INC.
             (Exact name of registrant as specified in its charter)

       Delaware                             52-0845822          _
(State or other jurisdiction of   (I.R.S. Employer Identification
incorporation or organization)     Number)

1617 JFK Boulevard Phila., Pennsylvania        19103            _
(Address of principal executive offices)    (Zip Code)

Registrant's telephone number, including area code: (215) 988-0080

Securities registered pursuant to Section 12(b) of the Act:

                          Common Stock, $.001 par value


Securities registered pursuant to Section 12(g) of the Act:
            (Title of Each Class)

                                      NONE

     Indicate by check mark whether the  registrant (1) has filed all reports to
be filed by  Section  13 or 15(d) of the  Securities  and  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes (X) No ( )

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes ( ) No (X)

     The aggregate market value of Common Stock held by  non-affiliates  at June
30, 2002 was $80,226,755.  For purposes of this calculation, it was assumed that
all  Common  Stock is  valued at the  closing  price of the stock as of June 30,
2002.

     The number of shares of the  registrant's  Common Stock  outstanding  as of
March 31, 2003 was 32,941,445.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.








                                                 TABLE OF CONTENTS

                                                                         Page
PART I

Item 1. Business                                                             1

Item 2. Properties                                                          31
Item 3. Legal Proceedings                                                   31

Item 4. Submission of Matters to a Vote of Security Holders                 32

PART II

Item 5. Market for the Registrant's Common Equity and Related
             Stockholder Matters                                            32
Item 6. Selected Financial Data                                             36

Item 7. Management's Discussion and Analysis of Financial
             Condition and Results of Operations                           _36

Item 7A. Quantitative and Qualitative Disclosure About
              Market Risk                                 ___               46

Item 8. Financial Statements and Supplementary Data                         47

Item 9. Changes In and Disagreements with Accountants on
             Accounting and Financial Disclosure                            47
PART III

Item 10. Directors and Executive Officers of the Registrant            _    47

Item 11. Executive Compensation                                             50

Item 12. Security Ownership of Certain Beneficial Owners
              and Management and Related Stockholder Matters                58

Item 13. Certain Relationships and Related Transactions                     60

Item 14. Controls and Procedures                                            61

PART IV

Item 15. Principal Accountant Fees and Services                             61

Item 16. Exhibits, Financial Statement Schedules,
              and Reports on Form 8-K                                       61








                SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

     Certain  statements  in this Annual Report on Form 10-K (this "Form 10-K"),
including  statements under "Item 1. Business,"  "Item 3 Legal  Proceedings" and
"Item 7. Management's  Discussion and Analysis of Financial Condition and Result
of Operations,"  constitute  "forward-looking  statements" within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act of  1934,  as  amended,  and  the  Private  Securities
Litigation Reform Act of 1995 (collectively, the "Reform Act"). Certain, but not
necessarily all, of such forward-looking statements can be identified by the use
of  forward-looking  terminology such as "believes,"  "expects,"  "may," "will,"
"should," or "anticipates"  or the negative thereof or other variations  thereon
or comparable terminology,  or by discussions of strategy that involve risks and
uncertainties.  All statements other than statements of historical fact included
in this Form 10-K regarding our financial position,  business strategy and plans
or objectives for future  operations  are  forward-looking  statements.  Without
limiting  the  broader  description  of  forward-looking  statements  above,  we
specifically  note that statements  regarding  potential drugs,  their potential
therapeutic  effect,  the  possibility  of obtaining  regulatory  approval,  our
ability to manufacture and sell any products,  market  acceptance or our ability
to earn a profit  from sales or licenses of any drugs or our ability to discover
new drugs in the future are all forward-looking in nature.

     Such   forward-looking   statements   involve  known  and  unknown   risks,
uncertainties and other factors which may cause the actual results,  performance
or   achievements   of   Hemispherx   Biopharma,   Inc.  and  its   subsidiaries
(collectively,  the "Company",  "we or "us") to be materially different from any
future  results,  performance  or  achievements  expressed  or  implied  by such
forward-looking statements and other factors referenced in this Form 10-K. We do
                                       1

not undertake and  specifically  declines any obligation to publicly release the
results of any revisions which may be made to any  forward-looking  statement to
reflect events or circumstances  after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.


                                     PART I
ITEM 1.  Business.
GENERAL

     We were  founded  in the  early  1970s  as a  contract  researcher  for the
National  Institutes of Health (NIH).  Dr. William A. Carter,  M.D.,  joined the
Company  in 1976 and  ultimately  become  its CEO in 1988.  He has  focused  the
Company on exploring,  understanding and mastering the mechanism of nucleic acid
technology to produce a promising new class of drugs for treating  chronic viral
diseases  and  disorders  of the immune  system.  In the course of almost  three
decades, we have established a strong foundation of laboratory, pre-clinical and
clinical  data with respect to the  development  of nucleic acids to enhance the
natural  antiviral  defense  system of the  human  body and the  development  of
therapeutic  products for the treatment of chronic diseases.  Our strategy is to
use our  proprietary  drug,  Ampligen(R),  to treat  diseases for which adequate
treatment is not available. We seek the required regulatory approvals which will
allow   the    progressive    introduction    of    Ampligen(R)    for   Myalgic
Encephalomyelitis/Chronic  Fatigue Syndrome ("ME/CFS"), HIV, Hepatitis C ("HCV")
and Hepatitis B ("HBV") in the U.S.,  Canada,  Europe and Japan.  Ampligen(R) is
currently  in phase III  clinical  trials in the U.S.  for use in  treatment  of
ME/CFS and is in Phase IIb  clinical  trials in the U.S.  for the  treatment  of
newly emerged  multi-drug  resistant HIV, and for the induction of cell mediated
immunity in HIV patients  that are under control  using  potentially  toxic drug
cocktails.

     In March, 2003, the Company acquired from Interferon Sciences Inc. ("ISI"),
all of ISI's raw materials,  work-in-progress  and finished product of Alferon N
Injection(R),  together with a limited license for the production,  manufacture,
use, marketing and sale of the product. Alferon N Injection(R) [interferon alfa-
n3 (human  derived)] is a natural alpha interferon that has been approved by the
U.S. Food and Drug Administration  ("FDA") for commercial sale for the treatment
of  certain  types of genital  warts.  We intend to market  this  product in the
United State through sales  facilitated  via third party  marketing  agreements.
Additionally, we intend to implement studies, beyond those conducted by ISI, for
testing the  potential  treatment  of HIV,  Hepatitis  C and other  indications,
including  multiple  sclerosis.  This acquisition not withstanding,  our primary
focus  remains  the  development  to  Ampligen(R)  for  treating  ME/CFS and HIV
diseases.

     In March,  2003,  we entered into an agreement  with ISI subject to certain
events that would grant us global rights to sell Alferon N Injection(R)  as well
as acquire certain other assets of ISI which include but are not limited to real
estate and property, plant and equipment.

     We  outsource   certain   components  of  our  research  and   development,
manufacturing,  marketing and distribution  while  maintaining  control over the
entire process through our quality  assurance group and our clinical  monitoring
group.


                                    AMPLIGEN(R)

     Our proprietary drug technology  Ampligen(R)  utilizes specially configured
ribonucleic  acid ("RNA") and is  protected  by more than 350 patents  worldwide
with  over  80  additional  patent  applications   pending  to  provide  further
proprietary protection in various international  markets.  Certain patents apply
to the  use of  Ampligen(R)  alone  and  certain  patents  apply  to the  use of
Ampligen(R) in combination with certain other drugs.  Some composition of matter
patents  pertain  to other new  medications  which have a similar  mechanism  of
action.  The main U.S. ME/CFS  treatment patent  (#6130206)  expires January 23,
2015. Our main patents covering HIV treatment (#4795744,#4820696,  #5063209, and
#5091374)  expire on August 26,  2006,  September  30,  2008,  August 10,  2010,
respectively;  Hepatitis  treatment coverage is conveyed by U.S. patent #5593973
which expires on October 15, 2014. The U.S. Ampligen(R)  Trademark  (#1,515,099)
expires on December 6, 2008 and can be renewed  thereafter  for an additional 10
years.  The U.S.  FDA has  granted  us  "orphan  drug  status"  for our  nucleic
acid-derived  therapeutics  for  ME/CFS,  HIV,  and  renal  cell  carcinoma  and
malignant  melanoma.  Orphan drug status grants the Company  protection  against
competition  for a period of seven  years  following  FDA  approval,  as well as
certain federal tax incentives, and other regulatory benefits.

     Nucleic acid  compounds  represent a potential new class of  pharmaceutical
products that are designed to act at the molecular  level for treatment of human
diseases.  There are two forms of nucleic acids,  DNA and RNA. DNA is a group of
                                       2

naturally  occurring   molecules  found  in  chromosomes,   the  cell's  genetic
machinery.  RNA is a group of naturally occurring  informational molecules which
orchestrate a cell's  behavior and which regulate the action of groups of cells,
including  the cells which  comprise the body's immune  system.  RNA directs the
production  of proteins and  regulates  certain cell  activities  including  the
activation of an otherwise  dormant  cellular  defense against virus and tumors.
The  Company's  drug   technology   utilizes   specially   configured  RNA.  Our
double-stranded RNA drug product, trademarked Ampligen(R), which is administered
intravenously,  is (or has  been)  in human  clinical  development  for  various
disease  indications,  including treatment for ME/CFS, HIV, renal cell carcinoma
and malignant  melanoma.  Further  studies are planned in cancer but  initiation
dates have not been set.

     Based on the result of published,  peer reviewed  pre-clinical  studies and
clinical trials, we believe that Ampligen(R) may have broad-spectrum  anti-viral
and  anti-cancer  properties.  Over 500 patients  have received  Ampligen(R)  in
clinical trials authorized by the FDA at over twenty clinical trial sites across
the U.S.,  representing  the  administration  of more than 45,000  doses of this
drug.


Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS)


     ME/CFS is a  debilitating  disease  that is  difficult  to diagnose and for
which,  at  present,  there is no  cure.  People  suffering  from  this  illness
experience,   among  other  symptoms,  a  constant  tiredness,   recurring  dull
headaches,  joint and muscle  aches,  a feeling of  feverishness  and chills low
grade fever, depression,  difficulty in concentrating on tasks, and tender lymph
glands.  With progression of the disease they can become bed-ridden,  lose their
jobs and become dependent upon the state for support and medical care.

     ME/CFS has been given  official  recognition  by the U.S.  Social  Security
Administration,  and some European  nations,  rendering ME/CFS patients eligible
for disability benefits and heightening  awareness of this debilitating  disease
in  the  medical  community.   Further  scientific  publication  by  independent
academicians  on the  accurate  laboratory  diagnosis  of ME/CFS  appeared  in a
peer-reviewed  journal (American Journal of Medicine) in February 2000. The U.S.
Centers of Disease Control ("CDC") reconfirmed its research commitment to ME/CFS
following an audit by the U.S.  Government  Accounting  Office ("GAO") which was
announced July 28, 1999.

     Estimates of ME/CFS  patient  numbers in the Unites States range from a low
of  500,000  (1995-Centers  for  Disease  Control,  Atlanta,  GA) to a  high  of
1,000,000 (1999-DePaul University study). Estimates of patient numbers in Europe
range from 600,000 to 2,200,000  as reported in the British  Medical  Journal in
January  2000.  It is believed  worldwide  patient  totals may be as high as ten
million.

     In 1989,  we  received  FDA  authorization  to  conduct a Phase II study of
Ampligen(R) for ME/CFS. In 1991, we completed a 24-week, 92 patient, randomized,
placebo-controlled,   double-blinded,  multi-center  trial  of  Ampligen(R)  for
treating patients with ME/CFS.  The results,  published in a peer review journal
in 1994,  suggested enhanced physical  performance,  greater cognitive functions
and improved  ability to perform  daily  living  activities.  Patients  required
reduced   hospitalization  and  medical  care,  while  suffering  little  or  no
significant adverse side effects.  The FDA raised certain issues with respect to
this clinical trial which required further study. These issues were reviewed and
satisfactorily resolved.
                                       3


     In February  1993,  Hemispherx  presented results of its Phase II study of
Ampligen(R)  for  ME/CFS to a FDA  Advisory  Committee  and these  results  were
published in early 1994 in Clinical Infectious Diseases, a peer reviewed medical
journal,   which  emphasizes  the  understanding  and  potential   treatment  of
infectious  diseases.  The results  suggested that patients on  Ampligen(R),  in
contrast  to those  receiving  a  placebo,  showed  significant  improvement  in
physical  capacity as  determined  by  performance  on  treadmill  testing.  The
Ampligen(R)  treated  patient group also required less pain  medication than did
the placebo group.

     In  late  1998,  we were  authorized  by the FDA to  initiate  a Phase  III
multicenter,  placebo-controlled,  randomized,  double blind  clinical  trial to
treat 230  patients  with ME/CFS in the U.S.  The  objective  of this Phase III,
clinical  study,  deemed as Amp 516, is to evaluate  the safety and  efficacy of
Ampligen(R)  as a treatment for ME/CFS.  As of April 1, 2003 we have engaged the
services of eleven (11) clinical investigators at Medical Centers in California,
New  Jersey,   Florida,  North  Carolina,   Wisconsin,   Nevada,   Illinois  and
Connecticut.  These  clinical  investigators  are medical  doctors  with special
knowledge of ME/CFS who have recruited, prescreened and enrolled ME/CFS patients
for  inclusion in the Phase III Amp 516 ME/CFS  clinical  trial.  This  clinical
trial now has over 230 ME/CFS patients  participating.  The patients  complete a
stage I, forty week, double-blind, randomized, placebo-controlled portion of the
clinical  trial  and then move  into the  stage II or the open  label  treatment
portion of the clinical trial. To date there have been no serious adverse events
reported related to the study  medication.  Additional ME/CFS patients have been
recruited by the clinical  investigators to, in effect, over enroll the program.
We expect to have in excess of the full  enrollment in order to  compensate  for
potential  patient  "drop outs",  i.e.;  patients that  discontinue  the program
prematurely  for  various  reasons.  The next stage in our program is final data
collection, quality assurance of data to insure its accuracy and analysis of the
data  according to regulatory  guidelines to  facilitate  filing for  commercial
approval to sell.

Human Immunodeficiency Virus  (HIV)

     About fifteen  antiviral  drugs are  currently  approved by the FDA for the
treatment  of HIV  infection.  All  target the  specific  HIV  enzymes,  reverse
transcriptase  ("RT") and protease.  The use of various combinations of three or
more of these  drugs is  often  referred  to as  Highly  Active  Anti-Retroviral
Therapy  ("HAART").  HAART involves the  utilization of several  antiretrovirals
with  different  mechanisms  of action to decrease  viral loads in  HIV-infected
patients.  The goal of these  combination  treatments is to reduce the amount of
HIV in the  body  ("viral  load")  to as low  as  possible.  Treatments  include
different  classes of drugs, but they all work by stopping parts of the virus so
the virus cannot  reproduce.  Experience  has shown that using  combinations  of
drugs from different classes is a more effective strategy than using only one or
two drugs.  HAART has provided dramatic  decreases in morbidity and mortality of
HIV infection.  Reduction of the viral load to  undetectable  levels in patients
with wild type virus (i.e.,  non-drug-resistant virus)is routinely possible with
the appropriate application of HAART. HIV mainly infects important immune system
cells called CD4 cells.  After HIV has infected a CD4 cell, the CD4 cell becomes
damaged and is  eventually  destroyed.  Fewer CD4 cells means more damage to the
immune system and,  ultimately,  results in AIDS.  Originally,  reduction of HIV
loads was seen as possibly allowing the  reconstitution of the immune system and
led to early speculation that HIV might be eliminated by HAART.
                                       4


    Subsequent  experience  has provided a more realistic view of HAART and the
realization  that chronic HIV suppression  using HAART, as currently  practiced,
would  require  treatment  for  life  with  resulting   significant   cumulative
toxicities.  The various reverse transcriptase and protease inhibitor drugs that
go into HAART have significantly  reduced the morbidity and mortality  connected
with HIV; however there has been a significant cost due to drug toxicity.  It is
estimated  that 50% of HIV deaths are from the  toxicity  of the drugs in HAART.
Current estimates suggest that it would require as many as 60 years of HAART for
elimination of HIV in the infected patient. Thus the toxicity of HAART drugs and
the enormous cost of treatment makes this goal impractical.

     Although more potent second  generation  drugs are under  development  that
target the reverse  transcriptase and protease genes as well as new HIV targets,
the problem of drug  toxicities,  the complex  interactions  between  these drug
classes,  and the likelihood of life-long therapy will remain a serious drawback
to their usage.

     Failure of  antiretroviral  therapies  over time and the  demonstration  of
resistance have stimulated  intensive  searches for appropriate  combinations of
agents,  or  sequential  use of  different  agents,  that  act  upon the same or
different  viral  targets.  This  situation  has  created  interest  in our drug
technology which operates by a different mechanism.

     We believe that the concept of Strategic  Therapeutic  Interruption ("STI")
of HAART provides a unique  opportunity to minimize the current  deficiencies of
HAART  while  retaining  the HIV  suppression  capacities  of HAART.  STI is the
cessation of HAART until HIV again becomes detectable (i.e.,  rebounds) followed
by resumption of HAART with subsequent  suppression of HIV. By re-institution of
HAART,  HIV is suppressed  before it can inflict  damage to the immune system of
the patient.  Based on recent publications (AIDS 2001,15:  E19-27 and AIDS 2001,
15:1359-1368) in peer reviewed medical  literature,  it is expected that in just
30 days after  stopping  HAART  approximately  80% to 90%, of the patients  will
suffer a relapse evidencing  detectable levels of HIV. The Company believes that
Ampligen(R)  combined with the STI (strategic treatment  interruption)  approach
may offer a unique  opportunity to retain HAART's superb ability to suppress HIV
while potentially minimizing its deficiencies.  All present approved drugs block
certain  steps in the life cycles of HIV. None of these drugs address the immune
system,  as  Ampligen(R)  potentially  does,  although  HIV  is an  immune-based
disease.

     By using Ampligen(R) in combination with STI of HAART, we will undertake to
boost the patients' own immune system's  response to help them control their HIV
when  they  are  off  of  HAART.  The  Company's  minimum  expectation  is  that
Ampligen(R)  has  potential  to lengthen the  HAART-free  time  interval  with a
resultant decrease in HAART-induced toxicities. The ultimate potential, which of
course  requires full clinical  testing to accept or reject the  hypothesis,  is
that Ampligen(R) may potentiate STI of HAART to the point that the cell mediated
immune system will be sufficient to eliminate  requirement for HAART. We plan to
present  the  follow on  clinical  results  of using our  technology  at several
International  AIDS Scientific  Forums in 2003,  including the VI  International
Viroteg Conference an Antiviral research in Savannah, Georgia in April 2003.

     Our AMP 720 HIV Clinical Trial is being conducted with individuals infected
with HIV who are responding well to HAART at the moment.  Patients in this study
are  required to meet  minimum  immune  system  requirements  of CD4 cell levels
greater than 400, maximum HIV infection levels of less that 50 copies/ml,  and a
                                       5


HAART  regimen  containing  at least one anti-viral  drug  showing  therapeutic
synergy  with  Ampligen(R)  based  on  recently  reported  ex  vivo  studies  in
peer-reviewed scientific journals. All patients are chronically HIV infected and
will have been receiving the indicated  HAART regimen prior to starting the STI.
The  trial  applies  strategic  treatment  interruption  of  HAART  based on the
hypothesis  that  careful  management  of HIV  rebound  following  STI may  have
potential to result in the development of protective  immune responses to HIV in
order to achieve  control of HIV  replication.  The  Company  believes  that the
addition of Ampligen(R),  with its potential  immunomodulatory  properties,  may
reasonably achieve this outcome. Half of the participants in the trial are given
400 mg of  Ampligen(R)  twice a week and once they start the STI will remain off
of  HAART  until  such  time  as  their  HIV  rebounds.  The  other  half of the
participants  (the control  group) are on STI, but they are given no Ampligen(R)
during the "control" portion of the clinical test.

     The targeted  enrollment in the AMP 720 Clinical Trial is 120  HIV-infected
persons  who  meet  the  criteria.  We  expect  to have 60  people  on STI  with
Ampligen(R) and 60 people on STI without Ampligen(R).  Presently,  this study is
approximately  35% enrolled at ten medical  centers  around the U.S. The Company
expects  enrollment  in this  clinical  trial to  accelerate  as we recruit more
investigators  and based on the analysis and  presentation of results in Prague,
Czech Republic,  Barcelona, Spain and Naples, FL (December, 2002). The length of
this  stage of the  trial  will be  determined  by an  analysis  of the  interim
results.

     Hepatitis C Virus (HCV) We currently have an informal  arrangement with the
California  Institute of Molecular  Medicine  ("CIMM") to collaborate and assist
their  efforts to replicate  human  Kupffer's  cells  obtained from HCV infected
patients. This proprietary CIMM approach involves the in vitro growth of hepatic
macrophages  (called  Kupffer's  cells) from the failing  liver of a patient and
reinfusion  of the in vitro grown  Kupffer's  liver cells into the same patient.
The  ability to grow HCV in long term  culture  that would allow the testing of,
potential anti-HCV drugs in vitro would permit us to conduct and obtain valuable
research data in using  Ampligen(R)  to treat HCV prior to engaging and clinical
trial.  This  would not raise the  question  of  immunological  incompatibility.
Testing by CIMM indicates that their process of Kupffers's  cell  application in
vitro is reproducible  (>95% efficacy) from  individual  patients.  CIMM is also
developing a process for maintaining and propagating Kuffer's cells reproducibly
in defined  cell  cultures  from fine needle liver  aspirates  from living human
volunteers  with  potential as patients  with failing  liver due to a variety of
etiologies.

     In  January  2001 CIMM  filed a notice of  Invention  with the U.S.  patent
office.  As a result,  a patent  titled  "Replication  of Human  Kupffer's  cell
obtained from HCV infected patients by Fine Needle Biopsy Technique" was issued.
This method can potentially  salvage  critically  needed liver function  without
major surgery or aggressive medical intervention.

     The  immediate  and  potential  market for the  Kupffer's  maintenance  and
propagation  techniques  will be more than  14,000  people in the U.S.  actively
seeking a liver  transplant.  Additional  thousands  are  progressing  towards a
failing  liver and will soon need  transplantation  or a successful  alternative
method  to  restore  function.  Several  hundred  thousand  who  have  alcoholic
cirrhosis  may also benefit from the  proprietary  process.  Medical  costs of a
liver  transplant  are  approximately  $300,000 and are far beyond the financial
reserves of most  families.  Reimbursement  of these  costs by Health  Insurance
carriers is problematic at best. We have a 30% equity position in CIMM, which is
located  in  California  and  recently  opened a new  state-of-the-art  research
laboratory in Ventura, California.
                                       6


    We are also  evaluating  potential  novel  clinical  programs  which  would
involve  using  Ampligen(R)  to treat both HCV and HIV when they  coexist on the
same patient.  We expect to commence these studies in collaboration  with one or
more prospective  corporate partners. A collaborative  Clinical study in Europe,
in conjunction  with  Laboratorios  Del Dr. Esteve S.A., is expected to commence
during the first half of 2003.

     We have  acquired a series of patents on  Oragen(TM),  potentially  an oral
broad spectrum antiviral,  Immunological enhancers through a licensing agreement
with Temple  University.  We were  granted an exclusive  worldwide  license from
Temple  for  the  Oragen(TM)  products.  Pursuant  to  the  arrangement,  we are
obligated to pay royalties of 2% on sales of  Oragen(TM),  depending on how much
technological  assistance  is  required  of Temple.  We  currently  pay  minimum
royalties of $30,000 per year to Temple.  These compounds have been evaluated in
various  academic and government  laboratories  for application to Chronic viral
and immunological  disorders.  Research and development of Oragen(TM) is on hold
at this time.

Other Diseases

     An FDA  authorized  Phase I/II  study of  Ampligen(R)  in cancer  including
patients with renal cell  carcinoma  was completed in 1994.  The results of this
study  indicated  that patients  receiving high doses  (200-500mg)  twice weekly
experienced an increase in medium survival compared to the low dose group and as
compared to an historical control group. We received  authorization from the FDA
to initiate a phase II study using Ampligen(R) to treat patients with metastatic
renal cell  carcinoma.  Patients with  Metastatic  Melanoma were included in the
Phase I/II study of Ampligen(R) in cancer.  The FDA has authorized us to conduct
a Phase II clinical  trial using  Ampligen(R)  in melanoma.  We do not expect to
devote any significant resources to funding these studies in the near future.

Other Antiviral/ Immunologic Treatments

     After  the  terrorist   acts  of  September  11,  2001  and  the  resultant
International  concern  for  bio-terrorism  (including  Smallpox),  we  filed  a
regulatory  application with the FDA for permission to conduct a clinical trial,
in  the  event  of  Smallpox  dissemination,  using  Ampligen(R)  therapy  as  a
treatment.  This proposed study was based on an earlier peer reviewed laboratory
study from Yale University in Partnership with the U.S. Military Command at Fort
Detrick,  the U.S.  Biological  defense Specialty Research Center. The result of
this study  indicated  Ampligen(R)  to be  promising  in a  laboratory  model of
smallpox.

     Based on these and other  recent  positive  results  (see  below),  we have
retained  FDA  regulatory   counsel  in  Wash.,   D.C.  ,  to  advise  us  on  a
commercialization path and to arrange relevant meetings with the FDA.

     During the thirty day review period of our Clinical application by the FDA,
we became aware of a new ongoing  laboratory study of Ampligen(R) in smallpox at
the Riga Medical  Institute in Belgium.  Our Medical Director had authorized the
Institute to use samples of Ampligen(R)  for Research  purposes only. The result
of this study became  available in the early 2003.  In the interim,  we withdrew
our FDA  application  to review the result of the Belgium study and  incorporate
such data into our  Clinical  study  design and  protocol  before  resubmission.
Positive new results on Ampligen(R) were thereafter  reported by branches of the
U.S.   government  using  animal  models  of  smallpox  and  new  guidelines  on
bio-terrorism  approvals were established which mandated only animal studies for
full commercialization.
                                       7

                              ALFERON N INJECTION(R)

     Interferon is a group of proteins  produced and secreted by cells to combat
diseases.  Researchers  have identified four major classes of human  interferon:
alpha,  beta,  gamma and  omega.  The  ALFERON N  Injection  product  contains a
multi-species  form of alpha  interferon.  The worldwide  market for  injectable
alpha  interferon-based  products has experienced rapid growth and various alpha
interferon  injectable  products  are  approved  for  many  major  medical  uses
worldwide.

     Alpha  interferons are manufactured  commercially in three ways: by genetic
engineering,  by cell culture,  and from human white blood cells.  In the United
States, all three of these types of alpha interferon are approved for commercial
sale. Our Natural Alpha Interferon is produced from human white blood cells.

     The  potential  advantages  of Natural Alpha  Interferon  over  recombinant
interferon may be based upon their respective  molecular  compositions.  Natural
Interferon is composed of a family of proteins containing many molecular species
of interferon.  In contrast,  recombinant  alpha  interferon each contain only a
single species. Researchers have reported that the various species of interferon
may have differing antiviral activity depending upon the type of virus.  Natural
Alpha  Interferon  presents  a broad  complement  of species  which the  Company
believes  may account for its higher  efficacy in  laboratory  studies.  Natural
Alpha Interferon is also glycosylated  (partially covered with sugar molecules).
Such  glycosylation is not present on the currently  marketed  recombinant alpha
interferons.  The Company believes that the absence of glycosylation  may be, in
part, responsible for the production of interferon-neutralizing  antibodies seen
in  patients  treated  with   recombinant   alpha   interferon.   Although  cell
culture-derived  interferon  is also  composed  of multiple  glycosylated  alpha
interferon  species,  the types  and  relative  quantity  of these  species  are
different from the Company's Natural Alpha Interferon.

     On  October  10,  1989,  the  FDA  approved  ALFERON  N  Injection  for the
intralesional  (within  lesions)  treatment of  refractory  (resistant  to other
treatment)  or recurring  external  genital warts in patients 18 years of age or
older.  Certain types of human  papillomaviruses  ("HPV") cause genital warts, a
sexually   transmitted  disease  ("STD").  A  published  report  estimates  that
approximately  eight  million new and  recurrent  causes of genital  warts occur
annually in the United States alone.

Basically, our interest in acquiring Alferon N was driven by two factors;

     1) our  belief  that  its  use in  combination  with  Ampligen(R)  has  the
potential  to  increase  the  positive  therapeutic  responses  in chronic  life
threatening viral diseases. Combinational therapy is evolving to the standard of
acceptable  medical care based on a detailed  examination of the Biochemistry of
the body's natural antiviral immune response; and

     2) new knowledge  about the  competitive  products in the Interferon  arena
that we believe imply a large  untapped  market and  potential  new  therapeutic
indication  for Alferon N which could  accelerate its revenues in the near term.
Specifically, the recombinative DNA derived alpha interferon are now reported to
have  dramatically  decreased  effectiveness  after  one year,  probably  due to
antibody formation and other severe toxicities.  These detrimental  effects have
not been reported with Alferon N which could allow this product to assume a much
                                       8


larger  market  share. These  revenues  would  provide  operational  capital to
complete the Phase III Clinical trials of our experimental drug,  Ampligen(R) in
a more cost effective, non-dilutive manner on a shareholder's equity.

     Alferon N Injection(R)  [Interferon alfa-n3 (human leukocyte derived)] is a
highly purified,  natural-source,  glycosylated,  multispecies  alpha interferon
product. There are essentially no antibodies observed against natural interferon
to date and the product has a relatively low side-effect profile. Alferon is the
only  natural-source,  multispecies alpha interferon  currently sold in the U.S.
and is also approved for sale in Mexico, Germany, Singapore and Hong-Kong.

     The  Alferon   targeted  market  consists  of  urologists,   proctologists,
dermatologists,  and Obstetricians/Gynecologists.  These physicians normally see
patients with papilloma  concondylomas  (genital warts) in their practice.  This
will be done in  existing  partnership  with our  strategic  partners  including
Gentiva Health Services,  Biovail Corporation and Esteve Laboratories,  all have
proven marketing expertise.

     According  to the NIH,  there are one million  new cases of venereal  warts
every year.

Pipeline products (alpha interferon)

     The following products,  together with other assets are to be acquired upon
the closing of the second ISI  agreement  which is  anticipated  to occur in May
2003.

ALFERON N Injection(R) -Other applications

     ALFERON N Injection(R)  [Interferon  alfa-n3 (human leukocyte derived)] has
been  approved by the U.S.  FDA for the  treatment  of certain  types of genital
warts and has been studied for the potential  treatment of HIV,  Hepatitis C and
other indications. ISI, the Company from which we obtained our rights to ALFERON
N Injection(R) had conducted clinical trials with regard to the use of ALFERON N
Injection(R)  in the  treatment  of HIV and  Hepatitis  C.  While  ISI found the
results to be encouraging, in both instances, the FDA determined that additional
trials were necessary.

ALFERON N Gel(R)

     ALFERON N GEL(R) is the  Company's  registered  trademark  for its  topical
(dermatological) Natural Alpha Interferon preparation in a hydrophilic gel base.
This product is still in research and development.

ALFERON LDO(R)

     ALFERON  LDO(R) is the registered  trademark for the low-dose,  oral liquid
formulation  of Natural  Alpha  Interferon.  Two Phase 2 clinical  trials  using
ALFERON LDO for the treatment of HIV-infected patients have been completed.

     There  can be no  assurance  that any of these  proposed  products  will be
cost-effective,  safe,  and effective or that the Company will be able to obtain
FDA approval for such use. Furthermore, even if such approval is obtained, there
can be no assurance that such products will be  commercially  successful or will
produce significant revenues or profits for the Company.
                                       9


                               EUROPEAN OPERATIONS

     Our  European  operations  were setup to prepare  for the  introduction  of
Hemispherx  products  and to  accelerate  market  penetration  into the European
market once full  approval is obtained  from the  European  Medicine  Evaluation
Agency  ("EMEA").  The EMEA is the  equivalent  of the United States FDA. From a
regulatory  point of view the member  countries of the European  Economic  Union
("EEU")  represent a common market under the jurisdiction of the EMEA.  However,
from a practical point of view, every country is different regarding  developing
relations  with  the  medical  community,  patient  associations  and  obtaining
reimbursement  for treatment from the equivalent of Social Security Agencies and
insurance  carriers.  This program will be  integrated  into our new  commercial
asset, ALFERON N Injection, as well.

     Our  European   operations   have  assisted  the  growth  of  a  number  of
patient/physician educational associations.  The French Chronic Fatigue Syndrome
Association  has grown from 10 members in the year 2000 to 800 currently.  Every
major country now has an active educational association with substantial numbers
of members who regularly meet and "network". These programs have been modeled on
the  successful  experience in the U.S. of  conducting  twice a year meetings on
ME/CFS with Health and Human Services, FDA, NIH and Centers for Disease Control.

     We  maintain  contact  with  the  EMEA,  keeping  the  agency  aware of our
activities,  as well as the  health  ministries  in  numerous  countries  in the
European Union.  In early 2001,our  application for "orphan" drug status for the
use of  Ampligen(R)  in ME/CFS was  rejected  because  the Board  found that the
prevalence  of ME/CFS was  significantly  above the 5 person  per  10,000  limit
required to grant orphan drug status in the European Union. In addition,  we are
exploring various ways to accelerate the commercial availability of our products
in the  various  nations of the EEU,  including  potential  appreciation  of the
"foreign import" rule for accepting products already approved in the U.S.

     Limited number ME/CFS patients were treated during 2002 with Ampligen(R) in
the United Kingdom,  Austria and Belgium under existing regulatory procedures in
these countries  which allow the  therapeutic use of an experimental  drug under
certain  conditions.  These  procedures  allowed  us  to  recover  the  cost  of
Ampligen(R) used as well as to collect additional  clinical data.  Corresponding
procedures  are being  considered in several  other  countries at the request of
locally based physicians.

     Our European  operations are  considering  implementing  clinical trials in
Europe for the use of  Ampligen(R)  in the treatment of HIV/AIDS on the basis of
the new U.S. Protocols  involving the use of the drug either in combination with
"cocktail"  therapies or as part of a strategic  interruption  of the "cocktail"
therapies.  We plan to present these programs at European scientific conferences
in 2003.

     The Efforts of our European  Operation has started to produce  results.  In
March  2002,  our  European   Subsidiary   Hemispherx   Biopharma  Europe,  S.A.
("Hemispherx,  S.A.")  entered  into a Sales  and  Distribution  agreement  with
Laboratorios  Del Dr.  Esteve  S.A.  ("Esteve").  Pursuant  to the  terms of the
agreement,  Esteve was  granted the  exclusive  right to market  Ampligen(R)  in
Spain,  Portugal  and Andorra  ("Territory")  for the  treatment  of ME/CFS.  In
addition to other terms and other projected payments, Esteve paid an initial and
non-refundable fee of 625,000 Euros (approximately $563,000) to Hemispherx S.A.
on April 24, 2002

     Esteve  is to pay a fee  of  1,000,000  Euros  after  U.S.  Food  and  Drug
Administration  approval of Ampligen(R) for the treatment of ME/CFS and a fee of
                                       10


1,000,000 Euros upon Spain's approval of the final marketing authorization  for
using Ampligen(R) for the treatment of ME/CFS.

     The  agreement  runs  for the  longer  of 10  years  from the date of first
arms-length sale in the Territory,  the expiration of the last Hemispherx patent
exploited by Esteve or the period of regulatory  data protection for Ampligen(R)
in the applicable territory. Pursuant to the terms of the agreement Esteve is to
conduct  clinical  trials using  Ampligen(R) to treat patients with both HCV and
HIV and is required to purchase  certain  minimum annual amounts of Ampligen(R).
The agreement is terminable by either party if Ampligen(R) is withdrawn form the
territory  for a  specified  period  due to  serious  adverse  health  or safety
reasons;  bankruptcy,  insolvency  or related  issues of one of the parties;  or
material breach of the agreement.  Hemispherx may transform the agreement into a
non-exclusive agreement or terminate the agreement in the event that Esteve does
not meet specified percentages of its annual minimum purchase requirements under
the agreement.  Esteve may terminate the agreement in the event that  Hemispherx
fails to supply  Ampligen(R) to the territory for a specified  period of time or
certain clinical trials being conducted by Hemispherx are not successful.


                                  MANUFACTURING

     We  outsource  the  manufacturing  of  Ampligen(R)  to  certain  contractor
facilities in the United States and South Africa while  maintaining full quality
control and supervision of the process. Nucleic Acid polymers constitute the raw
material  used in the  production of  Ampligen(R).  We acquire our raw materials
from Ribotech,  Ltd. ("Ribotech') located in South Africa.  Ribotech, is jointly
owned by us (24.9%) and Bioclones,  proprietary,  Ltd (75.1%). Bioclones manages
and operates  Ribotech.  Two manufacturers in the United States are available to
provide the  polymers if  Ribotech is unable to supply our needs.  Sourcing  our
needs  from  other  suppliers  could  result  in a cost  increase  for  our  raw
materials.

     Until 1999, we distributed Ampligen(R) in the form of a freeze-dried powder
to be  formulated by  pharmacists  at the site of use. We perfected a production
process to produce ready to use liquid  Ampligen(R)  in a dosage form which will
mainly be used upon commercial approval of Ampligen(R).  At the present time, we
have  engaged  the  services  of   Schering-Plough   Products  to  mass  produce
ready-to-use  Ampligen(R)  doses.  There  are  other  pharmaceutical  processing
companies that can supply our production needs.

     Bioclones (PTY) Ltd. has also successfully completed a series of production
runs for liquid Ampligen(R) doses. This was done at Ribotech's facility in South
Africa that has inspection  approval by both the US FDA and the Medicine Control
Authority of the United Kingdom.  Bioclones (PTY) Ltd. Is headquartered in South
Africa and is the  majority  owner in  Ribotech,  Ltd.  (the Company owns 24.9%)
which  produces  most of the polymers  used in  manufacturing  Ampligen(R).  The
licensing  agreement  with  Bioclones  presently  includes  South Africa,  South
America, Ireland, New Zealand and the United Kingdom.

     We currently  occupy and use the New Brunswick,  New Jersey  laboratory and
production  facility  owned by ISI. We are in the process of acquiring  title to
these  facilities  pursuant to our second asset  acquisition  agreement with ISI
(see RECENT  FINANCING  AND ASSET  ACQUISITIONS  below for more  details).  This
facility is approved by the FDA for the manufacture of Alferon N.

                                       11


All production facilities employ Good Manufacturing Practices.(EGMP)

     Good  Manufacturing  Practices (GMP) require that a product be consistently
manufactured  to an identical  potency  (strength) and purity with each lot, and
that  the  manufacturing  facility  itself  and all the  equipment  therein,  be
certified to operate within a strict set performance standards.


                             MARKETING/DISTRIBUTIONS

     Our marketing  strategy for Ampligen(R)  reflects the differing health care
systems around the world, and the different  marketing and  distribution  system
that are used to supply pharmaceutical  products to those systems. In the United
States, we expect that, subject to receipt of regulatory  approval,  Ampligen(R)
will  be  utilized  in  three  medical  arenas:  physicians'  offices,  clinics,
hospitals and the home  treatment  setting.  We currently  plan to use a service
provide  in the home  infusion  (non-hospital)  segment  of the U.S.  market  to
execute direct marketing  activities,  conduct physical  distribution of product
and handle billing and  collections.  Accordingly,  we are developing  marketing
plans to facilitate the product distribution and medical support for indication,
if and when they are approved, in each arena. We believe that this approach will
facilitate the generation of revenue  without  incurring the  substantial  costs
associated  with a sales  forces.  Furthermore,  management  believes  that  the
approach will enable us to retain many options for future marketing  strategies.
In February  1998,  the Company and Gentiva Health  Services  (formerly  Olstein
Heatlh  services)  entered  into  a  distribution/specialty  agreement  for  the
distribution  of Ampligen(R) for the treatment of ME/CFS patients under the U.S.
treatment protocols.

     In Europe, we plan to adopt a country-by-country  and, in certain cases, an
indication-by-indication  marketing strategy due to the heterogeneity regulation
and  alternative  distribution  systems in these area. We also plan to adopt and
indication-by-indication  strategy  in Japan.  Subject to receipt of  regulatory
approval,  we plan to seek strategic partnering  arrangement with pharmaceutical
companies to facilitate introductions in these areas. The relative prevalence of
people  from  target  indications  for  Ampligen(R)   varies   significantly  by
geographic  region,  and we intend to adjust our clinical and marketing planning
to reflect the special of each area. In countries in South  America,  the United
Kingdom,  Ireland, Africa,  Australia,  Tasmania, New Zealand, and certain other
countries and  territories,  we  contemplate  marketing our product  through our
relationship with Bioclones pursuant to the Bioclones Agreement.

     Our marketing and distribution  plan for Alferon N is focused on increasing
the sales of Alferon N Injection for the  intralesional  treatment of refractory
and recurring  external genital warts in adults. We will reach out to a targeted
audience of physicians  consisting of Ob/GYNSs,  Urologists,  Proctologists  and
Dermatologists  and  simultaneously  create  product  awareness  in the  patient
population  through several media and health  organizations.  Different regional
meetings and seminars are scheduled during which guest speakers will explain the
therapeutic benefits and safety profile of Alferon.  Additional exposure will be
created by exhibiting at several STD related conferences, expanded web presence,
mailings and publications.  We also plan to engage a contact sales  organization
in order to build up a nationwide  network of dedicated  representatives  in the
U.S. and Europe.  This will be done while  working with our  strategic  partners
including Gentiva Health Services, Biovail Corporation an Esteve Laboratories.

     For more information  about our arrangements  with Gentiva Health Services,
Bioclones, Esteve and Biovail see below."RESEARCH AND  DEVELOPMENT/COLLABORATIVE
AGREEMENTS"
                                       12


                                   COMPETITION

     Our potential competitors are among the largest pharmaceutical companies in
the world,  are well known to the public  and the  medical  community,  and have
substantially   greater   financial   resources,    product   development,   and
manufacturing and marketing capabilities than we have.


     These companies and their competing products may be more effective and less
costly than our products.  In addition,  conventional drug therapy,  surgery and
other  more  familiar   treatments  will  offer  competition  to  our  products.
Furthermore,  our competitors have  significantly  greater experience than we in
preclinical testing and human clinical trials of pharmaceutical  products and in
obtaining  FDA,  EMEA Health  Protection  Branch  ("HPB")  and other  regulatory
approvals of products. Accordingly, our competitors may succeed in obtaining FDA
EMEA and HPB product  approvals  more  rapidly  than us. If any of our  products
receive regulatory  approvals and we commence  commercial sales of our products,
we will also be competing with respect to manufacturing efficiency and marketing
capabilities,  areas in which we have no experience. Our competitors may possess
or obtain patent protection or other intellectual  property rights that prevent,
limit or  otherwise  adversely  affect our  ability  to  develop or exploit  our
products.

     The major  competitors  with drugs to treat HIV  diseases  include  "Gilead
Pharmaceutical,  Pfizer,  Bristol-Myers,  Abbott Labs and Schering-Plough  Corp.
("Schering").  ALFERON N Injection currently competes with a product produced by
Schering for treating  genital warts.  3m  Pharmaceutical  also has received FDA
approval for its immune response  modifier  product for the treatment of genital
and perianal warts.


                              GOVERNMENT REGULATION

     Regulation by governmental authorities in the U.S. and foreign countries is
and will be a significant  factor in the  manufacture and marketing of ALFERON N
products  and  our  ongoing   research  and  product   development   activities.
Ampligen(R)  and the products  developed  from the ongoing  research and product
development   activities   will   require   regulatory   clearances   prior   to
commercialization.  In particular, human new drug products for human are subject
to rigorous  preclinical  and clinical  testing as a condition for clearances by
the FDA and by similar authorities in foreign countries.  The lengthy process of
seeking these  approvals,  and the ongoing process of compliance with applicable
statutes  and  regulations,  has  required  and will  continue  to  require  the
expenditure of substantial resources.  Any failure by us or our collaborators or
licensees  to obtain,  or any delay in  obtaining,  regulatory  approvals  could
materially  adversely  affect the  marketing  of any  products  developed by the
Company and its ability to receive product or royalty revenue.  We have received
orphan drug designation for certain  therapeutic  indications which might, under
certain conditions, accelerate the process of drug commercialization.  ALFERON N
is only approved for use in treating  genital warts.  Use of Alferon N for other
applications requires regulatory approval.

     A  "Fast-Track"  designation  by the FDA,  while not affecting any clinical
development  time per se, has the  potential  effect of reducing the  regulatory
                                       13


review time by 50 percent (50%)from the time that a commercial drug application
is actually submitted for final regulatory review. Regulatory agencies may apply
a "Fast Track"  designation  to a potential new drug to accelerate  the approval
and  commercialization   process.  Criteria  for  "Fast  Track"  include:  a)  a
devastating  disease  without  adequate  therapy and b)  laboratory  or clinical
evidence that the candidate drug may address the unmet medical need. As of March
31, 2003, we have not received a Fast-Track designation for any of our potential
therapeutic  indications although we have received "Orphan Drug Designation" for
both ME/CFS and HIV/AIDS in the United States.  We will continue to present data
from time to time in support of obtaining  accelerated  review.  We have not yet
submitted any New Drug Application  (NDA) for Ampligen(R) or any other drug to a
North  American  regulatory  authority.   There  are  no  assurances  that  such
designation  will be granted,  or if granted,  there are no assurances that Fast
Track  designation  will  materially  increase  the  prospect  of  a  successful
commercial application. In 2000 we submitted an emergency treatment protocol for
clinically-resistant HIV patients which was withdrawn by us during the statutory
30  day   regulatory   review   period   in  favor   of  a  set  of   individual
physician-generated applications. There are no assurances that authorizations to
commence such treatments will be granted by any regulatory authority or that the
resultant treatments, if any, will support drug efficacy and safety. In 2001, we
did receive FDA authorization for two separate Phase IIb HIV treatment protocols
in which  the  Company's  drug is  combined  with  certain  presently  available
antiretroviral  agents.  Interim  results  were  presented  in 2002  at  various
international scientific meetings.

     We are subject to various  federal,  state and local laws,  regulations and
recommendations relating to such matters as safe working conditions,  laboratory
and manufacturing  practices, the experimental use of animals and the use of and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious  disease  agents,  used in connection with our research
work.  We  believe  that  our  Rockville,  Maryland  manufacturing  and  quality
assurance/control  facility  is in  substantial  compliance  with  all  material
regulations  applicable  to these  activities  as  advanced  by  European  Union
Inspections  team which  conducted  detailed  audits in year 2000.  However,  we
cannot give assurances that facilities owned and operated by third parties, that
are utilized in the manufacture of our products, are in substantial  compliance,
or if presently  in  substantial  compliance,  will remain so. These third party
facilities include manufacturing  operations in San Juan, Puerto Rico; Capetown,
South Africa; Columbia, Maryland; Melbourne,  Australia; and potential expansion
within the United States to new and larger facilities in 2003.

     RESEARCH AND DEVELOPMENT/COLLABORATIVE  AGREEMENTS In 1994, we entered into
a licensing  agreement  with  Bioclones  (Property)  limited  ("Bioclones")  for
manufacturing and international  market  development in Africa,  Australia,  New
Zealand,  Tasmania,  the United Kingdom,  Ireland and certain countries in South
Africa,  of  Ampligen(R)  and  Oragen(TM).  Bioclones  is to  pursue  regulatory
approval in the areas of its  franchise  and is  required  to conduct  Hepatitis
clinical trials,  based on international GMP and GLP standards.  Thus far, these
Hepatitis  studies have not yet commenced to a meaningful  level.  Bioclones has
been given the first right of refusal,  subject to pricing,  to manufacture that
amount of polamers  utilized in the  production  of  Ampligen(R)  sufficient  to
satisfy at least one-third of the worldwide sales requirement of Ampligen(R) and
other nucleic  acid-derived  drugs.  Pursuant to this  arrangement,  we received
1)access to worldwide markets 2)commercial-scale manufacturing resources, 3)a $3
million cash payment in 1995 from  Bioclones,4)  a 24.9%  ownership in Ribotech,
                                       14


Ltd. a  company  set up by  Bioclones  to  develop  and  manufacture  RNA  drug
compounds,  and 5) royalties of 8% on Bioclones nucleic  acid-derived drug sales
in the licensed territories. The agreement with Bioclones terminates three years
after the expiration of the last of the patents  supporting the license  granted
to Bioclones, subject to earlier termination by the parties for uncured defaults
under the agreement, or bankruptcy or insolvency of either party.

     In August,  1998, we entered into a strategic  alliance with Gentiva Health
Services  (formerly  known as Olsten  Health Care  Services) to develop  certain
marketing  and  distribution  capacity  for  Ampligen(R)  in the United  States.
Gentiva is one of the nation's  largest home health care companies with over 400
offices and sixty  thousand  caregivers  nationwide.  Pursuant to the agreement,
Gentiva assumed  certain  responsibilities  for  distribution of Ampligen(R) for
which they receive a fee. Through this arrangement,  Hemispherx may mitigate the
necessity of incurring  certain  up-front  costs.  Gentiva also works with us in
connection  with the Amp 511 ME/CFS cost  recovery  treatment  program,  Amp 516
ME/CFS PHASE III clinical  trial and the Amp  719(combining  Ampligen with other
antiviral drugs in HIV-salvage therapy and Amp 720 HIV Phase IIb clinical trials
now under way.  There can be no  assurances  that this  alliance  will develop a
significant  commercial position in any of its targeted chronic disease markets.
The agreement had an initial one year term from February 9, 1998 with successive
additional  one (1) year terms unless  either party  notifies the other not less
than one hundred eighty (180) days prior to the  anniversary  date of its intent
to terminate the  agreement.  Also,  the  agreement  may be  terminated  for the
uncured  defaults,  or  bankruptcy  or  insolvency  of  either  party  and  will
automatically  terminate  upon our receiving  New Drug Approval for  Ampligen(R)
from the FDA, at which time, a new  agreement  will need to be  negotiated  with
Gentiva or another major drug distributor.

     We have  acquired a series of patents on  Oragen(TM),  potentially  an oral
broad spectrum antiviral,  Immunological enhancers through a licensing agreement
with Temple  University.  We were  granted an exclusive  worldwide  license from
Temple  for  the  Oragen(TM)  products.  Pursuant  to  the  arrangement,  we are
obligated to pay royalties of 2% to 4% on sales of Oragen(TM),  depending on how
much  technological  assistance is required of Temple.  We currently pay minimum
royalties of $30,000 per year to Temple.  These compounds have been evaluated in
various  academic and government  laboratories  for application to Chronic viral
and  immunological  disorders.  This  agreement is to remain in effect until the
date that the last licensed  patent expires unless  terminated  sooner by mutual
consent or default due to royalties not being paid.

     In December,  1999, we entered into an agreement  with Biovail  Corporation
International   ("Biovail").   Biovail   is  an   international   full   service
pharmaceutical   company   engaged  in  the   formulation,   clinical   testing,
registration and manufacture of drug products  utilizing  advanced drug delivery
systems.  Biovail is  headquartered  in Toronto,  Canada.  The agreement  grants
Biovail the exclusive distributorship of our product in the Canadian territories
subject to certain terms and  conditions.  In return,  Biovail agrees to conduct
certain   pre-marketing   clinical  studies  and  market  development  programs,
including without limitation, expansion of the Emergency Drug Release Program in
Canada with respect to our products. In addition, Biovail agrees to work with us
in  preparing  and  filing  a  New  Drug  Submission  with  Canadian  Regulatory
Authorities.  Biovail invested  several million dollars in Hemispherx  equity at
prices above the then current  market price and agreed to make further  payments
based on reaching certain regulatory milestones.  The Agreement requires Biovail
to buy  exclusively  from us and penetrate  certain market  segments at specific
                                       15


rates in order to maintain  market  exclusivity. The  agreement  terminates  on
December 15, 2009,  subject to successive two (2) year extensions by the parties
and subject to earlier termination by the parties for uncured defaults under the
agreement,  bankruptcy  or  insolvency  of either  party,  or  withdrawal of our
product  from  Canada  for a period of more than  ninety  (90) days for  serious
adverse health or safety reasons.

     In 1998,  the Company  invested  $1,074,000  for a 3.3% equity  interest in
R.E.D.  Laboratory ("R.E.D.").  R.E.D. is a privately held biotechnology company
for the development of diagnostic markers for Chronic Fatigue Syndrome and other
chronic immune diseases.  Primarily,  R.E.D.'s research and development is based
on certain  technology owned by Temple University and licensed to R.E.D. We have
a research  collaboration  agreement with R.E.D. to assist in this  development.
R.E.D. is headquartered in Belgium. The investment was recorded at cost in 1998.
During three months ended June 2002 and December 2002 respectively,  we recorded
a non-cash  charge of $678,000 and $396,000  respectively,  to  operations  with
respect  to our  investment  in  R.E.D.  These  charges  were the  result of our
determination  that R.E.D.'s business and financial position had deteriorated to
the point that our investment had been permanently impaired.

     In  May  2000,  we  acquired  an  interest  in  Chronix   Biomedical  Corp.
("CHRONIX").  Chronix  focuses upon the  development of diagnostics  for chronic
diseases.  We issued  100,000  shares of common stock to Chronix  toward a total
equity investment of $700,000.  Pursuant to a strategic alliance  agreement,  we
provided  Chronix  with  $250,000  to conduct  research  in an effort to develop
intellectual  property on potential  new products  for  diagnosing  and treating
various  chronic  illnesses  such as ME/CFS.  The strategic  alliance  agreement
provides us certain royalty rights with respect to certain diagnostic technology
developed  from this  research and a right of first  refusal to license  certain
therapeutic  technology  developed  from this research.  The strategic  alliance
agreement  provides  us with a royalty  payment of ten per cent (10%) of all net
sales of  diagnostic  technology  developed  by Chronix for  diagnosing  Chronic
Fatigue  Syndrome,  Gulf  War  Syndrome  and  Human  Herpes  Virus-6  associated
diseases.  The royalty  continues for the longer of twelve years from  September
15,  2000 or the life of any  patent(s)  issued  with  regard to the  diagnostic
technology.  The strategic alliance agreement also provides us with the right of
first  refusal  to  acquire  an  exclusive  worldwide  license  for  any and all
therapeutic  technology developed by Chronix on or before September 14, 2012 for
treating  Chronic Fatigue  Syndrome,  Gulf War Syndrome and Human Herpes Virus-6
associated.  During the quarter  ended  December 31, 2002, we recorded a noncash
charge of $292,000 with respect to our  investment in Chronix.  This  impairment
reduces our carrying  value to reflect a permanent  decline in Chronix's  market
value based on their current proposed equity offerings.

     In  April,  1999  we  acquired  a 30%  equity  position  in the  California
Institute  of  Molecular  Medicine  ("CIMM") for  $750,000.  CIMM'S  research is
focused  on  developing  therapies  for use in  treating  patients  affected  by
Hepatitis C ("HCV"). We use the equity method of accounting with respect to this
investment.  During the fourth quarter of 2001 we recorded a non-cash  charge of
$485,000  with  respect  to our  investment  in CIMM.  This was a result  of our
determination that CIMM's operations have not yet evolved to the point where the
full carrying value of our investment could be supported based on that company's
financial position and operating results. The amount represented the unamortized
balance of goodwill  included as part of our  investment.  During 2002, we wrote
down to zero  our  remaining  investment  based  on  that  company's  continuing
operating losses. These charges are reflected in the Consolidated  Statements of
                                       16


Operations under the caption "Equity loss in unconsolidated affiliate".We still
believe CIMM will succeed in their efforts to advance  therapeutic  treatment of
HCV. We believe that CIMM's Hepatitis C diagnostic  technology has great promise
and  will  fill a  long-standing  global  void in the  collective  abilities  to
diagnose and treat Hepatitis C infection at an early stage of the disorder.

     In March 2002, our European subsidiary Hemispherx S.A. entered into a Sales
and Distribution agreement with Esteve.  Pursuant to the terms of the agreement,
Esteve was granted the exclusive right to market Ampligen(R) in Spain,  Portugal
and Andorra for the  treatment  of ME/CFS.  In addition to other terms and other
projected  payments,  Esteve  agreed to conduct  certain  clinical  trials using
Ampligen(R)  in the  patient  population  coinfected  with  hepatitis  C and HIV
viruses.  The  agreement  runs for the longer of 10 years from the date of first
arms-length sale in the Territory,  the expiration of the last Hemispherx patent
exploited by Esteve or the period of regulatory  data protection for Ampligen(R)
in the applicable territory. Pursuant to the terms of the agreement Esteve is to
conduct  clinical  trials using  Ampligen(R) to treat patients with both HCV and
HIV and is required to purchase  certain  minimum annual amounts of Ampligen(R).
The agreement is terminable by either party if Ampligen(R) is withdrawn form the
territory  for a  specified  period  due to  serious  adverse  health  or safety
reasons;  bankruptcy,  insolvency  or related  issues of one of the parties;  or
material breach of the agreement.  Hemispherx may transform the agreement into a
non-exclusive agreement or terminate the agreement in the event that Esteve does
not meet specified percentages of its annual minimum purchase requirements under
the agreement.  Esteve may terminate the agreement in the event that  Hemispherx
fails to supply  Ampligen(R) to the territory for a specified  period of time or
certain clinical trials being conducted by Hemispherx are not successful.

     The development of our Nucleic Acid Based products  requires the commitment
of substantial  resources to conduct the  time-consuming  research,  preclinical
development,  and clinical  trials that are  necessary  to bring  pharmaceutical
products to market and to establish  commercial-scale  production  and marketing
capabilities.  During  our last  three  fiscal  years,  we have  directly  spent
approximately  $16,862,000 in research and development,  of which  approximately
$4,946,000 was expended in the year ended December 31, 2002.  These direct costs
do not include the overhead and  administrative  costs  necessary to support the
research  and  development  effort.  Our  European  subsidiary  has an exclusive
license on all the technology and support from us concerning Ampligen(R) for the
use of ME/CFS and other  applications  for all  countries of the European  Union
(excluding  the  UK  where  Bioclones  has  a  marketing  license)  and  Norway,
Switzerland,  Hungary, Poland, the Balkans, Russia, Ukraine, Romania,  Bulgaria,
Slovakia, Turkey, Iceland and Liechtenstein. As mentioned above, Hemispherx S.A.
entered into a Sales and  distribution  Agreement  with Esteve.  Pursuant to the
terms of this  agreement,  Esteve has been granted the exclusive right in Spain,
Portugal and Andorra to market  Ampligen(R)  for the  treatment  of ME/CFS.  See
"EUROPEAN OPERATIONS" above for more detailed information.

                                 HUMAN RESOURCES

     As of March 31,  2003 we had 40  personnel  working on the  development  of
Ampligen(R)   consisting  of  19  full  time,  3  part-time   employees  and  18
regulatory/research  medical  personnel on a part-time basis.  Part time parties
are paid on a per  diem or  monthly  basis.  30  personnel  are  engaged  in our
research,  development,  clinical,  manufacturing  effort.  Ten of our personnel
perform  regulatory,   general   administration,   data  processing,   including
bio-statistics, financial and investor relations functions.
                                       17


    In addition to the foregoing personnel,  on March 11, 2003, pursuant to our
agreement with ISI, we added personnel from ISI to our payroll  consisting of 12
part-time and 17 full-time employees.

     We believe that the combination of Hemispherx and ISI Scientific  employees
has 1) significantly  strengthened our overall organization,  2) added expertise
to monitor and  complete  our ongoing  clinical  trials and 3) improved our data
management and system administration.

     While  we have  been  successful  in  attracting  skilled  and  experienced
scientific personnel, there can be no assurance that the Company will be able to
attract or retain the necessary  qualified  employees and/or  consultants in the
future.

                     RECENT FINANCING AND ASSET ACQUISITIONS

     On March 12, 2003, We issued an aggregate of $5,426,000 in principal amount
of 6% Senior  Convertible  Debentures  due January 31, 2005 and an  aggregate of
743,288  Warrants  to  two  investors  in  a  private  placement  for  aggregate
anticipated  gross  proceeds  of  $4,650,000.  Pursuant  to  the  terms  of  the
Debentures, $1,550,000 of the proceeds from the sale of the Debentures have been
held back and will be released to us if, and only if, we acquire ISI's  facility
with in a set timeframe (see the  discussion  below).  The Debentures  mature on
January 31, 2005 and bear  interest at 6% per annum,  payable  quarterly in cash
or, subject to satisfaction of certain  conditions,  common stock. Any shares of
common stock issued to the  investors as payment of interest  shall be valued at
95% of the average closing price of the common stock during the five consecutive
business  days  ending on the  third  business  day  immediately  preceding  the
applicable  interest  payment date.  Pursuant to the terms and conditions of the
Senior  Convertible  Debentures,  we have  pledged all of our assets  other than
intellectual  property,  as  collateral  and are subject to comply with  certain
financial  and  negative  covenants,  which  include  but are not limited to the
repayment of principal balances upon achieving certain revenue milestone.

     The Debentures  are  convertible at the option of the investors at any time
through January 31, 2005 into shares of our common stock.  The conversion  price
under the  Debentures  is fixed at $1.46 per share,  subject to  adjustment  for
anti-dilution  protection for issuance of common stock or securities convertible
or exchangeable into common stock at a price less than the conversion price then
in effect.

     The investors  also received  Warrants to acquire at any time through March
12, 2008 an aggregate of 743,288  shares of common stock at a price of $1.68 per
share.  On March 12, 2004,  the exercise price of the Warrants will reset to the
lesser of the  exercise  price then in effect or a price equal to the average of
the daily price of the common  stock  between  March 13, 2003 and March 11, 2004
(but in no event less than $1.176 per share).  The exercise price (and the reset
price)  under  the  Warrants  also  is  subject  to  similar   adjustments   for
anti-dilution protection.

     We entered  into a  registration  rights  agreement  with the  investors in
connection   with  the  issuance  of  the  Debentures  and  the  Warrants.   The
registration  rights  agreement  requires  that we register the shares of common
stock issuable upon conversion of the  Debentures,  as interest shares under the
Debenture and upon exercise of the Warrants.  In accordance with this agreement,
we filed a  registration  statement on form S-3 with the Securities and Exchange
                                       18


Commission. If the registration  statement is not declared effective within the
time period  required by the  agreement  or, after it is declared  effective and
subject to certain  exceptions,  sales of all shares  required to be  registered
thereon cannot be made pursuant thereto,  then we will be required to pay to the
investors  their  pro  rata  share  of  $3,635  for  each  day any of the  above
conditions exist with respect to this registration statement.


     On March 11, 2003, we executed two agreements with ISI to purchase  certain
assets of ISI.

     In the first  agreement with ISI, the Company  acquired ISI's  inventory of
ALFERON N Injection(R),  and a limited license for the production,  manufacture,
use, marketing and sale of this product. For these assets, the Company:

(i)      issued 487,028 shares of its common stock; and
(ii)     agreed to pay ISI 6 % of the net sales of the Product.

     The  Company  also is  required to pay ISI a service fee and pay certain of
ISI's obligations related to the product.

     In the second agreement with ISI, ISI has agreed to sell to the Company all
of  ISI's  rights  to the  product  and  other  assets  related  to the  product
including,  but not limited to, real estate and machinery. For these assets, the
Company will:

(i)      issue an additional 487,028 shares of its common stock; and
(ii)     continue to pay ISI 6 % of the net sales of the product.

     In addition,  the Company will be required to satisfy three  obligations of
ISI. The Company will satisfy two of these obligations,  pursuant to forbearance
agreements with The American  National Red Cross and GP Strategies  Corporation,
two of ISI's  creditors,  by issuing an  aggregate  of 581,761  shares of common
stock to these creditors.  The third obligation is approximately $521,000 and is
secured by a lien on the property.

     Pursuant to the agreements  with ISI and its  creditors,  the Company is in
the process of registering  the foregoing  shares issued and to be issued to ISI
and its  creditors  for public sale in the  registration  statement  on form S-3
mentioned  above.  Except for  125,000 of the shares  issued and to be issued to
ISI, the Company has guaranteed  the market value of the shares  retained by ISI
and the two creditors  through March 11, 2005 to be $1.59 per share. ISI and the
creditors are permitted to periodically sell certain amounts of their shares.

     We will  account for these  transactions  as a Business  Combination  under
Statement of Financial  Accounting  Standards  ("SFAS") No. 141  Accounting  for
Business Combinations.

     During  March 2002,  Hemispherx  Biopharma  Europe,  S.A.,  our  Luxembourg
subsidiary, was authorized to issue up to 22,000,000 Euros of seven percent (7%)
convertible  preferred  securities.  Such  securities  will be guaranteed by the
Company and will be converted into a specified  number of shares pursuant to the
securities agreement. Conversion is to occur on the earlier of an initial public
offering of Hemispherx S.A. on a European stock exchange or September 30, 2003.

     On March 13, 2003, we issued 347,445 shares of our common stock to Provesan
                                       19


SA, an  affiliate  of Esteve, in exchange for  1,000,000  Euros of  convertible
preferred equity  certificates of Hemispherx  Biopharma  Europe,  S.A., owned by
Esteve, and all dividends earned and to be earned through September 30, 2003. We
agreed to register  the shares  issued to Provesan SA, and we are in the process
of  registering  these shares for public sale in the  registration  statement of
form S-3 mentioned above.

     On March 31,  2003 we  settled  our  outstanding  claim  with an  insurance
company relating to reimbursement of expenses in connection with our Asensio law
suits. See Legal Proceedings for more detailed information.  We have applied the
net  proceeds  of  approximately  $1,050,000  as  a  reduction  in  general  and
administrative  expenses  in our  statement  of  operations  for the year  ended
December 31, 2002.

     As of December 31, 2002, we had approximately  $2,811,000 in cash and short
term investments.  We believe that these funds plus 1) the anticipated  infusion
of approximately $4.4 million in net proceeds from the Debenture  placement,  2)
projected  net cash  flow  from the  acquisition  of  ALFERON N and 3) the funds
received  from  the  insurance  settlement  should  be  sufficient  to meet  our
operating requirements for the next 12 months.

     In addition,  we may raise  additional funds through  additional  equity or
debt  financing,  collaborative  arrangements  with  corporate  partners,  lease
financing  or from other  sources in order to complete  the  necessary  clinical
trials and the  regulatory  approval  processes  and begin  commercializing  our
products.  If adequate funds are not available from operations and if we are not
able to secure additional  sources of financing on acceptable terms, we would be
materially adversely affected in our commercialization process.


                                  RISK FACTORS

     The following  cautionary  statements identify important factors that could
cause our  actual  result to  differ  materially  from  those  projected  in the
forward-looking  statements  made in this Form 10-K.  Among the key factors that
have a direct bearing on our results of operations are:

No assurance of successful product development

     Ampligen(R)  and related  products.  The development of Ampligen(R) and our
other related products is subject to a number of significant risks.  Ampligen(R)
may be found to be ineffective or to have adverse side effects,  fail to receive
necessary  regulatory  clearances,  be difficult to  manufacture on a commercial
scale,  be  uneconomical  to market or be precluded  from  commercialization  by
proprietary  right of third parties.  Our related products are in various stages
of clinical and  pre-clinical  development and, require further clinical studies
and appropriate  regulatory  approval  processes before any such products can be
marketed.  We do not know when,  or if ever,  Ampligen(R)  or our other  related
products will be generally  available for  commercial  sale for any  indication.
Generally,  only a  small  percentage  of  potential  therapeutic  products  are
eventually  approved  by the  U.S.  Food  and Drug  Administration  ("FDA")  for
commercial sale.

     ALFERON N  Injection(R).  Although  ALFERON N  Injection  is  approved  for
marketing for the treatment of genital  warts,  to date it has not been approved
for other  applications.  We face many of the risks discussed above, with regard
to  developing  this  product for use to treat other  ailments  such as multiple
sclerosis and cancer.
                                       20


    Our drug and  related  technologies  are  investigational  and  subject  to
regulatory  approval.  If we are  unable  to  obtain  regulatory  approval,  our
operations will be significantly affected.

     All of our drugs and associated technologies other than ALFERON N Injection
are  investigational  and must receive prior regulatory  approval by appropriate
regulatory  authorities for general use and are currently legally available only
through  clinical  trials  with  specified  disorders.  At  present,  ALFERON  N
Injection is only approved for the treatment of genital warts.  Use of ALFERON N
Injection  for other  applications  will require  regulatory  approval.  In this
regard, Interferon Sciences, Inc., the Company from which we obtained our rights
to ALFERON N Injection,  conducted  clinical  trials related to use of ALFERON N
Injection  for  treatment  of HIV and  Hepatitis C. In both  instances,  the FDA
determined that additional  studies were  necessary.  Our principal  development
efforts are currently  focused on  Ampligen(R),  which has not been approved for
commercial use. Our products,  including  Ampligen(R),  are subject to extensive
regulation by numerous governmental authorities in the U.S. and other countries,
including,  but not  limited  to,  the FDA in the U.S.,  the  Health  Protection
Branch("HPB") of Canada,  and the European Medical Evaluation Agency ("EMEA") in
Europe.  Obtaining  regulatory  approvals is a rigorous and lengthy  process and
requires the  expenditure  of  substantial  resources.  In order to obtain final
regulatory  approval of a new drug, we must  demonstrate to the  satisfaction of
the  regulatory  agency that the product is safe and  effective for its intended
uses and that we are  capable of  manufacturing  the  product to the  applicable
regulatory  standards.  We  require  regulatory  approval  in  order  to  market
Ampligen(R)  or any other  proposed  product  and  receive  product  revenues or
royalties. We cannot assure you that Ampligen(R) will ultimately be demonstrated
to be safe or efficacious.  In addition, while Ampligen(R) is authorized for use
in clinical  trials in the United States and other  countries,  we cannot assure
you that  additional  clinical trial  approvals will be authorized in the United
States or in other  countries,  in a timely  fashion or at all,  or that we will
complete these clinical trials. If Ampligen(R) or one of our other products does
not receive regulatory approval in the U.S. or elsewhere, our operations will be
materially adversely effected.

     We may continue to incur substantial losses and our future profitability is
uncertain.

     We began  operations in 1966 and last reported net profit from 1985 through
1987. Since 1987, we have incurred  substantial  operating losses, as we pursued
our clinical trial effort and expanded our efforts in Europe. As of December 31,
2002 our  accumulated  deficit was  approximately  $99,000,000.  We have not yet
generated  significant  revenues from our products and may incur substantial and
increased  losses in the  future.  We cannot  assure  that we will ever  achieve
significant  revenues from product sales or become profitable.  We require,  and
will continue to require, the commitment of substantial resources to develop our
products.  We  cannot  assure  that  our  product  development  efforts  will be
successfully completed or that required regulatory approvals will be obtained or
that  any  products  will  be  manufactured   and  marketed   successfully,   or
profitability.

We may require additional financing which may not be available.

     The  development of our products will require the commitment of substantial
resources to conduct the time-consuming research,  preclinical development,  and
clinical trials that are necessary to bring  pharmaceutical  products to market.
                                       21


In March 2003, we received  $2,873,000 in initial net proceeds from the sale of
the Debentures and Warrants and,  pursuant to the terms of these Debentures when
we close on the second Interferon  Sciences asset  acquisition,  we will receive
additional  net proceeds of  $1,550,000.  We anticipate  receipt of revenues and
proceeds from the sales of Ampligen(R) under the Cost Recovery Clinical Programs
and, possibly,  from the exercise of outstanding  non-public  warrants.  We also
anticipate  significant  revenues from our recently acquired commercial product,
Alferon N. As of December 31, 2002, we had approximately  $2,811,000 in cash and
short term  investments.  We believe  that these  funds plus 1) the  anticipated
infusion  of  approximately  $4.4  million in net  proceeds  from the  Debenture
placement, 2) projected net cash flow from the acquisition of ALFERON N Business
and 3) the funds received from the Insurance  settlement should be sufficient to
meet our operating  requirement for the next 12 months.  Anticipated  sales from
the newly  acquired  Alferon  N could  significantly  extend  our  present  cash
reserves.  We may need to raise  additional funds through  additional  equity or
debt financing or from other sources in order to complete the necessary clinical
trials and the  regulatory  approval  processes  and begin  commercializing  our
products.  There can be no  assurances  that we will raise  adequate  funds from
these or other  sources,  which may have a  material  effect on our  ability  to
develop our products.

     If we do not complete the second Interferon Sciences asset acquisition, our
ability  to  generate  revenues  from the sale of  ALFERON N  Injection  and our
financial condition will be adversely affected.

     Although we acquired Interferon  Sciences' inventory of ALFERON N Injection
and a limited license for the production,  manufacture,  use, marketing and sale
of this product, our ability to develop additional  applications for the product
and generate sustained  revenues from sales of this product is dependent,  among
other things, on our completing the acquisition from Interferon  Sciences of the
balance of its rights to this  product and other  assets  related to the product
including,  but not limited to, Interferon  Science's facility for purifying the
drug  concentrate  utilized  in the  formulation  of  ALFERON  N  Injection.  In
addition,  pursuant to the terms of the  Debentures,  $1,550,000 of the proceeds
from the sale of the  Debentures  have been held back and,  if we do not acquire
Interferon Sciences' facility, we will not receive these funds. Accordingly,  if
we do not  complete  the  second  Interferon  Sciences  asset  acquisition,  our
financial condition will be adversely affected.

     The limited number of unissued and unreserved  authorized  shares of Common
Stock  severely  restricts  our ability to raise  funds  through the sale of our
securities.

     We have a limited  number of shares  of  Common  Stock  authorized  but not
issued or reserved  for  issuance  upon  conversion  or exercise of  outstanding
convertible and exercisable securities such as debentures, options and warrants.
As of March 31, 2003, only approximately 749,770 shares of our authorized shares
of Common Stock will not be issued or reserved for issuance. Unless and until we
are able to  increase  the  number of  authorized  shares of Common  Stock,  our
ability to raise funds through the sale of Common Stock or instruments  that are
convertible  into or exercisable  for Common Stock will be severely  restricted.
Although we intend to ask our stockholders at our next annual meeting to approve
an  amendment  to our  Certificate  of  Incorporation  to increase the shares of
Common Stock we are  authorized  to issue,  we cannot assure you that we will be
able to obtain this approval.

     We may not be profitable  unless we can protect our patents  and/or receive
approval for additional pending patents.
                                       22


    We need to preserve  and acquire  enforceable  patents  covering the use of
Ampligen(R) for a particular disease in order to obtain exclusive rights for the
commercial  sale of  Ampligen(R)  for such  disease.  If and when we obtain  all
rights to ALFERON N Injection,  we will need to preserve and acquire enforceable
patents covering its use for a particular  disease too. Our success depends,  in
large part,  on our ability to preserve  and obtain  patent  protection  for our
products and to obtain and preserve our trade secrets and expertise.  Certain of
our know-how and technology is not patentable,  particularly  the procedures for
the  manufacture of our drug product which are carried out according to standard
operating procedure manuals. We have been issued certain patents including those
on the use of Ampligen(R)  and  Ampligen(R)  in  combination  with certain other
drugs for the  treatment of HIV. We also have been issued  patents on the use of
Ampligen(R) in combination with certain other drugs for the treatment of chronic
hepatitis  B virus,  chronic  hepatitis  C virus,  and a  patent  which  affords
protection on the use of Ampligen(R) in patients with chronic fatigue  syndrome.
We have not yet been  issued any  patents  in the  United  States for the use of
Ampligen(R)  as a sole  treatment for any of the cancers which we have sought to
target.  With regard to ALFERON N  Injection,  Interferon  Sciences,  Inc. has a
patent  for  Natural  Alpha  Interferon  produced  from human  peripheral  blood
leukocytes and its production  process and has  additional  patent  applications
pending. We will acquire this patent and related patent applications if and when
we close on the second  Interferon  Sciences asset  acquisition We cannot assure
you that any of these applications will be approved or that our competitors will
not seek and obtain  patents  regarding  the use of our products in  combination
with various other agents, for a particular target indication prior to us. If we
cannot  protect our patents  covering  the use of our  products for a particular
disease,   or  obtain  additional  pending  patents,  we  may  not  be  able  to
successfully market our products.

     The patent position of  biotechnology  and  pharmaceutical  firms is highly
uncertain and involves complex legal and factual questions.

     To date,  no  consistent  policy  has  emerged  regarding  the  breadth  of
protection afforded by pharmaceutical and biotechnology patents. There can be no
assurance  that new patent  applications  relating to our products or technology
will result in patents being issued or that, if issued, such patents will afford
meaningful  protection  against  competitors  with  similar  technology.  It  is
generally  anticipated that there may be significant  litigation in the industry
regarding patent and intellectual property rights. Such litigation could require
substantial  resources  from  us and we may not  have  the  financial  resources
necessary to enforce the patent  rights that we hold.  No assurance  can be made
that our patents will provide  competitive  advantages  for our products or will
not be successfully  challenged by  competitors.  No assurance can be given that
patents do not exist or could not be filed which would have a materially adverse
effect on our ability to develop or market our products or to obtain or maintain
any  competitive  position the we may achieve with respect to our products.  Our
patents also may not prevent others from developing  competitive  products using
related technology.

     There can be no assurance that we will be able to obtain necessary licenses
if we cannot  enforce  patent  rights we may hold.  In addition,  the failure of
third parties from whom we currently license certain proprietary  information or
may be required to obtain such  licenses in the future,  to  adequately  enforce
their rights to such proprietary  information,  could adversely affect the value
of such licenses to us.

     If we cannot enforce the patent rights we currently hold we may be required
to obtain  licenses from others to develop,  manufacture or market our products.
                                       23


There can be no assurance that we would be able to obtain any such  licenses on
commercially   reasonable  terms,  if  at  all.  We  currently  license  certain
proprietary  information  from  third  parties,  some of  which  may  have  been
developed  with  government  grants  under  circumstances  where the  government
maintained certain rights with respect to the proprietary information developed.
No assurances can be given that such third parties will  adequately  enforce any
rights they may have or that the rights, if any, retained by the government will
not adversely affect the value of our license.

     There is no guarantee that our trade secrets will not be disclosed or known
by our competitors.

     To protect our rights,  we require  certain  employees and  consultants  to
enter into  confidentiality  agreements  with us. There can be no assurance that
these  agreements  will  not be  breached,  that  we  would  have  adequate  and
enforceable  remedies for any breach, or that any trade secrets of ours will not
otherwise become known or be independently developed by competitors.

If our distributors do not market our product successfully,  we may not generate
significant revenues or become profitable.

     We have  limited  marketing  and sales  capability.  We need to enter  into
marketing agreements and third party distribution agreements for our products in
order to generate significant revenues and become profitable. To the extent that
we  enter  into  co-marketing  or other  licensing  arrangements,  any  revenues
received by us will be dependent on the efforts of third  parties,  and there is
no assurance that these efforts will be  successful.  Our agreement with Gentiva
Health  Services  offers the  potential  to provide  significant  marketing  and
distribution  capacity  in the  United  States  while  licensing  and  marketing
agreements  with certain foreign firms should provide an adequate sales force in
South  America,  Africa,  United  Kingdom,  Australia  and New Zealand,  Canada,
Austria, Spain and Portugal.

     We cannot assure that our domestic or our foreign  marketing  partners will
be able to  successfully  distribute  our  products,  or that we will be able to
establish  future  marketing  or third party  distribution  agreements  on terms
acceptable to us, or that the cost of establishing  these  arrangements will not
exceed any product  revenues.  The failure to continue these  arrangements or to
achieve other such  arrangements on  satisfactory  terms could have a materially
adverse effect on us.

No Guaranteed Source Of Required Materials.

     A number of essential  materials  are used in the  production  of ALFERON N
Injection,  including  human white blood cells,  and we have a limited number of
sources from which to obtain such materials. We do not have long-term agreements
for the supply of any of such materials.  There can be no assurance we can enter
into long-term supply agreements  covering  essential  materials on commercially
reasonable  terms,  if at all.  If we are  unable to  obtain  the  required  raw
materials, we may be required to scale back our operations or stop manufacturing
ALFERON N Injection.  The costs and  availability  of products and  materials we
need for the  commercial  production of ALFERON N Injection  and other  products
which we may  commercially  produce are subject to  fluctuation  depending  on a
variety of factors beyond our control, including competitive factors, changes in
technology,  and FDA and  other  governmental  regulations  and  there can be no
assurance  that we will be able to obtain such  products and  materials on terms
acceptable to us or at all.
                                       24


    There is no assurance  that  successful  manufacture of a drug on a limited
scale basis for  investigational  use will lead to a  successful  transition  to
commercial, large-scale production.

     Small changes in methods of manufacturing may affect the chemical structure
of  Ampligen(R)  and other RNA  drugs,  as well as their  safety  and  efficacy.
Changes in methods of manufacture,  including commercial scale-up may affect the
chemical  structure of  Ampligen(R)  and, can,  among other things,  require new
clinical studies and affect orphan drug status, particularly, market exclusivity
rights , if any,  under  the  Orphan  Drug  Act.  The  transition  from  limited
production of  pre-clinical  and clinical  research  quantities to production of
commercial  quantities  of our products  will involve  distinct  management  and
technical  challenges  and will  require  additional  management  and  technical
personnel and capital to the extent such  manufacturing  is not handled by third
parties.  There can be no assurance that our manufacturing will be successful or
that any given product will be determined to be safe and  effective,  capable of
being  manufactured   economically  in  commercial  quantities  or  successfully
marketed.

We have limited manufacturing experience and capacity.

     Ampligen(R) is currently produced only in limited quantities for use in our
clinical  trials and we are dependent upon certain third party suppliers for key
components of our products and for substantially all of the production  process.
The failure to continue these arrangements or to achieve other such arrangements
on  satisfactory  terms could have a material  adverse affect on us. Also, to be
successful,  our products  must be  manufactured  in  commercial  quantities  in
compliance with regulatory  requirements and at acceptable  costs. To the extent
we are  involved  in the  production  process,  our current  facilities  are not
adequate  for  the   production  of  our  proposed   products  for   large-scale
commercialization,  and we currently do not have  adequate  personnel to conduct
commercial-scale  manufacturing.  We intend to utilize third-party facilities if
and when the need  arises  or, if we are  unable  to do so, to build or  acquire
commercial-scale   manufacturing   facilities.  We  will  need  to  comply  with
regulatory requirements for such facilities,  including those of the FDA and HPB
pertaining to current Good Manufacturing  Practices ("cGMP") regulations.  There
can be no assurance  that such  facilities  can be used,  built,  or acquired on
commercially  acceptable  terms,  or that such  facilities,  if used,  built, or
acquired, will be adequate for our long-term needs.

     The purified  drug  concentrate  utilized in the  formulation  of ALFERON N
Injection  is  manufactured  in  Interferon  Science's  facility  and  ALFERON N
Injection  is  formulated  and  packaged at a  production  facility  operated by
Abbott.  if  and  when  we  close  on  the  second  Interferon   Sciences  asset
acquisition,  we will acquire  this  facility.  We still will be dependent  upon
Abbott  Laboratories  and/or  another  third party for product  formulation  and
packaging.

     We may  not be  profitable  unless  we can  produce  Ampligen(R)  or  other
products in commercial quantities at costs acceptable to us.

     We  have  never  produced  Ampligen(R)  or  any  other  products  in  large
commercial  quantities.  Ampligen(R)  is currently  produced for use in clinical
trials.   We  must  manufacture  our  products  in  compliance  with  regulatory
requirements in large commercial quantities and at acceptable costs in order for
us to be  profitable.  We intend to  utilize  third-party  manufacturers  and/or
facilities  if and when the need  arises or, if we are unable to do so, to build
or acquire commercial-scale  manufacturing  facilities. If we cannot manufacture
commercial  quantities of Ampligen(R)  or enter into third party  agreements for
its manufacture at costs  acceptable to us, our operations will be significantly
affected.
                                       25


Rapid technological change may render our products obsolete or non-competitive.

     The  pharmaceutical  and biotechnology  industries are subject to rapid and
substantial technological change.  Technological competition from pharmaceutical
and  biotechnology  companies,  universities,  governmental  entities and others
diversifying  into the field is intense  and is expected  to  increase.  Most of
these entities have significantly greater research and development  capabilities
than us, as well as substantial  marketing,  financial and managerial resources,
and represent  significant  competition  for us. There can be no assurance  that
developments by others will not render our products or technologies  obsolete or
noncompetitive  or  that  we will  be  able  to  keep  pace  with  technological
developments.

Our products may be subject to substantial competition.

     Ampligen(R) . Competitors  may be developing  technologies  that are, or in
the future may be, the basis for competitive  products.  Some of these potential
products  may have an  entirely  different  approach  or means of  accomplishing
similar  therapeutic  effects to products being developed by us. These competing
products may be more  effective and less costly than our products.  In addition,
conventional drug therapy,  surgery and other more familiar treatments may offer
competition  to  our  products.   Furthermore,  many  of  our  competitors  have
significantly  greater  experience  than us in  pre-clinical  testing  and human
clinical trials of  pharmaceutical  products and in obtaining FDA, HPB and other
regulatory  approvals of products.  Accordingly,  our competitors may succeed in
obtaining FDA, HPB or other regulatory  product  approvals more rapidly than us.
There are no drugs approved for commercial  sale with respect to treating ME/CFS
and we have no  knowledge of any ME/CFS  drugs being  developed  by others.  The
dominant   competitors   with  drugs  to  treat  HIV  diseases   include  Gilead
Pharmaceutical,  Pfizer,  Bristol-Myers,  Abbott Labs and Schering-Plough  Corp.
("Shering").  These potential  competitors are among the largest  pharmaceutical
companies in the world, are well known to the public and the medical  community,
and have substantially  greater financial resources,  product  development,  and
manufacturing and marketing  capabilities than we have.  Although we believe our
principal  advantage is the unique mechanism action of Ampligen(R) on the immune
system, we cannot assure that we will be able to compete.

     ALFERON N  Injection(R).  Many potential  competitors are among the largest
pharmaceutical  companies  in the  world,  are well  known to the public and the
medical community,  and have substantially greater financial resources,  product
development,  and manufacturing and marketing capabilities than we have. ALFERON
N Injection  currently  competes with Schering's  injectable  recombinant  alpha
interferon  product  (INTRON(R)  A) for  the  treatment  of  genital  warts.  3M
Pharmaceuticals  also  received FDA approval for its  immune-response  modifier,
Aldara(R),  a  self-administered  topical  cream,  for the treatment of external
genital and perianal  warts.  ALFERON N Injection  also competes with  surgical,
chemical,  and other  methods of treating  genital  warts.  We cannot assess the
impact products  developed by our  competitors,  or advances in other methods of
the treatment of genital warts, will have on the commercial viability of ALFERON
N Injection. If and when we obtain additional approvals of uses of this product,
we  expect  to  compete  primarily  on the  basis of  product  performance.  Our
potential  competitors have developed or may develop products (containing either
alpha or beta  interferon or other  therapeutic  compounds)  or other  treatment
modalities for those uses. In the United States,  two recombinant  forms of beta
interferon have been approved for the treatment of relapsing-remitting  multiple
sclerosis.  There can be no assurance that, if we are able to obtain  regulatory
approval of ALFERON N Injection for the treatment of new indications, we will be
                                       26


able to achieve any  significant  penetration  into those markets. In addition,
because  certain  competitive  products  are not  dependent on a source of human
blood cells, such products may be able to be produced in greater volume and at a
lower cost than ALFERON N Injection.  Currently,  Interferon Sciences' wholesale
price on a per unit basis of ALFERON N Injection  is  substantially  higher than
that of the competitive recombinant alpha and beta interferon products.

     General. Other companies may succeed in developing products earlier than we
do, obtaining  approvals for such products from the FDA more rapidly than we do,
or developing products that are more effective than those we may develop.  While
we will  attempt to expand  our  technological  capabilities  in order to remain
competitive,  there can be no assurance that research and  development by others
or other medical advances will not render our technology or products obsolete or
non-competitive  or result in  treatments  or cures  superior  to any therapy we
develop.

     Possible  side effects from the use of  Ampligen(R)  or ALFERON N Injection
could adversely effect potential revenues and physician/patient acceptability of
our product.

     Ampligen(R).  We believe that Ampligen(R) has been generally well tolerated
with a low  incidence  of clinical  toxicity,  particularly  given the  severely
debilitating  or life  threatening  diseases  that  have  been  treated.  A mild
flushing  reaction has been observed in approximately 15% of patients treated in
our various studies. This reaction is occasionally  accompanied by a rapid heart
beat,  a tightness  of the chest,  urticaria  (swelling  of the skin),  anxiety,
shortness of breath,  subjective  reports of "feeling hot," sweating and nausea.
The reaction is usually infusion-rate related and can generally be controlled by
slowing the infusion rate. Other adverse side effects include liver enzyme level
elevations,  diarrhea, itching, asthma, low blood pressure,  photophobia,  rash,
transient visual  disturbances,  irregular heart rate, decreased visual activity
in  platelets  and  white  blood  cell  counts,  anemia,  dizziness,  confusion,
elevation of kidney function tests,  occasional  temporary hair loss and various
flu-like  symptoms,  including fever,  chills,  fatigue,  muscular aches,  joint
pains,  headaches,  nausea and vomiting.  These flu-like side effects  typically
subside within several  months.  One or more of the potential side effects might
deter usage of Ampligen(R) in certain clinical  situations and therefore,  could
adversely effect potential revenues and  physician/patient  acceptability of our
product.

     ALFERON N  Injection(R).  At present,  ALFERON N Injection is only sold for
the  intralesional  (with in the lesion)  treatment of  refractory  or recurring
external genital warts in adults. In clinical trials conducted for the treatment
of genital warts with ALFERON N Injection,  patients did not experience  serious
side effects; however, there can be no assurance that unexpected or unacceptable
side  effects  will not be found in the future  for this use or other  potential
uses of  ALFERON N  Injection  which  could  threaten  or limit  such  product's
usefulness.

We may be subject to product  liability  claims from the use of  Ampligen(R)  or
other of our products which could negatively affect our future operations.

     We face an inherent  business risk of exposure to product  liability claims
in the event that the use of  Ampligen(R)  or other of our  products  results in
adverse  effects.  This  liability  might  result from  claims made  directly by
patients,  hospitals, clinics or other consumers, or by pharmaceutical companies
or others  manufacturing these products on our behalf. Our future operations may
be negatively  effected from the litigation costs,  settlement expenses and lost
                                       27


product  sales  inherent to these  claims. While we will continue to attempt to
take appropriate  precautions,  we cannot assure that we will avoid  significant
product  liability  exposure.  Although we currently  maintain product liability
insurance  coverage,  there can be no assurance that this insurance will provide
adequate  coverage  against  product  liability  claims.  A  successful  product
liability claim against us in excess of our $1,000,000 in insurance  coverage or
for which coverage is not provided could have a negative  effect on our business
and financial condition.

The loss of Dr. Carter's services could hurt our chances for success.

     Our success is dependent on the continued  efforts of Dr. William A. Carter
because of his  position as a pioneer in the field of nucleic  acid  drugs,  his
being  the  co-inventor  of  Ampligen(R),  and  his  knowledge  of  our  overall
activities,  including  patents,  clinical  trials.  The  loss  of Dr.  Carter's
services could have a material  adverse effect on our operations and chances for
success. While we have an employment agreement with Dr. Carter, and have secured
key man life  insurance  in the amount of $2 million on the life of Dr.  Carter,
the loss of Dr. Carter or other personnel,  or the failure to recruit additional
personnel  as needed could have a  materially  adverse  effect on our ability to
achieve our objectives.

Uncertainty of health care reimbursement for our products.

     Our ability to  successfully  commercialize  our products  will depend,  in
part,  on the extent to which  reimbursement  for the cost of such  products and
related  treatment  will be  available  from  government  health  administration
authorities,   private  health  coverage   insurers  and  other   organizations.
Significant  uncertainty exists as to the reimbursement status of newly approved
health care products,  and from time to time legislation is proposed,  which, if
adopted,   could  further   restrict  the  prices   charged  by  and/or  amounts
reimbursable to  manufacturers  of  pharmaceutical  products.  We cannot predict
what,  if any,  legislation  will  ultimately  be  adopted or the impact of such
legislation  on us.  There  can  be no  assurance  that  third  party  insurance
companies will allow us to charge and receive  payments for products  sufficient
to realize an appropriate return on our investment in product development.

     There are risks of  liabilities  associated  with handling and disposing of
Hazardous materials.

     Our  business   involves  the  controlled   use  of  hazardous   materials,
carcinogenic  chemicals and various radioactive  compounds.  Although we believe
that our safety  procedures for handling and disposing of such materials  comply
in  all  material   respects  with  the   standards   prescribed  by  applicable
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident or the failure
to comply with applicable  regulations,  we could be held liable for any damages
that result,  and any such liability  could be  significant.  We do not maintain
insurance coverage against such liabilities.

The market price of our stock may be adversely affected by market volatility.

     The market price of our common stock has been and is likely to be volatile.
In addition to general economic,  political and market conditions, the price and
trading volume of our stock could fluctuate  widely in response to many factors,
including:
                                       28


* announcements of the results of clinical trials by us or our competitors;

* adverse reactions to products;

*  governmental   approvals,   delays  in  expected  governmental  approvals  or
withdrawals of any prior  governmental  approvals or public or regulatory agency
concerns regarding the safety or effectiveness of our products;

* changes in U.S. or foreign regulatory policy during the period of product
development;

* developments in patent or other proprietary  rights,  including any third
party challenges of our intellectual property rights;

* announcements of technological innovations by us or our competitors;

* announcements of new products or new contracts by us or our competitors;

* actual or  anticipated  variations  in our  operating  results due to the
level of development expenses and other factors;

* changes in  financial  estimates by  securities  analysts and whether our
earnings meet or exceed the estimates;

* conditions and trends in the pharmaceutical and other industries;

* new accounting standards; and

* the occurrence of any of the risks described in these "Risk Factors."

     Our common stock is listed for  quotation on the American  Stock  Exchange.
For the 12-month  period ended  December 31, 2002, the price of our common stock
has  ranged  from $0.74 to $4.95.  We expect  the price of our  common  stock to
remain  volatile.  The average daily  trading  volume in our common stock varies
significantly.  Our  relatively  low average  volume and low  average  number of
transactions  per day may affect the ability of our  stockholders  to sell their
shares in the public  market at  prevailing  prices and a more active market may
never develop.

     In the past,  following  periods of  volatility  in the market price of the
securities of companies in our industry,  securities class action litigation has
often been instituted  against companies in our industry.  If we face securities
litigation in the future, even if without merit or unsuccessful, it would result
in  substantial  costs and a diversion of management  attention  and  resources,
which would negatively impact our business.

     Our stock price may be adversely affected if a significant amount of shares
are sold in the public market.

     As of April 1, 2003,  approximately  834,473  shares of our  common  stock,
constituted  "restricted securities" as defined in Rule 144 under the Securities
Act of 1933. In addition,  we have registered 5,967,820 shares issuable upon the
conversion of 135% of the Debentures and as payment of interest thereon.  All of
these  shares  are  being  registered  in the  form S-3  registration  statement
discussed  above  pursuant to  agreements  between us and the  purchasers in our
recent  private  placements,  requiring  us to register  their shares for resale
under the Securities  Act. This permits the sale of registered  shares of common
stock  in the  open  market  or in  privately  negotiated  transactions  without
compliance with the requirements of Rule 144. In addition, as of March 31, 2003,
we had options and  warrants  outstanding  for the  purchase of an  aggregate of
approximately  9,265,914 shares of our common stock,  which includes 135% of the
shares issuable upon exercise of the Warrants.  To the extent the exercise price
of the options and warrants is less than the market  price of the common  stock,
the holders of the options and warrants are likely to exercise them and sell the
underlying  shares of common stock and to the extent that the  conversion  price
and exercise price of these  securities are adjusted  pursuant to  anti-dilution
protection,  the securities  could be  exercisable or convertible  for even more
                                       29


shares of common  stock.  Moreover, we  anticipate  that we will be issuing and
registering for public resale 1,068,789 shares if and when we acquire additional
assets from Interferon Sciences, Inc. and, possibly,  additional shares to raise
funding or compensate  employees,  consultants and/or directors We are unable to
estimate  the amount,  timing or nature of future  sales of  outstanding  common
stock.  Sales of  substantial  amounts of our common stock in the public  market
could cause the market price for our common stock to  decrease.  Furthermore,  a
decline in the price of our common  stock  would  likely  impede our  ability to
raise capital through the issuance of additional shares of common stock or other
equity securities.

Provisions of our  Certificate of  Incorporation  and Delaware law could defer a
change of our management which could discourage or delay offers to acquire us.


     Provisions of our Certificate of Incorporation and Delaware law may make it
more difficult for someone to acquire  control of us or for our  stockholders to
remove existing management,  and might discourage a third party from offering to
acquire us, even if a change in control or in management  would be beneficial to
our  stockholders.  For example,  our Certificate of Incorporation  allows us to
issue  shares of  preferred  stock  without  any vote or  further  action by our
stockholders.  Our Board of Directors has the authority to fix and determine the
relative rights and preferences of preferred  stock. Our Board of Directors also
has the authority to issue preferred stock without further stockholder approval.
As a result,  our Board of Directors could authorize the issuance of a series of
preferred  stock that would grant to holders the  preferred  right to our assets
upon  liquidation,  the right to receive dividend  payments before dividends are
distributed  to the holders of common stock and the right to the  redemption  of
the  shares,  together  with a premium,  prior to the  redemption  of our common
stock. In this regard,  in November,  2002 we adopted a shareholder  rights plan
and, under the Plan, our Board of Directors declared a dividend  distribution of
one Right for each  outstanding  share of Common Stock to stockholders of record
at the close of business on November 29,  2002.  Each Right  initially  entitles
holders to buy one unit of preferred stock for $30.00.  The Rights generally are
not transferable  apart from the common stock and will not be exercisable unless
and until a person or group  acquires or commences a tender or exchange offer to
acquire,  beneficial ownership of 15% or more of our common stock.  However, for
William A. Carter,  M.D., our chief executive  officer,  who already  beneficial
owns 11.4% of the our common stock, the Plan's threshold will be 20%, instead of
15%.  The Rights will expire on November  19,  2012,  and may be redeemed  prior
thereto at $.01 per Right under certain circumstances.

     Because the risk factors  referred to above could cause  actual  results or
outcomes  to differ  materially  from  those  expressed  in any  forward-looking
statements  made  by us,  you  should  not  place  undue  reliance  on any  such
forward-looking  statements.  Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no  obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the  date on  which  such  statement  is  made  or  reflect  the  occurrence  of
unanticipated  events.  New  factors  emerge  from  time to time,  and it is not
possible for us to predict which will arise.  In addition,  we cannot assess the
impact of each  factor on our  business  or the extent to which any  factor,  or
combination of factors, may cause actual results to differ materially from those
contained in any  forward-looking  statements.  Our research in clinical efforts
may continue for the next several  years and we may continue to incur losses due
to clinical  costs incurred in the  development  of  Ampligen(R)  for commercial
application.  Possible  losses may fluctuate from quarter to quarter as a result
of  differences in the timing of  significant  expenses  incurred and receipt of
                                       30


licensing fees and/or cost recovery treatment revenues in Europe, Canada and in
the United States.

ITEM 2.  Properties.

     We currently lease and occupy a total of  approximately  18,850 square feet
of  laboratory  and office  space in two states and some office  space in Paris,
France. Our headquarters is located in Philadelphia,  Pennsylvania consisting of
a suite of offices of  approximately  15,000 square feet. We also lease space of
approximately  3,850  square  feet  in  Rockville,   Maryland  for  research  of
development,  our pharmacy,  packaging,  quality  assurance and quality  control
laboratories,  as well as additional  office space.  Approximately  2,000 square
feet are dedicated to the  pharmacy,  packaging,  quality  assurance and control
functions.  The Company  believes  that its Rockville  facilities  will meet its
requirements,  for planned clinical trials and treatment protocols, through 2004
and  possibly  longer  after  which time it may need to increase  its  Rockville
facilities   either   through   third   parties  or  by  building  or  acquiring
commercial-scale facilities.

     We currently  occupy and use the New Brunswick,  New Jersey  Laboratory and
Production  Facility  owned by ISI. We are in the process of acquiring  title to
these  facilities  pursuant to our second asset  acquisition  agreement with ISI
(see Financial And Asset  Acquisition  in Item 1 above for more  details).  This
acquisition  consists of two buildings  located on 2.8 acres.  One Building is a
two story  facility  consisting of a total of 31,300 square feet.  This facility
has  offices,  laboratories  production  space,  and  shipping  receiving  area.
Building two has 11,670  square feet  consisting  of offices,  laboratories  and
warehouse space. The property has parking space for approximately 100 vehicles.

     We also have a 24.9%  interest in Ribotech,  Ltd.  located in South Africa.
Ribotech was  established  by  Bioclones to develop and operate a  manufacturing
facility.  Manufacturing at the pilot facility commenced in 1996. We expect that
Ribotech will start construction on a new commercial  production facility in the
future, although no assurance can be given that this will occur. The Company has
no obligation to fund this construction.  Our interest in Ribotech,  is a result
of the marketing and manufacturing agreement executed with Bioclones in 1994.

ITEM 3.  Legal Proceedings.

     On September 30, 1998, we filed a multi-count  complaint  against Manuel P.
Asensio,  Asensio & Company,  Inc.  ("Asensio").  The action  included claims of
defamation,  disparagement,  tortuous interference with existing and prospective
business  relations  and  conspiracy,  arising  out of the  Asensio's  false and
defamatory  statements.  The complaint  further alleged that Asensio defamed and
disparaged  us  in  furtherance  of  a  manipulative,   deceptive  and  unlawful
short-selling  scheme in August and September,  1998. In 1999,  Asensio filed an
answer and  counterclaim  alleging  that in  response to  Asensio's  strong sell
recommendation  and other press releases,  we made defamatory  statements  about
Asensio. We denied the material  allegations of the counterclaim.  In July 2000,
following dismissal in federal court for lack of subject matter jurisdiction, we
transferred  the action to the  Pennsylvania  State  Court.  In March 2001,  the
defendants  responded  to the  complaints  as amended and a trial  commenced  on
January 30, 2002. A jury verdict  disallowed  the claims  against the defendants
for defamation and  disparagement and the court granted us a directed verdict on
                                       31


the  counterclaim. On July 2, 2002 the Court entered an order granting us a new
trial against  Asensio for defamation  and  disparagement.  Thereafter,  Asensio
appealed the granting of a new trial. This appeal is now pending in the Superior
Court of Pennsylvania.

     In June 2002, a former ME/CFS  clinical trial patient and her husband filed
a claim in the Superior Court of New Jersey,  Middlesex County,  against us, one
of our clinical trial  investigators  and others alleging that she was harmed in
the ME/CFS clinical trial as a result of negligence and breach of warranties. We
believe the claim is without  merit and we are  defending  the claim  against us
through our product liability insurance carrier.

     In June 2002, a former  ME/CFS  clinical  trial  patient in Belgium filed a
claim in  Belgium,  against  Hemispherx  Biopharma  Europe,  NV/SA,  our Belgian
subsidiary,  and one of our clinical trial  investigators  alleging that she was
harmed in the Belgium ME/CFS clinical trial as a result of negligence and breach
of  warranties.  We believe the claim is without  merit and we are defending the
claim against us through our product liability insurance carrier.

     In July 2002,  we filed suit in the United  States  District  Court for the
Eastern District of Pennsylvania  against Federal Insurance Company  ("Federal")
seeking (1) a judicial order declaring our rights and the obligations of Federal
under the insurance  policy Federal sold to us (2) monetary damage for breach of
contract  resulting from Federal's refusal to fully defend us in connection with
the Asensio  litigation  (3) monetary  damages to  compensate  us for  Federal's
breach  of its  fiduciary  duty  faith and  dealing  and (4)  monetary  damages,
interest,  costs, and attorneys fees to compensate us for Federal's violation of
the Pennsylvania Bad Faith Statute. On March 31, 2003 we settled our outstanding
claim with our  insurance  company  relating  to  reimbursement  of  expenses in
connection   with  our  Asensio  law  suits.   The  net  settlement   amount  of
approximately   $1,050,000   is  recorded   as  a   reduction   in  General  and
Administrative  expenses  in our  statement  of  operations  for the year  ended
December 31, 2002.

     In March 2003, the law firm of Schnader, Harrison, Segal & Lewis, LLP filed
a complaint in the Court of Common Pleas of  Philadelphia  County against us for
alleged legal fees in the sum of $65,051.  We believe the claim is without merit
and we are defending the claim.

     ITEM 4.  Submission  of Matters to a Vote of Security  Holders.  No matters
were submitted to a vote of the security  holders during the last quarter of the
year ended December 31, 2002.

                                     PART II

     ITEM 5.  Market for  Registrant's  Common  Equity and  Related  Stockholder
Matters. In the year 2002, we acquired 27,500 shares of common stock on the open
market at an average cost of $1.82 per share.  The acquisition of the shares was
authorized under a stock buy-back program authorized by the board of directors.

     In fiscal  2002,  we issued  11,300 new  shares of common  stock to warrant
holders  exercising  non-public  warrants at an average exercise price of $3.30.
The warrants  exercised  were granted by us in the period  covering 1993 through
1996. In addition, we issued 48,392 shares in settlement of debt of $154,000.
                                       32


    In addition,  as discussed in greater detail in "RECENT FINANCING AND ASSET
ACQUISITIONS" above in Item 1. Business, we 1) issued convertible debentures and
warrants to two  investors  for cash,  we issued  shares to ISI for  assets,  2)
issued  shares to an affiliate of Esteve in exchange for  convertible  preferred
equity certificates of our Luxembourg  subsidiary and 3) we plan to issue shares
of  common  stock  to ISI and to two  creditors  of ISI for  additional  assets.
Cardinal  Securities  LLC was placement  agent on the sale of the Debentures and
Warrants  and  received a placement  fee equal to 7% of the  proceeds  from that
offering  (up to 1.75% of which is payable in Company  Common  Stock) and common
stock purchase  warrants to purchase 25,000 shares for each $1,000,000  received
by the Company.

     The foregoing issuances of securities were private  transactions and exempt
from  registration  under section 4(2) of the Securities Act and/or regulation D
rule 506 promulgated under the Securities Act.

     Since  October 1997 our common stock and Class A warrants  have been listed
and traded on the  American  Stock  Exchange  ("AMEX")  under the symbol HEB and
HEBws,  respectively.  The Class A Warrants  expired on  November  2, 2001.  The
following table sets forth the high and low list prices for our Common Stock for
the last two fiscal  years and the first  quarter of fiscal  2003 as reported by
the AMEX. Such prices reflect inter-dealer  prices,  without retail markup, mark
downs or commissions and may not necessarily represent actual transactions.

COMMON STOCK                                  High                    Low
Time Period:

January 1, 2001 through March 31, 2001       $5.75                  $3.01
April 1, 2001 through June 30, 2001           7.15                   3.96
July 1, 2001 through September 30,
2001                                          6.85                   3.89
October 1, 2001 through December 31, 2001     5.29                   3.41

Time Period:
January 1, 2002 through March 31, 2002        4.76                   3.45
April 1, 2002 through June 30, 2002           3.97                   2.50
July 1, 2002 through September 30, 2002       2.63                    .80
October 1, 2002 through December 31, 2002     2.86                   1.40


     As of March 27, 2003 there were  approximately 259 holders of record of our
Common  Stock.  This  number  was  determined  from  records  maintained  by the
Company's transfer agent and does not include beneficial owners of the Company's
securities  whose  securities  are held in the names of various  dealers  and/or
clearing agencies.
                                       33


    As of April 4, 2003,  the last sale price for our common  stock on the AMEX
was $1.35 per share.

     We have not paid any dividends on our Common Stock in recent  years.  It is
management's  intention not to declare or pay dividends on our Common Stock, but
to retain  earnings,  if any, for the  operation  and expansion of the Company's
business.
                                       34


The following table gives information about our Common Stock that may be issued
upon the  exercise  of  options,  warrants  and  rights  under all of our equity
compensation plans as of December 31, 2002.




                                          Number of                                     Number of securities
                                       Securities to be                                 Remaining available
                                         issued upon             Weighted-average       For future issuance
                                         exercise of             Exercise price of          under equity
                                         outstanding                Outstanding          compensation plans
                                       options, warrants          Options, warrants     (excluding securities
       Plan Category                      and rights                And rights        Reflected in column (a))

=============================      ========================    =================  ============================
                                                                               

                                            (a)                        (b)                     (c)

                                   ========================      =================  ============================

Equity compensation plans
approved by security
holders:                                   294,665              $     3.57                   258,293



Equity compensation plans
not approved by security                   _                         _                       _
holders:

                                      ===================          =============        ====================

Total                                      294,665               $    3.57                   258,293
                                      ===================          =============        ====================

===================================================================================================================








                                       35

ITEM 6.           Selected Financial Data (in thousands except for share and per share data).

Year Ended
December 31                     1998        1999       2000         2001          2002
                               ------     -------     -------     --------       -------
                                                                     

Statement of
Operations Data
Revenues and License
fee Income                      $ 401       $ 678      $ 788      $   390          $ 904

Net loss                       (7,324)    (12,298)    (8,552)      (9,083)        (7,424)

Basic and diluted loss per
share                           (0.32)      (0.47)     (0.29)        (0.29)        (0.23)

Shares used in computing basic and diluted net loss per share.

                            22,724,913   26,380,351  29,251,846  31,433,208    32,085,776

Balance Sheet Data

Total Assets                  $ 16,327  $    14,168    $ 13,067  $   12,035        $6,040

Common Stockholders'
Equity                          15,185       12,657      11,572      10,763         3,630

Other Cash Flow Data


Cash used in
operating
activities                     (5,751)       (6,990)     (8,074)     (7,281)       (6,409)

Capital expenditures             (151)         (251)       (171)         -             -




     ITEM 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations.


     The following discussion and analysis is related to our financial condition
and results of  operations  for the three years ended  December 31,  2002.  This
information  should be read in  conjunction  with Item 6 -  "Selected  Financial
Data" and our  consolidated  financial  statements  and  related  notes  thereto
beginning on F-1 of this Form 10-K.

                    Statement of Forward-Looking Information

     Certain  statements in the section are  "forward-looking  statements".  You
should  read the  information  before  Part I above,  "Special  Note"  Regarding
Forward-Looking  Statements"  for more  information  about our  presentation  of
information.

                                   Background

     We have  reported net income only from 1985 through  1987.  Since 1987,  we
have incurred,  as expected,  substantial operating losses due to our conducting
clinical  testing.  Prior to completing an Initial  Public  Offering  ("IPO") in
                                       36


November 1995,we financed operations primarily through the private placement of
equity and debt  securities,  equipment  lease  financing,  interest  income and
revenues  from  licensing,   royalty  agreements  and  cost  recovery  treatment
programs.

     We have established a strong  foundation of laboratory,  pre-clinical  data
with respect to the development of nucleic acid to enhance the natural antiviral
defense system of the human body and the development of the therapeutic products
for the  treatment  of chronic  disease.  Our strategy is to obtain the required
regulatory approval which will allow the progressive introduction of Ampligen(R)
(our proprietary drug) for treating Myalgic  encephalomyelitis  Chronic Syndrome
(ME/CFS"), HIV, hepatitis C ("HCV") and hepatitis B ("HBV") in the U.S., Canada,
Europe and Japan.  Ampligen(R) is currently in phase III clinical  trials in the
U.S. for use in  treatment of ME/CFS and is in Phase IIb Clinical  trials in the
U.S. for the treatment of newly emerged  multi-drug  resistant  HIV, and for the
induction of Cell mediated immudity in HIV patients that are under control using
potentially toxic drug cocktail.

     Our  proprietary   drug   technology   utilizes   specifically   configured
ribonucleic  acid ("RNA") and is  protected by more than 350 patents  worldwide.
With  over  80  additional  patent   application   pending  to  provide  further
proprietary protection in various international  markets.  Certain patents apply
to  the  use of  Ampligen(R)  alone  and  certain  patent  apply  to the  use of
Ampligen(R) in combination with certain other drugs.  Some composition of matter
patents  pertain  to other new  medication,  which have a similar  mechanism  of
action.

     In March, 2003, the Company acquired from Interferon Sciences Inc. ("ISI"),
all of ISI's raw materials,  work-in-progress  and finished product of Alferon N
Injection(R),  together with a limited license for the production,  manufacture,
use, marketing and sale of the product. Alferon N Injection(R) [interferon alfa-
n3 (human  derived)] is a natural alpha interferon that has been approved by the
U.S. Food and Drug Administration  ("FDA") for commercial sale for the treatment
of  certain  types of genital  warts.  We intend to market  this  product in the
United State through sales  facilitated  via third party  marketing  agreements.
Additionally, we intend to implement studies, beyond those conducted by ISI, for
testing the  potential  treatment  of HIV,  Hepatitis  C and other  indications,
including  multiple  sclerosis.  This acquisition not withstanding,  our primary
focus  remains  the  development  to  Ampligen(R)  for  treating  ME/CFS and HIV
diseases.

     We are incorporated in Maryland in 1996 under the name HEM research,  Inc.,
and originally served as a supplier of research support  products.  Our business
was  redirected  in  the  early  1980's  to  the  development  of  nucleic  acid
pharmaceutical  technology  and  the  commercialization  of RNA  drugs.  We were
reincorporated in Delaware and changed our name to Hem  Pharmaceutical  Corp. in
1991 and to Hemispherx  Biopharma,  Inc.,  in June 1995. We have three  domestic
subsidiaries BioPro Corp., BioAegean Corp., and Core BioTech Corp., all of which
are  incorporated  in  Delaware.  Our foreign  subsidiaries  include  Hemispherx
Biopharma  Europe  N.V./S.A.  established  in  Belgium  in 1998  and  Hemispherx
Biopharma Europe S.A. incorporated in Luxembourg in 2002.

                                       37


Result of Operations Years Ended December 31, 2002 vs. 2001

Net loss

     Our net loss was  approximately  $7,424,000 for the year ended December 31,
2002 versus a net loss of  $9,083,000  in 2001.  Per share losses in 2002 was 23
cents versus a per share loss of 29 cents in 2001. This year to year decrease in
losses of  $1,659,000  is  primarily  due to higher  revenues and lower costs in
2002.  Revenues  were up  $514,000  in 2002  and  total  expenses  were  down by
$2,231,000  offset by a write down in the carrying  value of our  investments in
the amount of $1,366,000 for a net cost decrease of $865,000.

Revenues

     Our revenues  have come from our ME/CFS cost  recovery  treatment  programs
principally  underway in the U.S.,  Canada and Europe.  These clinical  programs
allow us to  provide  Ampligen(R)  therapy at our cost to  severely  debilitated
ME/CFS patients. Under this program the patients pay for the cost of Ampligen(R)
doses infused.  These costs total approximately  $7,200 for a 24 weeks treatment
program. Revenues from cost recovery treatment programs totaled some $341,000 in
2002. In 2001, these revenues were $390,000 or 14% higher than 2002 revenues. We
expected  revenues  in the U.S.  to  decline  due to the  focus of our  clinical
resources on  conducting  and  completing  the AMP 516 ME/CFS Phase III clinical
trial as well as the  start up of the AMP 719 and AMP 720 HIV  clinical  trials.
The clinical  data  collected  from  treating  patients  under the cost recovery
treatment  programs will augment and  supplement  the data collected in the U.S.
Phase III ME/CFS trial.

     We received a licensing fee of 625,000 Euros (some  $563,000)  from Esteve.
Pursuant to a sales and distribution agreement, Esteve was granted the exclusive
right to market Ampligen(R) in Spain,  Portugal and Andorra for the treatment of
ME/CFS  in turn we  provided  to  Esteve  technical  scientific  and  commercial
information.  The agreement  terms require no additional  performance by us. Our
total revenues,  including this licensing fee, in 2002 was $904,000  compared to
revenues of $390,000 in 2001.

     Revenues  for   non-refundable   license  fees  are  recognized  under  the
performance  method. This method recognizes revenue to the extent of performance
to date under a licensing  agreement.  In computing earned revenue, it considers
only the amount of  non-refundable  cash actually  received to date. This method
considers  future  payments to be contingent and thus ignores the possibility of
future  milestone  payments  when  computing  the amount of revenue  earned in a
current period.

Research and Development costs

     Our  efforts  in  Research  and   Development  are  fully  directed  toward
conducting and completing our ongoing clinical trials, a Phase III study for the
treatment  of ME/CFS an two Phase IIb studies for the  treatment of HIV. Our R&D
direct costs were $4,946,000 in 2002 compared with $5,780,000 in 2001. The Phase
III  study,  AMP 516 for the  treatment  of  ME/CFS is a multi  center,  placebo
controlled,  randomized,  double blind study to evaluate the efficacy and safety
of treating ME/CFS patients with Ampligen(R). As of December, 2002 the study was
fully enrolled.  More than 175 patients have finished the study and we expect to
finish with the current groups by the Fourth Quarter of 2003.  Expenses  related
to the ME/CFS  Phase III study are expected to decrease in 2003 because of fewer
patients to be treated in the cost-intensive segment of the program as the trial
nears completion. The Phase IIb Clinical Trail AMP 719 "Salvage Therapy" for the
treatment of HIV evaluates the use of Ampligen in adjunct to HAART Therapy.  The
Phase IIb Clinical Trial AMP 720,  "Strategic  Treatment  therapy" evaluates the
                                       38


effect of Ampligen(R)  during HAART treatment  interruptions, or so-called drug
holidays.  As of February,  2003 approximately 55 patients have been enrolled in
both studies combined and are being treated in approximately 10 different active
sites.  We expect an  acceleration  in enrollment in the months ahead,  now that
more data about the trials is known by the  Medical  Community.  Therefore,  the
lower cost of the ME/CFS program will be partially  offset by an increase due to
spending related to the acceleration of our two HIV Clinical Trials. The rate of
enrollment depends on patient availability and on other products being in placed
in clinical  trials for the treatment of HIV. There could be competition for the
same patient  population.  Overall, we expect our Research and Development costs
to be lower by over $1,000,000 in 2003 as compared to 2002.

     Upon  completion of the ME/CFS study,  we will start analyzing the clinical
data to determine  the results of the study in  anticipation  of  submitting  an
application  to the FDA in early to mid 2004.  The HIV trials will continue into
2004. Delays in patient recruiting for the HIV trials could delay the completion
of the clinical trial.

General and Administrative Expenses

     Excluding stock compensation expense,  general and administrative  expenses
were approximately $1,882,000 in 2002 versus $2,741,000 in 2001. This decease in
expenses of $859,000 in 2002, is due to several  factors  including the recovery
of certain legal expenses of  approximately  $1,050,000  relating to the Asensio
lawsuit from our insurance  carrier and lower overall legal expenses due to less
litigation, partially offset by higher Insurance premiums.

     Stock compensation expenses was $133,000 or $538,000 lower than recorded in
the year 2001. The  compensation  reflects the imputed non-cash expense recorded
to reflect the cost of warrants granted to outside parties for services rendered
to the Company.

Equity Loss-Unconsolidated Affiliates

     During the three months ended June 2002 and  December  2002,  we recorded a
non-cash  charge of $678,000  and  $396,000  respectively,  to  operations  with
respect to our $1,074,000  investment in R.E.D. These charges were the result of
our determination that R.E.D.'s business and financial position had deteriorated
to the point  that our  investment  had been  permanently  impaired.  Please see
"RESEARCH AND  DEVELOPMENT/COLLABORATIVE  AGREEMENTS" in Part 1 for more details
on these transactions.

     In May 2000,  we acquired an equity  interest in Chronix  Biomedical  Corp.
("CHRONIX").  for  $700,000.  During the quarter  ended  December 31,  2002,  we
recorded a noncash charge of $292,000 with respect to our investment in Chronix.
This  impairment  reduces our carrying  value to reflect a permanent  decline in
Chronix's market value based on their current proposed equity offerings.  Please
see  "RESEARCH  AND  DEVELOPMENT/COLLABORATIVE  AGREEMENTS"  in Part 1 for  more
details on these transactions.

     In  April,  1999  we  acquired  a 30%  equity  position  in the  California
Institute of Molecular Medicine ("CIMM") for $750,000. During the fourth quarter
of 2001 we recorded a non-cash charge of $485,000 with respect to our investment
in CIMM. This was a result of our determination  that CIMM's operations have not
yet evolved to the point where the full carrying value of our  investment  could
                                       39


be supported based on that Company's financial  position and operating results.
This amount represented the unamortized  balance of goodwill included as part of
our  investment.  During 2002,  we wrote down to zero our  remaining  investment
based on that Company's continuing operating losses. These charges are reflected
in the  Consolidated  Statements of Operations under the caption "Equity loss in
unconsolidated  affiliate." Please see "RESEARCH AND DEVELOPMENT/  COLLABORATIVE
AGREEMENTS" in Part 1 for more details on these transactions.

Other Income/Expense

     Interest and other  income  totaled  $103,000 in 2002  compared to $284,000
recorded in 2001.  Significantly  lower interest rates on money market  accounts
and lower cash available for investment  basically  account for the  difference.
All  funds in excess  of our  immediate  need are  invested  in short  term high
quality securities which earned much lower interest income in 2002.

Years Ended December 31, 2001 vs. 2000

Net loss

     We  reported  a net loss of  approximately  $9,083,000  for the year  ended
December  31, 2001 versus a net loss of  approximately  $8,552,000  for the year
2000.  The  increase in losses of $531,000  in 2001 was  basically  due to lower
ME/CFS Cost  Recovery  Treatment  Revenues and Interest  Income.  In addition we
recorded  a  non-operating,  non-cash  charge of  $485,000  with  respect to our
investments in unconsolidated affiliates. This amount represents the unamortized
balance of Goodwill included in the investments.  Overall operating  expenses in
2001 were $639,000 lower than operating  expenses  experienced in 2000. Our loss
per share was $0.29 in 2001 and 2000.

Revenues

     At this time,  (prior to the  acquisition  of Alferon N) our revenues  come
from our ME/CFS cost recovery  treatment  programs  principally  underway in the
U.S., Canada and Europe. These clinical programs allow us to provide Ampligen(R)
therapy at our cost to severely debilitated ME/CFS patients.  Under this program
the patients pay for the cost of Ampligen(R)  doses  infused.  These costs total
approximately  $7,200  for a 24 weeks  treatment  program.  Revenues  from  cost
recovery  treatment  programs  totaled  some  $788,000 in 2000.  In 2001,  these
revenues  declined  by  $398,000  or 51%.  We  expected  revenues in the U.S. to
decline due to the focus of our clinical  resources on conducting and completing
the AMP516  ME/CFS Phase III  clinical  trial as well as the start up of the AMP
719 and AMP 720 HIV clinical  trials.  Revenues  from the European cost recovery
treatment  programs  were  lower than  expected  primarily  due to our  European
investigators  spending  a great deal of time in  reviewing  and  analyzing  the
clinical data  collected in the  treatment of some 150 patients in Belgium.  The
clinical data collected from treating patients under the cost recovery treatment
programs will augment and  supplement  the data  collected in the U.S. Phase III
ME/CFS trial.

Research and Development costs

     As previously noted, our research and development is primarily  directed at
developing  our lead  product,  Ampligen(R),  as a therapy  for use in  treating
various  chronic  illnesses  as well as cancer.  In 2000 and 2001,  most of this
effort was directed toward  conducting and supporting  clinical trials involving
patients  affected with ME/CFS.  Our research and development  direct costs were
$5,780,000 in 2001 compared to $6,136,000  spent in 2000. The lower research and
                                       40


development costs basically  reflect the net sum of less costs related to lower
cost  recovery  treatment  revenues  and lower  expenses  related  to the ME/CFS
clinical trials offset by increased purchases of polymers and increased expenses
relating to the HIV trials  initiated in 2001. As to be expected,  costs related
to the cost recovery treatment programs were down approximately  $275,000 due to
lower revenues  recorded in 2001. Also expenses relating to the ME/CFS Phase III
clinical trial were down some $863,000 in 2001 versus 2000 due to fewer patients
being treated in the cost-intensive segment of the program as the clinical trial
nears  completion.  This clinical  trial is a  multicenter,  placebo-controlled,
randomized,  double  blind study to evaluate the efficacy and safety of treating
230  ME/CFS  patients  with  Ampligen(R).  As of  February  2002,  more than 220
patients have been enrolled.  These lower costs relating to our ME/CFS  programs
were partially  offset by an increase in polymer  purchase in 2001 in the amount
of $317,000 and an increase  due to spending on the new HIV clinical  trials now
underway.  The  polymer  purchase  increase  was  needed  to  boost  our on hand
inventory  for the  production  of  Ampligen(R).  The HIV  clinical  trials were
initiated to evaluate  the use of  Ampligen(R)  in concert with other  antiviral
drugs in treating  patients  severely  afflicted  with AIDS. We expect levels of
these  clinical  trials to  continue  throughout  2002.  Refer to part I, Item 1
(BUSINESS) for more information on our Research and Development for programs.

General and Administrative Expenses

     Excluding stock compensation expense,  general and administrative  expenses
were approximately $2,741,000 in 2001 versus $3,298,000 in 2000. The decrease in
expense is primary due to lower professional fees in 2001. All other general and
administrative  expenses  were  slightly  less  than  recorded  in  2000.  Stock
compensation expenses were $671,000 or some $274,000 higher than recorded in the
year 2000. The  compensation  reflects the imputed  non-cash expense recorded to
reflect the cost of warrants granted to outside parties for services rendered to
the Company.

Equity Loss-Unconsolidated Affiliates

     During  the  fourth  quarter of 2001,  we  recorded  a  non-cash  charge of
$485,000  with respect to our  investment  in CIMM.  The amount  represents  the
unamortized  balance of goodwill included as part of our investment.  This was a
result of management's  determination that CIMM's operations had not yet evolved
to the point where our full carrying value of its investment  could be supported
based on their financial position and operating results.

Other Income/Expense

     Interest  and other  income of $284,000 in 2001 was lower than the $572,000
recorded in 2000.  Significantly  lower interest rates on money market  accounts
and lower cash available for investment  basically  account for the  difference.
All  funds in excess  of our  immediate  need are  invested  in short  term high
quality securities which earned much lower interest income in 2001.


LIQUIDITY AND CAPITAL RESOURCES

     Cash, cash equivalents and short term investments at December 31, 2002 were
approximately  $2,811,000.  Cash  used  for  operating  activities  in 2002  was
$6,409,000. Additional uses of cash included expenditures of $176,000 for patent
acquisition cost, and $50,000 to acquire 27,500 shares of our stock.
                                       41


    Cash  proceeds  from  financing   activities  in  2002  were  approximately
$966,000.  $65,000  was  received  from stock  subscriptions  and  $946,000  was
received  from the issuance of  preferred  equity  certificates  of our European
subsidiary.

     Our net operating cash "burn rate" for the last three months of fiscal year
2002  approximated  $547,000 per month or $6,564,000 on an annualized basis. All
clinical trial drug supplies  produced in 2002 were fully expensed although some
costs are  expected to be  recovered  under the  expanded  access cost  recovery
programs  authorized  by FDA and  regulatory  bodies  in  other  countries.  Our
operating cash "burn rate" should decline in 2003 as the AMP 516 ME/CFS clinical
trial nears completion and the cost of European market  development  activity is
reduced.

     On March 20, 2002, our European  subsidiary  Hemispherx  Biopharma  Europe,
S.A.  ("Hemispherx  S.A.") entered into a sales and Distribution  agreement with
Laboratories  Del Dr.  Esteve  S.A.  ("Esteve").  Pursuant  to the  terms of the
agreement,  Esteve was  granted the  exclusive  right to market  Ampligen(R)  in
Spain,  Portugal  and  Andorra  for the  treatment  of  Myalgic/Chronic  Fatigue
Syndrome  ("ME/CFS").  In addition to other terms and other projected payments.,
Esteve paid an initial and  non-refundable  fee of 625,000 Euros  (approximately
$563,000)  to  Hemispherx  S.A.  on April  24,  2002.  Esteve is to pay a fee of
1,000,000 Euros after U.S. Food and Drug Administration  approval of Ampligen(R)
for the treatment of ME/CFS and a fee of 1,000,000  Euros upon Spain's  approval
of the final marketing  authorization for using Ampligen(R) for the treatment of
ME/CFS.

     Also Esteve  purchased  1,000,000  Euros of Hemispherx  S.A.'s  convertible
preferred equity  certificates.  These securities paid a 7% dividend and were to
be converted  into .00114% of the  outstanding  common stock of Hemispherx  S.A.
upon the earlier of the  completion of an initial public  offering  ("IPO") on a
European  stock  exchange or September  30, 2003.  However,  at our request,  on
January 9, 2003, Esteve agreed to convert the preferred equity certificates into
shares of our common stock and, on March 13, 2003, we issued  347,445  shares of
our common stock to Provesan  SA, an  affiliate  of Esteve,  in exchange for the
1,000,000 Euros of convertible preferred equity certificates owned by Esteve. We
agreed to  registered  the shares  issued to Provesan SA and we have  registered
these shares for public sale.

     On March 12, 2003, we issued an aggregate of $5,426,000 in principal amount
of 6% Senior Convertible  Debentures due March 2005 and an aggregate of $743,288
warrants to two investors in a private placement for aggregate anticipated gross
proceeds of $4,650,000.  Pursuant to the terms of the Debentures,  $1,550,000 of
the  proceeds  from the sale of the  Debentures  have been held back and will be
released  to us if,  and  only  if,  we  acquire  ISI's  facility  with in a set
timeframe (see the discussion  below). The Debentures mature on January 31, 2005
and bear  interest at 6% per annum,  payable  quarterly  in cash or,  subject to
satisfaction  of certain  conditions,  common stock.  Any shares of common stock
issued to the  investors  as payment of  interest  shall be valued at 95% of the
average closing price of the common stock during the five  consecutive  business
days ending on the third  business  day  immediately  preceding  the  applicable
interest  payment  date.  Pursuant  to the terms and  conditions  of the  Senior
Convertible  Debentures,  we have  pledged  all of our  assets,  other  than our
intellectual  property,  as  collateral  and are subject to comply with  certain
financial  and  negative  covenants,  which  include  but are not limited to the
repayment of principal balances upon achieving certain revenue milestone.
                                       42


    The Debentures  are  convertible at the option of the investors at any time
through January 31, 2005 into shares of our common stock.  The conversion  price
under the  Debentures  is fixed at $1.46 per share,  subject to  adjustment  for
anti-dilution  protection for issuance of common stock or securities convertible
or exchangeable into common stock at a price less than the conversion price then
in effect.

     The investors  also received  Warrants to acquire at any time through March
12, 2008 an aggregate of 743,288  shares of common stock at a price of $1.68 per
share.  On March 12, 2004,  the exercise price of the Warrants will reset to the
lesser of the  exercise  price then in effect or a price equal to the average of
the daily price of the common  stock  between  March 13, 2003 and March 11, 2004
(but in no event less than $1.176 per share).  The exercise price (and the reset
price)  under  the  Warrants  also  is  subject  to  similar   adjustments   for
anti-dilution protection.

     We entered  into a  registration  rights  agreement  with the  investors in
connection   with  the  issuance  of  the  Debentures  and  the  Warrants.   The
registration  rights  agreement  requires  that we register the shares of common
stock issuable upon conversion of the  Debentures,  as interest shares under the
Debenture and upon exercise of the Warrants.  In accordance with this agreement,
we filed a  registration  statement on form S-3 with the Securities and Exchange
Commission.  The investors  include  Portside Growth & Opportunity Fund Ltd. and
Leonardo,  L.P. the Debentures  mature on March 12, 2005 and bear interest at 6%
per annum, payable quarterly in cash or common stock. Any shares of common stock
issued to the  investors  as payment of  interest  shall be valued at 95% of the
average closing price of the common stock during the five  consecutive  business
days ending on the third  business  day  immediately  preceding  the  applicable
interest payment date.

     On March 11, 2003, we acquired from Interferon Sciences, Inc. ("ISI") ISI's
inventory  of ALFERON N  Injection(R),  a  pharmaceutical  product  used for the
treatment  of certain  types of genital  warts,  and a limited  license  for the
production,  manufacturing,  use, marketing and sale of this product. As partial
consideration,  we issued 487,028 shares of our common stock to ISI. Pursuant to
our  agreements  with ISI, we are in the process of  registering  the  foregoing
shares for public sale.

     On March 11, 2003,  we also entered into an agreement to purchase  from ISI
all of its  rights  to the  product  and other  assets  related  to the  product
including,  but not limited to, real estate and machinery.  For these assets, we
have agreed to issue to ISI an  additional  487,028  shares and to issue 314,465
shares and 267,296 shares,  respectively to the American  National Red Cross and
GP  Strategies  Corporation,  two  creditors  of ISI.  The Company  also will be
required to satisfy real estate taxes and utility  expenses of ISI which totaled
$520,751  as of  December  31,  2002 and which are secured by a lien on the real
estate to be acquired by the Company. We have guaranteed the market value of all
but  62,500  of these  share on terms  substantially  similar  to those  for the
initial acquisition of the ISI assets.

     As of December 31, 2002, we had approximately  $2,811,000 in cash and short
term investments.  We believe that these funds plus 1) the anticipated  infusion
of approximately $4.4 million in net proceeds from the debenture  placement,  2)
projected  net cash flow from the  acquisition  of the ALFERON N business and 3)
the funds  received from the insurance  settlement  should be sufficient to meet
our operating  requirement during the next 12 months.  Also, we have the ability
to  curtail   discretionary   spending,   including   research  and  development
activities, if required to conserve cash.
                                       43


    Because of our long-term  capital  requirements,  we may seek to access the
public equity market whenever  conditions are favorable,  even if we do not have
an immediate  need for additional  capital at that time. Any additional  funding
may result in significant  dilution and could involve the issuance of securities
with rights which are senior to those of existing stockholders. We may also need
additional  funding  earlier than  anticipated,  and our cash  requirements,  in
general, may vary materially from those now planned, for reasons including,  but
not limited to,  changes in our  research  and  development  programs,  clinical
trials,  competitive and technological  advances,  the regulatory  process,  and
higher  than  anticipated  expenses  and lower than  anticipated  revenues  from
certain of our clinical  trials for which cost  recovery from  participants  has
been approved.

Contractual Obligations

                             (dollars in thousands)
                          Obligations Expiring by Period
                 ==========================================

                  Total     2003     2004-2005    2006-2007
                 ======== ========  ===========  =========


Operating leases  $1,063  $  279     $   526     $   258

                 =======  ========  ===========  =========

Total             $1,063  $  279     $   526       $   258

                 =======  ========  ===========  ==========



     NEW   ACCOUNTING   PRONOUNCEMENTS   In  January   2003,   the  FASB  issued
Interpretation   No.  46,,   "Consolidation  of  Variable   Interest   Entities"
("Interpretation No. 46"), that clarifies the application of Accounting Research
Bulletin No. 51,  Consolidated  Financial  Statements,  "to certain  entities in
which  equity  investors  do  not  have  the  characteristics  of a  controlling
financial  interest or do not have  sufficient  equity at risk for the entity to
finance its activities  without additional  subordinated  financial support from
other  parties.  Interpretation  No. 46 is applicable  immediately  for variable
interest entities created after January 31, 2003. For variable interest entities
created  to  January  31,  2003,  the  provision  of  Interpretation  No. 46 are
applicable  no later  than  July 1,  2003.  The  Company  does not  expect  this
Interpretation to have an effect on the consolidated financial statements.

     In August 2001, the FASB issued  Statement No. 143,  "Accounting  for Asset
Retirement Obligation" ("SFAS 143"), which provides the accounting  requirements
for retirement  obligation  associated with tangible long-lived assets. SFAS 143
requires  entities  to  record  the  fair  value of the  liability  for an asset
retirement obligation in the period in which it is incurred and is effective for
the Company's 2003 fiscal year. The adoption of SFAS 143 is not expected to have
a material impact on the Company's consolidated results of operations, financial
position or cash flows.

     In October 2001,  the FASB issued  Statement No. 144,  "Accounting  for the
Impairment or Disposal of Long-lived  Assets"  ("SFAS 144").  SFAS 144 addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets.  This statement  supersedes SFAS Statement No. 121,  "Accounting for the
Impairment of Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of, "
                                       44


and the accounting and reporting provision of APB Opinion No. 30,"Reporting the
Results  of  Operations-Reporting  the  Effects  of  Disposal  of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
transactions.  "This new pronouncement also amends Accounting  Research Bulletin
(ARB) No. 51 "Consolidated Financial Statements,  "to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. SFAS
144  required  that one  accounting  model be used for  long-lived  assets to be
disposed of by sale, whether previously held and used or newly acquired and also
broadens the  presentation  of  discontinued  operation to include more disposal
transactions.  SFAS 144 is effective for fiscal years  beginning  after December
15, 2001 and interim periods within those fiscal years.  Adoption of SFAS 144 on
January 1, 2002, did not have impact on the Company's financial  position,  cash
flows or results of operation for the year ended December 31, 2002.

     In June 2002,  the FASB  issued  Statement  No. 146,  "Accounting  for Cost
Associated  with Exit or Disposal  Activities"  ("SFAS  146"),  which  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities,  and nullifies Emerging Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain  Employee  termination  Benefits and Other Costs to Exit
and  Activity  (including  Certain  Costs  Incurred in a  Restructuring)"  which
previously governed the accounting treatment for restructuring activities.  SFAS
146 applies to costs  associated  with an exit activity that does not involve an
entity  newly  acquired  in a business  combination  or with  disposal  activity
covered by SFAS 144. Those costs include, but are not limited to, the following:
(1) termination  benefits  provide to current  employees that are  involuntarily
terminated under the terms of a benefit  arrangement that, in substance,  is not
an ongoing benefit arrangement or individual deferred-compensation  contract,(2)
costs to  terminate  a contract  that is not a capital  lease,  and (3) costs to
consolidated facilities or relocated employees. SFAS 146 does not apply to costs
associated  with the  retirement of long-lived  assets covered by SFAS 143. SFAS
146  will be  applied  prospectively  and is  effective  for  exit  or  disposal
activities after December 31, 2002.

     In December  2002,  the FASB issued  Statement  No.  148,  "Accounting  for
Stock-Based  Compensation-Transition  and  Disclosure",  and  amendment  of FASB
Statement No. 123 ("SFAS").  SFAS 148 amends FASB Statement No. 123,  Accounting
for Stock-Based Compensation, to provide alternative method of transition for an
entity  that  voluntarily  changes to the fair  value  based of  accounting  for
stock-based employee  compensation.  It also amends the disclosure provisions of
that Statement to require prominent disclosure about the effects on reported net
income of an entity's  accounting  policy  decisions with respect to stock-based
employee  compensation.  Finally,  this Statement amends  Accounting  Principles
Board ("APB") Opinion No. 28, Interim Financial  Reporting to require disclosure
about those effects in interim financial information.  SFAS 148 is effective for
financial  statements  for fiscal  years ending  after  December  15, 2002.  The
Company  will  continue  to  account  for  stock-based  compensation  using  the
intrinsic  value method of APB Opinion No. 25,  "Accounting  for Stock Issued to
Employees, "but has adopted the enhance disclosure requirements of SFAS 148 (See
Note 10).

    Critical Accounting Policies

     Financial  Reporting  Release No. 60.,  which was recently  released by the
Securities  And  Exchange  Commission,  requires  all  companies  to  include  a
discussion of critical  accounting policies or method used in the preparation of
financial statements. Our significant accounting policies are described in Notes
to the Consolidated  Financial Statements.  The significant  accounting policies
that we believe are most  critical to aid in fully  understanding  our  reported
financial results are the following:
                                       45


Revenue

     Revenues  for   non-refundable   license  fees  are  recognized  under  the
performance  method. This method recognizes revenue to the extent of performance
to date under a licensing  agreement.  In computing earned revenue, it considers
only the amount of  non-refundable  cash actually  received to date. This method
considers  future  payments to be contingent and thus ignores the possibility of
future  milestone  payments  when  computing  the amount of revenue  earned in a
current period.

     Revenue from the sale of Ampligen(R) under cost recovery clinical treatment
protocols  approved by the FDA is recognized  when  treatment is provided to the
patient.

Patents and Trademarks

     Effective  October 1, 2001, we adopted a 17 year estimated  useful life for
the amortization of our patents and trademark rights in order to more accurately
reflect  their useful life.  Prior to October 1, 2001,  we were using a ten year
estimated useful life.

     Patents and  trademarks are stated at cost  (primarily  legal fees) and are
amortized  using the  straight  line  method  over the life of the  assets.  The
Company  reviews its patents and  trademark  rights  periodically  to  determine
whether  they have  continuing  value.  Such review  includes an analysis of the
patent and  trademark's  ultimate  revenue  and  profitability  potential  on an
undiscounted   cash  basis  to  support  the  realizability  of  its  respective
capitalized cost. In addition, management's review addresses whether each patent
continues to fit into Company's strategic business plans.

Research and Developments Costs

     Research and development  costs are direct costs related to both future and
present  products  and are  charged  to  operations  as  incurred.  The  Company
recognized   research  and  development  costs  of  $6,136,000   $5,780,000  and
$4,946,000 in 2000, 2001 and 2002 respectively.

Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the reported  amounts of revenues and expenses for the reporting
period. Actual results could differ from those estimates.
                                       46


    ITEM 7a.  Quantitative and Qualitative Market Risk.

Market Risk

     We had $2.8 million in cash, cash equivalents and short term investments at
December 31, 2002. To the extent that our cash and cash  equivalents  exceed our
near term funding requirements, the excess cash was invested in three (3) to six
(6) month high quality financial instruments. We employ established policies and
procedures to manage any risks with respect to any investment exposure.


ITEM 8.  Financial Statements and Supplementary Data.

     The  consolidated  balance sheets as of December 31, 2001 and 2002, and our
consolidated statements of operations, changes in stockholders' equity (deficit)
and  comprehensive  loss and cash  flows for each of the years in the three year
period ended December 31, 2002,  together with the reports of BDO Seidman,  LLP,
independent  public  accountants,  are  included  at  the  end of  this  report.
Reference is made to the "Index to Financial  Statements and Financial Statement
Schedule" on page F-1.

     ITEM 9. Changes in and  Disagreements  with  Accountants  on Accounting and
Financial Disclosures.

None.


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

     Directors and Executive Officers of the Registrant The following sets forth
biographical  information about each of our directors and executive  officers as
of the date of this Agreement:

Name                       Age Position

William A. Carter, M.D.    65  Chairman, Chief Executive Officer, and President
Robert E. Peterson         65  Chief Financial Officer
David R. Strayer, M.D.     55  Medical Director, Regulatory Affairs
Carol A. Smith, Ph.D.      51  Director of Manufacturing and Process Development
Richard C. Piani           76  Director
William M. Mitchell, M.D.  67  Director
Ransom W. Etheridge        63  Director and Secretary
Eraj Kiani                 58  Director


     Each  director has been  elected to serve until the next annual  meeting of
stockholders,  or until his earlier  resignation,  removal from office, death or
incapacity.  Each  executive  officer  serves at the  discretion of the Board of
Directors, subject to rights, if any, under contracts of employment.

     WILLIAM A. CARTER, M.D., the co-inventor of Ampligen,  joined Hemispherx in
1978, and has served as: (a)  Hemispherx's  Chief  Scientific  Officer since May
1989; (b) the Chairman of  Hemispherx's  Board of Directors  since January 1992;
                                       47


(c)  Hemispherx's  Chief  Executive  Officer since July 1993; (d)  Hemispherx's
President  since April,  1995; and (e) a director since 1987. From 1987 to 1988,
Dr. Carter served as Hemispherx's  Chairman.  Dr. Carter was a leading innovator
in the  development of human  interferon for a variety of treatment  indications
including  various viral diseases and cancer.  Dr. Carter received the first FDA
approval to initiate clinical trials on a beta interferon  product  manufactured
in the U.S. under his supervision.  From 1985 to October 1988, Dr. Carter served
as Hemispherx's  Chief Executive  Officer and Chief  Scientist.  He received his
M.D. degree from Duke University and underwent his post-doctoral training at the
National  Institutes  of Health and Johns  Hopkins  University.  Dr. Carter also
served as Professor of Neoplastic  Diseases at Hahnemann Medical  University,  a
position he held from 1980 to 1998.  Dr.  Carter  served as Director of Clinical
Research  for  Hahnemann  Medical  University's  Institute  for Cancer and Blood
Diseases,  and as a professor at Johns Hopkins  School of Medicine and the State
University of New York at Buffalo. Dr. Carter is a Board certified physician and
author of more than 200  scientific  articles,  including the editing of various
textbooks on anti-viral and immune therapy.

     ROBERT E.  PETERSON  has served as Chief  Financial  Officer of the Company
since April, 1993 and served as an Independent  Financial Advisor to the Company
from 1989 to April, 1993. Also, Mr. Peterson has served as Vice President of the
Omni Group,  Inc., a business  consulting  group based in Tulsa,  Oklahoma since
1985.  From 1971 to 1984, Mr.  Peterson  worked for PepsiCo,  Inc. and served in
various  financial  management  positions  including  Vice  President  and Chief
Financial  Officer of PepsiCo Foods  International  and PepsiCo  Transportation,
Inc. Mr. Peterson is a graduate of Eastern New Mexico University.

     DAVID R.  STRAYER,  M.D. who served as Professor of Medicine at the Medical
College of  Pennsylvania  and  Hahnemann  University,  has acted as the  Medical
Director of the Company  since 1986. He is Board  Certified in Medical  Oncology
and Internal Medicine with research interests in the fields of cancer and immune
system  disorders.  Dr. Strayer has served as principal  investigator in studies
funded by the Leukemia Society of America,  the American Cancer Society, and the
National  Institutes of Health.  Dr. Strayer  attended the School of Medicine at
the University of California at Los Angeles where he received his M.D. in 1972.

     CAROL A. SMITH, PH.D has served as the Company's  Director of Manufacturing
and Process  Development  since April 1995, as Director of Operations since 1993
and as the Manager of Quality Control from 1991 to 1993, with responsibility for
the   manufacture,   control  and  chemistry  of  Ampligen(R).   Dr.  Smith  was
Scientist/Quality  Assurance Officer for Virotech International,  Inc. from 1989
to 1991 and Director of the Reverse  Transcriptase  and Interferon  Laboratories
and a Clinical  Monitor for Life Sciences,  Inc. from 1983 to 1989. She received
her Ph.D.  from the University of South Florida  College of Medicine in 1980 and
was an NIH post-doctoral  fellow at the Pennsylvania State University College of
Medicine.

     RICHARD C. PIANI has been a director of  Hemispherx  since 1995.  Mr. Piani
has been  employed as a principal  delegate  for Industry to the City of Science
and  Industry,  Paris,  France,  a billion  dollar  scientific  and  educational
complex.  Mr. Piani provided  consulting to Hemispherx in 1993,  with respect to
general business  strategies for Hemispherx's  European  operations and markets.
Mr.  Piani  served as Chairman of  Industrielle  du  Batiment-Morin,  a building
materials  corporation,  from 1986 to 1993. Previously Mr. Piani was a Professor
of International  Strategy at Paris Dauphine  University from 1984 to 1993. From
1979 to 1985, Mr. Piani served as Group Director in Charge of International  and
Commercial  Affairs for  Rhone-Poulenc and from 1973 to 1979 he was Chairman and
                                       48


Chief  Executive  Officer of Societe "La  Cellophane", the French company which
invented  cellophane and several other worldwide  products.  Mr. Piani has a Law
degree  from  Faculte de Droit,  Paris  Sorbonne  and a Business  Administration
degree from Ecole des Hautes Etudes Commerciales, Paris.

     RANSOM W.  ETHERIDGE has been a director of Hemispherx  since October 1997,
and presently  serves as our Secretary.  Mr.  Etheridge first became  associated
with Hemispherx in 1980 when he provided  consulting  services to Hemispherx and
participated  in  negotiations  with  respect to  Hemispherx's  initial  private
placement through  Oppenheimer & Co., Inc. Mr. Etheridge has been practicing law
since 1967,  specializing in transactional law. Mr. Etheridge is a member of the
Virginia  State  Bar,  a  Judicial  Remedies  Award  Scholar,  and has served as
President  of the  Tidewater  Arthritis  Foundation.  He is a  graduate  of Duke
University,  and received his Law degree from the University of Richmond  School
of Law.

     WILLIAM M.  MITCHELL,  M.D.  has been a director of  Hemispherx  since July
1998. Dr. Mitchell is a Professor of Pathology at Vanderbilt  University  School
of Medicine.  Dr.  Mitchell earned a M.D. from Vanderbilt and a Ph.D. from Johns
Hopkins University,  where he served as an Intern in Internal Medicine, followed
by a Fellowship at its School of Medicine.  Dr.  Mitchell has published over 200
papers,  reviews and abstracts  dealing with viruses and anti-viral  drugs.  Dr.
Mitchell  has worked for and with many  professional  societies,  including  the
International  Society for Interferon Research,  and committees,  among them the
National  Institutes of Health,  AIDS and Related  Research  Review  Group.  Dr.
Mitchell previously served as a director of Hemispherx from 1987 to 1989.

     IRAJ E. KIANI, M.B.A., PHD., was appointed to the Board of Directors on May
1, 2002.  Dr. Kiani is a citizen of England and resides in Newport,  California.
Dr. Kiani served in various local government  position including the Governor of
Yasoi, Capital of Boyerahmand,  Iran. In 1980, Dr. Kiani moved to England, where
he establish  and managed  several  trading  companies  over a period of some 20
years.  Dr. Kiani is a planning and logistic  specialist who is now applying his
knowledge and experience to build a worldwide  immunology network which will use
the Company's proprietary  technology.  Dr. Kiani received his Ph.D. degree from
the University of Warwick in England.


Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the Exchange Act requires our officers and directors,  and
persons  who  own  more  than  ten  percent  of a  registered  class  of  equity
securities,  to  file  reports  with  the  Securities  and  Exchange  Commission
reflecting  their  initial  position  of  ownership  on  Form 3 and  changes  in
ownership  on Form 4 or Form 5.  Based  solely on a review of the copies of such
forms received by us, we believe that, during the fiscal year ended December 31,
2002, all of our officers,  directors and ten percent stockholders complied with
all applicable Section 16(a) filing requirements on a timely basis.

Audit Committee Expert

     Our Audit  Committee of the Board of Directors  consists of Richard  Piani,
Committee Chairman, William Mithcell, MD and Ransom Etheridge. Mr. Piani and Dr.
Mitchell are Independent  Directors.  Mr.  Etheridge is Secretary of our Company
and is  considered  to be an insider.  We do not have a financial  expert on the
                                       49


committee  in the  true  sense  of the  description.  However,  Mr. Piani  is a
Businessman  and has 40 years of experience  of working with budgets,  analyzing
financials and dealing with financial institutions.

Code of Ethics

     Our Board of  Directors  have not yet  adopted a Code of Ethics  that would
apply to the  Principal  Executive  Officer,  Principal  Financial  Officer  and
Principal Accounting Officer. However, we are in the process of preparing a Code
of Ethics to be presented to the Board of Directors at the next meeting.


    Item 11.  Executive Compensation.

     The summary compensation table below sets forth the aggregate  compensation
paid or accrued by us for the fiscal years ended  December  31,  2002,  2001 and
2000 to (i) our  Chief  Executive  Officer  and (ii) our four most  highly  paid
executive  officers other than the CEO who were serving as executive officers at
the end of the last  completed  fiscal  year and whose total  annual  salary and
bonus exceeded $100,000 (collectively, the "Named Executives").

                                       50






                             EXECUTIVE COMPENSATION
                           SUMMARY COMPENSATION TABLE


Name and Principal Position   Year     Salary ($)         Restricted Stock   Warrants &          All Other
                                                          Awards             Options Awards      Compensation
                                                                                                 (1)
- ----------------------------- -------- ------------------ ------------------ ------------------- ---------------
                                                                                    

William A. Carter             2002        $468,830                 -         (8)1,000,000           $25,747
  Chairman of                 2001     (4) 456,608                 -         (2)  386,650            22,917
the            Board and CEO  2000     (4) 539,620                 -         (5)  100,000            17,672

Robert E. Peterson            2002        $151,055                 -         (8)  200,000              -
Chief                         2001         146,880                 -         (3)   40,000              -
Financial                     2000         145,944                 -                 -                 -
Officer
David R. Strayer, M.D.        2002        $178,594                 -         (8)   50,000              -
  Medical Director            2001         174,591                 -         (7)   10,000              -
                              2000     (6) 172,317                 -                 -                 -



Carol A. Smith, Ph.D.         2002        $128,346                 -         (8)   20,000              -
  Director                    2001         124,800                 -         (7)   10,000              -
of                            2000         124,800                 -                  -                -
Manufacturing


- ----------------------

     (1)Consists of insurance  premiums paid by Hemispherx  with respect to term
life and disability insurance for the benefit of the named executive officer.

     (2)Consists of 188,325 warrants to purchase common stock at $6.00 per share
and 188,325 warrants to purchase common stock at $9.00 per share.  Also includes
a stock option grant of 10,000 shares exercisable at $4.03 per share.

     (3)Consist  of a stock option grant of 10,000 shares  exercisable  at $4.03
per share and 30,000 warrants to purchase common stock at $5.00 per share.

     (4)Includes a bonus of $90,397 paid in 2000. Also includes funds previously
paid to Dr.  Carter  by  Hahnemann  Medical  University  where  he  served  as a
professor until 1998. This compensation was continued by the Company and totaled
$79,826 in 2000 and 2001, and $82,095 in 2002.

     (5)Represents  warrants to purchase  common stock  exercisable at $6.25 per
share.

     (6)Includes  $98,926 paid by Hahnemann Medical University where Dr. Strayer
served as a professor until 1998. This compensation was continued by the Company
in 2000, 2001 and 2002.
                                       51


    (7)Consist of stock option grant of 10,000 shares  exercisable at $4.03 per
share.

     (8)Represents  number of warrants to purchase  shares of common stock at $2
per share.

     The following table sets forth certain information regarding stock warrants
granted during 2002 to the executive officers named in the Summary  Compensation
Table.



- --------------------- -------------------------------------- ------------------ ---------------- --------------------------------
                                INDIVIDUAL GRANTS
- --------------------- -------------------------------------- ------------------ ---------------- --------------------------------
- --------------------- ------------------- ------------------ ------------------ ---------------- --------------------------------
        NAME              NUMBER OF         PERCENTAGE OF     EXERCISE PRICE    EXPIRATION DATE   POTENTIAL REALIZABLE VALUE AT
                                           TOTAL WARRANTS
                          SECURITIES         GRANTED TO
                          UNDERLYING        EMPLOYEES IN
                       WARRANTS GRANTED      FISCAL YEAR                                          ASSUMED RATES OF STOCK PRICE
                             (1)               2002(2)         PER SHARE (3)                     APPRECIATION FOR WARRANTS TERM
- --------------------- ------------------- ------------------ ------------------ ---------------- --------------------------------
                                                                                                   

- -------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
                                                                                                    5% (4)           10%(4)
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
Carter, W.A.                   1,000,000              61.6%                 $2          8/13/07     $1,879,500        $1,969,000
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
Peterson, R.                     200,000              12.3%                 $2          8/13/07       $375,900          $393,800
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
Smith, C.                         20,000               1.2%                 $2          8/13/07        $37,590           $39,380
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------
Strayer, D.                       50,000               3.1%                 $2          8/13/07        $93,975           $98,450
- --------------------- ------------------- ------------------ ------------------ ---------------- -------------- -----------------


     (1) Warrants vest over a period ranging from two to four years.

     (2) Total warrants issued to employees in 2002 were 1,622,000.

     (3) The  exercise  price  is equal to the  closing  price of the  Company's
common stock at the date of issuance.

     (4) Potential  realizable  value is based on an assumption  that the market
price of the common stock  appreciates at the stated rates compounded  annually,
from the date of grant until the end of the respective option term. These values
are calculated based on requirements  promulgated by the Securities and Exchange
Commission  and do not reflect  the  Company's  estimate  of future  stock price
appreciation.
                                       52


    The  following  table sets forth  certain  information  regarding the stock
options  held as of  December  31,  2002 by the  individuals  named in the above
Summary Compensation Table.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUE



                                                 Securities Underlying Unexercised                Value of Unexercised
                                                 Options at Fiscal Year End number                In-the-Money-Options At
                                                                                                  Fiscal Year Enddollars(1)
Name              Shares         Value              Exercisable           Unexercisable       Exercisable       Unexercisable
                  Acquired on    Realized ($)
                  Exercise (#)
- ----------------- -------------- --------------- ------------------- --------------------- ------------------- ----------------
                                                                                                    
- ----------------- -------------- --------------- ------------------- --------------------- ------------------- ---------------
William Carter          -              -            3,552,044(2)          753,334(3)            $209,200             $97,500
Robert Peterson         -              -              314,240(4)          103,334(5)               6,300               6,300
David Strayer           -              -              101,666(6)           28,334(7)               3,250               3,250
Carol Smith             -              -               28,457(8)           13,334(9)               1,300               1,300
- ----------------------------


     (1)Computation  based on $2.13, the December 31, 2002 closing bid price for
the common stock on the American Stock Exchange.

     (2) Consist of (i) 250,000 warrants exercisable at $2.00 per share expiring
on August 13, 2007 (ii) 188,325 warrants exercisable at $6.00 per share expiring
on  February  22, 2006 (iii)  188,325  warrants  exercisable  at $9.00 per share
expiring on February 22, 2006 (iv)  100,000  warrants  exercisable  at $6.25 per
share  expiring on April 8, 2004 (v) 25,000  warrants  exercisable  at $6.50 per
share expiring on September 17, 2004 (vi) 25,000  warrants  exercisable at $8.00
per share  expiring on September 17, 2004 and 6,666 stock option  exercisable at
$4.03 per share expiring on January 3, 2011. Also include 2,768,728 warrants and
options held in the name of Carter Investments, L.C. of which W.A. Carter in the
principal   beneficiary.   These  securities  consist  of  (i)340,000   warrants
exercisable at $4.00 per share expiring on January 1, 2008,(ii) 170,000 warrants
exercisable  at $5.00  per share  expiring  on  January  1,  2005,(iii)  300,000
warrants exercisable a t $6.00 per share expiring on January 1, 2005 (iv) 20,000
warrants  exercisable at $4.00 per share expiring on 2008,(v)  465,000  warrants
exercisable  at  $1.75  expiring  on  June  3,  2005,(vi)   1,400,000   warrants
                                       53


exercisable at $3.50 per share  expiring on October  16, 2004 and 73,728  stock
options exercisable at $2.71 per share until exercised.

     (3) Consist of (i) 750,000 warrants exercisable at $2.00 per share expiring
on August 13, 2007, and (ii) 3,334 start options  exercisable at $4.03 per share
expiring on January 3, 2011.

     (4)  Consist  of (i) 6,666  stock  options  exercisable  at $4.03 per share
expiring on January 3, 2011 (ii) 13,750 stock options  exercisable  at $3.50 per
share  expiring on January 22, 2007,  (iii) 13,824 stock option  exercisable  at
$4.34 per share expiring on July 17, 2003, (iv) 100,000 warrants  exercisable at
$2.00 per share expiring on August 13, 2007, (v) 50,000 warrants  exercisable at
$3.50 expiring on March 1, 2006, (vi) 100,000 warrants  exercisable at $5.00 per
share expiring on April 14, 2006 and (vii) 30,000 warrants  exercisable at $5.00
per share expiring on February 28, 2009.

     (5) Consist of (I) 100,000 warrants exercisable at $2.00 per share expiring
on August 13, 2007 and (ii) 3,334 stock options  exercisable  at $4.03 per share
expiring on January 3, 2011.

     (6) Consist of (i) 25,000 warrants  exercisable at $2.00 per share expiring
on August 13, 2007, (ii) 50,000 warrants exercisable at $4.00 per share expiring
on February 28, 2008, (iii) 6,666 stock options exercisable at $4.08 expiring on
January 3, 2011 and (iv) 20,000  stock  options  exercisable  at $3.50 per share
expiring on January 22, 2007.

     (7) Consist of 25,000  warrants  exercisable at $2.00 per share expiring on
August 13, 2007 and 3,334 stock options  exercisable at $4.03 per share expiring
on August 13, 2007.

     (8) Consist of (I) 10,000 warrants  exercisable at $2.00 per share expiring
on August 13, 2007, (ii) 5,000 warrants  exercisable at $4.00 per share expiring
on June 7,  2008,  (iii)  6,666  stock  options  exercisable  at $4.03 per share
expiring on January 3, 2016,  and (iv) 6,791 stock options  exercisable at $3.50
per share expiring on January 22, 2007.

     (9)  Consist of 10,000  warrants  exercisable  at $2.00 per share and 3,334
stock options exercisable at $4.03 per share expiring on January 3, 2004.

Employment Agreements

     Hemispherx entered into an amended and restated  employment  agreement with
its President and Chief Executive  Officer,  Dr. William A. Carter,  dated as of
December 3, 1998,  which  provided  for his  employment  until May 8, 2004 at an
initial  base  annual  salary of  $361,586,  subject  to  annual  cost of living
increases.  In addition, Dr. Carter could receive an annual performance bonus of
up to 25% of his base salary,  at the sole discretion of the board of directors.
Dr. Carter will not participate in any discussions  concerning the determination
of his annual bonus.  Dr. Carter is also entitled to an incentive  bonus of 0.5%
of the gross proceeds received by Hemispherx from any joint venture or corporate
partnering  arrangement,  up to an aggregate maximum incentive bonus of $250,000
for all such transactions.  Dr. Carter's agreement also provides that he be paid
a base  salary and  benefits  through  May 8, 2004 if he is  terminated  without
"cause",  as that term is defined in the agreement.  This agreement was extended
                                       54


to May 8, 2008. Pursuant  to his  original  agreement,  as amended on August 8,
1991, Dr. Carter was granted  options to purchase  73,728 shares of Hemispherx's
common stock at an exercise price of $2.71 per share.

     Hemispherx entered into an amended and restated  engagement  agreement with
Robert  E.  Peterson  dated  April 1, 2001  which  provides  for Mr.  Peterson's
employment as Hemispherx's Chief Financial Officer until December 31, 2003 at an
annual  base  salary of  $155,988  per year,  subject  to annual  cost of living
increases.  In addition,  Mr.  Peterson  shall receive bonus  compensation  upon
Federal Drug Administration approval of Ampligen based on the number of years of
his employment by Hemispherx up to the date of such  approval.  During 2002, Mr.
Peterson also received  200,000 warrants to purchase shares of common stock with
an exercise price of $2.00.


Compensation of Directors

     The existing  compensation  package was put in place in 2000.  Board member
compensation  consists of an annual  retainer to $35,000 plus $1,000 per meeting
attended.  Committee chairmen each receive an additional  retainer of $5,000 per
year and  committee  members each receive an  additional  retainer of $3,000 per
year. All non-employee  directors received some compensation in 2001 for special
project work performed on behalf of Hemispherx.  All directors have been granted
options to purchase  common  stock  under  Hemispherx's  1990 Stock  Option Plan
and/or Warrants to purchase common stock.  Hemispherx believes such compensation
and  payments  are  necessary  in order for  Hemispherx  to  attract  and retain
qualified outside directors.

1993 Stock Option Plan

     Hemispherx's  1993 Stock Option Plan ("1993 Plan"),  provides for the grant
of options for the purchase of up to an  aggregate  of 138,240  shares of common
stock to Hemispherx's employees, directors, consultants and others whose efforts
are important to the success of Hemispherx. The 1993 Plan is administered by the
Compensation Committee of the board of directors,  which has complete discretion
to select the  eligible  individuals  to receive and to  establish  the terms of
option grants.  The 1993 Plan provides for the issuance of either  non-qualified
options or incentive  stock options,  provided that incentive stock options must
be granted with an exercise price of not less than fair market value at the time
of  grant  and that  non-qualified  stock  options  may not be  granted  with an
exercise  price of less than 85% of the fair market  value at the time of grant.
The number of shares of common stock  available for grant under the 1993 Plan is
subject to adjustment for changes in capitalization.  This plan terminates as of
July 7, 2003. To date, no options have been granted under the 1993 Plan.

1992 Stock Option Plan

     Hemispherx's  1992 Stock Option Plan ("1992 Plan"),  provides for the grant
of options for the  purchase of up to an  aggregate  of 92,160  shares of common
stock to Hemispherx's employees, directors, consultants and others whose efforts
are important to the success of Hemispherx. The 1992 Plan is administered by the
                                       55


Compensation Committee of the board of directors, which has complete discretion
to select the  eligible  individuals  to receive and to  establish  the terms of
option grants.  The 1992 Plan provides for the issuance of either  non-qualified
options or incentive  stock options,  provided that incentive stock options must
be granted with an exercise price of not less than fair market value at the time
of  grant  and that  non-qualified  stock  options  may not be  granted  with an
exercise  price of less than 50% of the fair market  value at the time of grant.
The number of shares of common stock  available for grant under the 1992 Plan is
subject to  adjustment  for changes in  capitalization.  This plan expired as of
December 3, 2002. No options were granted under the 1992 Plan.

1990 Stock Option Plan

     Hemispherx's 1990 Stock Option Plan, as amended ("1990 Plan"), provides for
the grant of options to employees, directors, officers, consultants and advisors
of Hemispherx for the purchase of up to an aggregate of 460,798 shares of common
stock. The 1990 plan is administered by the Compensation  Committee of the board
of directors,  which has complete  discretion to select eligible  individuals to
receive and to  establish  the terms of option  grants.  The number of shares of
common stock  available  for grant under the 1990 Plan is subject to  adjustment
for changes in  capitalization.  As of December 31, 2001,  options to acquire an
aggregate of 154,535  shares of the common stock were available for grants under
the 1990 plan.  This plan  remains in effect  until  terminated  by the Board of
Directors or until all options are issued.

401(K) Plan

     In December  1995,  Hemispherx  established  a defined  contribution  plan,
effective January 1, 1995,  entitled the Hemispherx  Biopharma  employees 401(K)
Plan and Trust Agreement.  All full time employees of Hemispherx are eligible to
participate  in the 401(K) plan  following  one year of  employment.  Subject to
certain  limitations  imposed by federal tax laws,  participants are eligible to
contribute up to 15% of their salary (including bonuses and/or  commissions) per
annum.  Participants'  contributions  to  the  401(K)  plan  may be  matched  by
Hemispherx  at a rate  determined  annually  by the  board  of  directors.  Each
participant immediately vests in his or her deferred salary contributions, while
Hemispherx  contributions  will vest over one year. In 2002 Hemispherx  provided
matching  contributions  to each employee for up to 6% of annual pay for a total
of $38,000 for all employees.

Compensation Committee Interlocks and Insider Participation

     During the fiscal year ended December 31, 2002, the members of Hemispherx's
Compensation Committee were Ransom W. Etheridge and Richard Piani. Mr. Etheridge
serves as the Company's  Secretary and he is an attorney in private practice and
has rendered legal services to Hemispherx for which he received a fee. Mr. Piani
received fees for certain  consulting  work performed in Europe on behalf of the
Company.  Refer to Item 13. "Certain Relationships and Related Transactions" for
more information.

Compensation Committee Report on Compensation

     The Compensation  Committee makes  recommendations  concerning salaries and
compensation for employees of and consultants to Hemispherx.

     The following report of the compensation  committee discusses our executive
                                       56


compensation policies and the basis of the  compensation  paid to our executive
officers in 2002.

     In general, the compensation  committee seeks to link the compensation paid
to each executive  officer to the  experience and  performance of such executive
officer. Within these parameters, the executive compensation program attempts to
provide an overall  level of executive  compensation  that is  competitive  with
companies   of   comparable   size  and  with  similar   market  and   operating
characteristics.

     There  are  three  elements  in  Hemispherx  executive  total  compensation
program, all determined by individual and corporate  performance as specified in
the  various  employment  agreements;  base  salary,  annual  compensation,  and
long-term incentives.

Base Salary

     The Summary  Compensation  Table shows  amounts  earned  during 2002 by our
executive  officers.  The base compensation of such executive officers is set by
terms of the employment agreement entered into with each such executive officer.
The Company  established  the base  salaries for Chief  Executive  Officer,  Dr.
William A. Carter under an employment  agreement in December 3, 1998 (as amended
on August 14, 2003),  which  provides for a base salary of $361,586 until May 8,
2008.  Also we entered  into an  extended  employment  agreement  with Robert E.
Peterson,  Chief Financial  Officer for a base salary of $155,988 until December
31, 2003.  Dr.  Carter and Mr.  Peterson's  agreements  allow for annual cost of
living increases.  Dr. Carter's compensation also includes funds previously paid
to Dr.  Carter by  Hahneman  Medical  University  where he served as a professor
until 1998. This  compensation  was continued by the Company and totaled $79,826
in each of 2000 and 2001, and $82,095 in 2002.

Annual Incentive

     Our Chief Executive Officer and our Chief Financial Officer are entitled to
an annual incentive bonus as determined by the  compensation  committee based on
such executive officers' performance during the previous calendar year. The cash
bonus  awarded to the  company's  Chief  Executive  Officer in 1999 and 2000 was
determined based on this provision of his employment agreement.

Performance Graph

                            ANNUAL RETURN PERCENTAGE
                                  Years Ending

Company Name / Index     Dec98       Dec99       Dec00        Dec01       Dec02
- -------------------------------------------------------------------------------
HEMISPHERX BIOPHARMA INC 69.25       44.55       -52.20       -5.26      -52.67
S&P SMALLCAP 600 INDEX   -1.31       12.40        11.80        6.54      -14.63
PEER GROUP                6.85       13.61        54.46       63.31       -7.96


                                 INDEXED RETURNS
                         Base     Years Ending
                         Period
Company Name / Index     Dec97  Dec98  Dec99  Dec00   Dec01  Dec02
- ------------------------------------------------------------------------------
HEMISPHERX BIOPHARMA INC 100    169.25 244.65 116.94  110.78  52.44
S&P SMALLCAP 600 INDEX   100     98.69 110.94 124.03  132.13 112.80
PEER GROUP               100    106.85 121.39 187.50  306.22 281.85

Peer Group Companies
- ------------------------------------------------------------------------------
GILEAD SCIENCES INC
ISIS PHARMACEUTICALS INC

                                       57

Item 12.  Security Ownership of Certain Beneficial Owners and Management and
          Related Stockholder Matters.

     The  following  table  sets  forth  as of  April 1,  2003  the  number  and
percentage of outstanding  shares of common stock  beneficially owned by each of
our Directors and the Named  Executives,  and all of our executive  officers and
directors  as a group.  As of December 31,  2002,  there were no other  persons,
individually or as a group,  known to the Hemispherx to be deemed the beneficial
owners of five percent or more of the issued and outstanding common stock.


                                       58

OFFICERS, DIRECTORS AND                                  % OF SHARES
PRINCIPAL STOCKHOLDERS      SHARES BENEFICIALLY OWNED    BENEFICIALLY OWNED (1)
- -------------------------  --------------------------    ----------------------

William A. Carter, M.D.     4,246,034 (2)                     11.4
Robert E. Peterson            314,074 (3)                      *
Ransom W. Etheridge           214,316 (4)                      *
Richard C. Piani              196,747 (5)                      *
William M. Mitchell, M.D.     200,640 (6)                      *
David R. Strayer, M.D.         87,246 (7)                      *
Carol A. Smith, Ph.D           28,457 (8)                      *
Araj-Eghbal Kiani              12,000 (9)
All directors and
executive officers as a
group (8 persons)           5,299,514                        13.7
- --------------------
* Less than 1%

     (1) For  purposes of this table,  a person or group of persons is deemed to
have "beneficial  ownership" of any shares of common stock which such person has
the right to acquire  within 60 days of April 1, 2003. For purposes of computing
the  percentage  of  outstanding  shares of common  stock held by each person or
group of persons named above,  any security  which such person or persons has or
have the right to acquire  within such date is deemed to be  outstanding  but is
not  deemed to be  outstanding  for the  purpose  of  computing  the  percentage
ownership of any other  person.  Except as  indicated  in the  footnotes to this
table and pursuant to applicable  community property laws,  Hemispherx  believes
based on  information  supplied by such persons,  that the persons named in this
table have sole voting and investment power with respect to all shares of common
stock which they beneficially own.

     (2) Includes (i) an option to purchase  73,728  shares of common stock from
Hemispherx  at an  exercise  price of $2.71 per share and  expiring on August 8,
2004, (ii) Rule 701 Warrants to purchase  1,400,000  shares of common stock at a
price of $3.50 per share, originally expiring on September 30, 2002 was extended
to September 30,2007;  (iii) warrants to purchase 465,000 shares of common stock
at $1.75  per  share  issued  in  connection  with the  1995  Standby  Financing
Agreement  and expiring on June 30, 2005;  (iv)  340,000  common stock  warrants
exercisable  at $4.00 per share and  originally  expiring on January 1, 2003 was
extended to January 1, 2008; (v) 170,000  common stock  warrants  exercisable at
$5.00 per share and expiring on January 2, 2005;(vi) 25,000 warrants to purchase
common stock at $6.50 per share and expiring on September 17,  2004;(vii) 25,000
warrants to purchase  common  stock at $8.00 per share and expiring on September
17, 2004;(viii) 100,000 warrants to purchase common stock at $6.25 per share and
expiring on April 8, 2004;  (ix) 20,000  warrants  to purchase  common  stock at
$4.00 per share  originally  expiring January 1, 2003 was extended to January 1,
2008,  (x) 188,325  common  stock  warrants  exercisable  at $6.00 per share and
expiring on February 22, 2006; (xi) 188,325 common stock warrants exercisable at
$9.00 per share and  expiring on February  22, 2006 (xii)  300,000  common stock
warrants granted in 1998 that are exercisable at $6.00 per share and expiring on
January 1, 2006 (xiii) options to purchase 6,666 shares of common stock at $4.03
per share and  expiring on January 3, 2011 (XIV)  250,000  warrants  exercisable
$2.00 per share in August 13, 2007 and 693,990 shares of common stock.

     (3)  Includes  (i) 27,574  options to purchase  common  stock at an average
                                       59


exercise price of $3.92 per share,  expiring on July 17, 2003; (ii) warrants to
purchase  50,000 shares of Common stock at an exercise price of $3.50 per share,
expiring on March 1, 2006;  (iii) warrants to purchase  100,000 shares of common
stock at $5.00 per share,  expiring on April 14, 2006;  (iv) 30,000  warrants to
purchase  common  stock at $5.00 per share an expiring on February  28, 2009 (v)
options to  purchase  6,000  shares at $4.03 per share that expire on January 3,
2011 (VI) 200,000 warrants exercised at $2.00 per share expiring on November 13,
2007 and (v) 500 shares of common stock.

     (4) Includes  20,000  warrants to purchase common stock at $4.00 per share,
originally  expiring  on  January 1, 2003 and was  extended  to January 1, 2008;
25,000 warrants to purchase common stock at $6.50 per share;  25,000 warrants to
purchase  common stock at $8.00 per share,  all expiring on September  12, 2004;
100,000  warrants  exercisable  $2.00 per share  expiring on August 13, 2007 and
44,316 shares of common stock.

     (5)  Includes  (i) 20,000  warrants to purchase  common  stock at $4.00 per
share;  (ii)  warrants to purchase  25,000  shares of common  stock at $6.50 per
share;  (iii) 25,000 warrants to purchase  common stock at $8.00 per share,  all
expiring on September 17, 2004;(vi)  100,000  warrants  exercisable at $2.00 per
share  expiring on August 13,  2007,  (vi) 8,847 shares of common stock owned by
Mr.  Piani (vi)  12,900  shares of common  stock  owned  jointly by Mr. and Mrs.
Piani; and (vii) 5000 shares of common stock owned by Mrs. Piani.

     (6)  Includes  (I)  warrants to purchase  12,000  shares of common stock at
$6.00 per share,  expiring on August 25, 2003;  (ii) 25,000 warrants to purchase
common stock at $6.50 per share;  (iii) 25,000 warrants to purchase common stock
at $8.00 per share all expiring on September  17,  2004;  (iv) 100,000  warrants
exercisable  at $2.00 per share expiring in August 13, 2007 and 13,640 shares of
common stock.

     (7) Includes (i) stock options to purchase 20,000 shares of common stock at
$3.50 per share;  (ii) 50,000  warrants to  purchase  common  stock at $4.00 per
share; (iii) 2,500 stock options  exercisable at $4.03 per share and expiring on
January 3, 2011 and; (iv)14,746 shares of common stock.

     (8) Consists of 5,000 warrants to purchase  common stock at $4.00 per share
expiring June 7, 2003; 6,791 stock options exercisable at $3.50 expiring January
22, 2007 10,000  warrants  exercisable at $2.00 per share expiring in August 13,
2007 and options to purchase  6,666  shares of common  stock at $ 4.03 per share
expiring on January 3, 2011.

     (9) Consist of 12,000  warrants  exercisable at $3.86 per share expiring on
April 30, 2005.

      Item 13.  Certain Relationships and Related Transactions.

     We have employment  agreements  with certain of our executive  officers and
have granted such officers and directors of the Company  options and warrants to
purchase common stock of the Company, as discussed under the headings, "Item 11.
Executive  Compensation," and "Item 12. Security Ownership of Certain Beneficial
Owners and Management," above.

     Ransom W. Etheridge,  a director of the Company,  is an attorney in private
practice who has rendered  corporate legal services to us from time to time, for
which he has received fees.  Richard Piani, a Director of the Company,  lives in
Paris, France and assists our European subsidiary in their dealings with medical
institutions and the European Medical  Evaluation  Authority.  William Mitchell,
                                       60


M.D. a Director of the  Company,  works with David  Strayer,  M.D. (our Medical
Director) in  establishing  clinical  trail  protocols as well as performs other
scientific  work for us from time to time. For these  services,  these Directors
were paid an aggregate of $170,150 in the year 2002. No individual  Director was
paid in excess of $60,000.00.

     William A. Carter,  Chief  Executive  Officer of the  Company,  received an
aggregate of $12,486 in short term advances which were repaid as of December 31,
2001. All advances bear interest at 6% per annum.  The Company loaned $60,000 to
Ransom W. Etheridge, a Director of the Company in November, 2001 for the purpose
of exercising 15,000 class A redeemable warrants. This loan bears interest at 6%
per  annum.  Dr.  Carter's  short term  advances  and Mr.  Etheridge's  loan was
approved by the board of Directors.

     We paid $33,450 to Carter  Realty for the rent of property  used at various
times in 2002 by us.  The  property  is owned by others  and  managed  by Carter
Realty.  Carter  Realty is owned by Robert  Carter,  the  brother  of William A.
Carter.

ITEM 14. Controls and Procedures.

     Our  management,  including  the  Chairman  of the  Board  (serving  as the
principal executive officer) and the Chief Financial Officer,  have conducted an
evaluation of the effectiveness of disclosure  controls and procedures  pursuant
to Exchange Act Rule 13a-14. Based on that evaluation, the Chairman of the Board
and the Chief  Financial  Officer  concluded  that the  disclosure  controls and
procedures are effective in ensuring that all material  information  required to
be filed in this annual report has been made known to them in a timely  fashion.
There have been no significant changes in internal controls, or in other factors
that could  significantly  affect internal controls,  subsequent to the date the
Chairman of the Board and Chief Financial Officer completed their evaluation.

ITEM 15. Principal Accounting Fees and Services.

     All work to be performed  by our  independent  accountants  is put forth in
engagement  letters which also includes  estimates of the cost of performing the
work. All engagement letters are presented to the Audit Committee for review and
approval.

     During 2002, our independent  Accountants,  BDO Seidman, LLP have billed us
$102,707  for  services  consisting  of the  annual  audit  and  reviews  of the
Company's  quarterly  financial  statements  and  $4,435  for the  review of the
Company's proxy materials, other SEC filings and other services.

     We did not retain BDO Seidman,  LLP for any professional  services relating
to financial information system design or implementation.

                                     PART IV

ITEM 16. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)(1)(2)Financial  Statements and Schedules - See index to financial statements
         on page F-1 of this Annual Report.

(a)(3)   Exhibits - See exhibit index below.

(b)      Exhibits and Reports on Form 8K
                                       61


    During the fourth quarter 2002, we filed the following  Current  Reports on
Form 8-K:  Report filed on March 12, 2003,  concerning  events that  occurred on
March 11, 2003.

     (c) As of the date of the  filing  of this  Annual  Report  on Form 10-K no
proxy  materials  have been furnished to security  holders.  Copies of all proxy
materials will be sent to the Commission in compliance with its rules. Except as
disclosed  in  the  footnotes,  the  following  exhibits  were  filed  with  the
Securities  and  Exchange  Commission  as  exhibits  to the  Company's  Form S-1
Registration  Statement  (No.  33-93314)  or  amendments  thereto and are hereby
incorporated by reference:

Exhibit
No.                     Description

2.1      First Asset Purchase Agreement dated March 11, 2003,
         by and between the Company and ISI.*
2.2      Second Asset Purchase Agreement dated March 11, 2003,
         by and between the Company and ISI.*
3.1      Amended and Restated  Certificate of Incorporation of the Company,
         as amended,  along with Certificates of Designations
3.1.1    Series E Preferred Stock
3.2      By-laws of Registrant, as amended
4.1      Specimen certificate representing our Common Stock
4.2      Form of Class A Redeemable Warrant Certificate
4.3      Form of Underwriter's Unit Option Purchase Agreement
4.4      Form of Class A Redeemable Warrant Agreement with Continental Stock
         and transfer and Trust Company
4.5      Rights  Agreement,  dated as of November 19, 2002,  between the Company
         and  Continental  Stock Transfer & Trust Company.  The Right  Agreement
         includes the Form of Certificate of Designation, Preferences and Rights
         of the  Series  A Junior  Participating  Preferred  Stock,  the Form of
         Rights  Certificate and the Summary of the Right to Purchase  Preferred
         Stock.**
10.1     1990 Stock Option Plan
10.2     1992 Stock Option Plan
10.3     1993 Employee Stock Purchase Plan
10.4     Form of Confidentiality, Invention and Non-Compete Agreement
10.5     Form of Clinical Research Agreement
10.6     Form of Collaboration Agreement
10.7     Amended and  Restated  Employment  Agreement by and
         between the Company and Dr.  William A. Carter,  dated
         as of July 1, 1993
10.8     Employment Agreement by and between the Registrant and Harris
         Freedman, dated August 1, 1994
10.9     Employment Agreement by and between the Company and Sharon Will dated
         August 1, 1994
10.10    License Agreement by and between the Company and The Johns Hopkins
         University, dated December 31, 1980
10.11    Technology  Transfer,  Patent  License and Supply  Agreement  by
         and between the  Company,  Pharmacia  LKB Biotechnology  Inc.,
         Pharmacia  P-L  Biochemicals  Inc.  and E.I. du Pont de Nemours and
         Company,  dated November 24, 1987
10.12    Pharmaceutical Use Agreement, by and between the Company and Temple
         University, dated August 3, 1988
                                       62


10.13    Assignment and Research Support Agreement by and between the Company,
         Hahnemann  University and Dr. David Strayer, Dr. lsadore Brodsky and
         Dr. David Gillespie, dated June 30, 1989
10.14    Lease Agreement  between the Company and Red Gate Limited
         Partnership,  dated November 1, 1989,  relating
         to the Company's Rockville, Maryland facility
10.15 Agreement  between the Company and Bioclones  (Proprietary)  Limited 10.16
Amendment, dated August 3, 1995, to Agreement between the Company
         and Bioclones  (Proprietary)  Limited (contained in Exhibit (10.46)
10.17    Amended employment agreement by and between the Company and Robert
         E. Peterson dated April 1, 2001
10.18    Forbearance  Agreement  dated March 11,  2003,  by and between ISI, the
         American National Red Cross and the Company.*
10.19    Forbearance  Agreement  dated March 11,  2003,  by and between  ISI, GP
         Strategies Corporation and the Company.*
10.20    Securities Purchase  Agreement,  dated March 12, 2003, by and among the
         Company and the Buyers named therein.*
10.21    Form of 6% Convertible Debenture of the Company.*
10.22    Form of Warrant for Common Stock of the Company.*
10.23    Registration  Rights  Agreement,  dated March 12,  2003,  by and
         among the  Company  and the Buyers  named therein.*
10.24    Agreement with Esteve.
10.25    Agreement with Gentiva Health Services.
21       Subsidiaries of the Registrant
23.01    BDO Seidman, LLP consent
99.1     Certification  of Chief  Executive  Officer  pursuant to 18 U.S.C.
         Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley
         Act of 2002.
99.2     Certification of Chief Financial Officer pursuant to 18 U.S.C.  Section
         1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley  Act of
         2002.


     * Filed with the  Securities  and Exchange  Commission as an exhibit to the
Company's  Current Report on Form 8-K (No.  0-27072) dated March 12, 2003 and is
hereby incorporated by reference.

     ** Filed with the Securities  and Exchange  Commission on November 20, 2002
as an exhibit to the Company's  Registration Statement on Form 8-A (No. 0-27072)
dated March 12, 2003 and is hereby incorporated by reference.

***      Filed herewith.

                                       63


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

HEMISPHERx BIOPHARMA, INC.
By: /S/William A. Carter, M.D.
       William A. Carter, M.D.
       Chief Executive Officer

April 11, 2003

     We, the undersigned  officers and directors of Hemispherx  Biopharma,  Inc.
hereby severally constitute William A. Carter, our true and lawful attorney with
full  power to him,  and to him  singly,  to sign for us and in our names in the
capacities  indicated  below,  any and all  reports  (including  any  amendments
thereto),  with all exhibits  thereto and any and all  documents  in  connection
therewith, and generally do all such thing in our name and on our behalf in such
capacities to enable  Hemispherx  Biopharma,  Inc. to comply with the applicable
provision of Securities  Exchange Act of 1934, as amended,  and all requirements
of the Securities and Exchange Commission,  and we hereby ratify and confirm our
signatures  as they may be  signed  by our said  attorneys,  to any and all such
reports  (including  any Amendments  thereto) and other  documents in connection
therewith.

     Pursuant  to the  requirements  of  Section  13 or  (d)  of the  Securities
Exchange of 1934, as amended, this report has been signed below by the following
persons  on behalf of this  Registrant  and in the  capacities  and on the dates
indicated.

/S/William A. Carter     Chairman of the Board, Chief Executive
- ----------------------
William A. Carter, M.D.  Officer and Director                     April 11 2003


/s/Richard Piani         Director                                 April 11 2003
- ----------------------
Richard Piani


/S/Robert E. Peterson    Chief Financial Officer                  April 11 2003
- ----------------------
Robert E. Peterson


/S/Ransom Etheridge      Secretary And Director                April 11 2003
- ----------------------
Ransom Etheridge


/s/William Mitchell      Director                           April 14 2003
- ----------------------
William Mitchell,M.D.,Ph.D.


/s/Iraj Kiani            Director                                 April 14 2003
- ----------------------
Iraj Kiani

                                       64


                                 CERTIFICATIONS


     Certifications  pursuant to Securities and Exchange Act of 1934 Rule 13a-14
as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002:



     I,  William  A.  Carter,   M.D.,  Chief  Executive  Officer  of  Hemispherx
Biopharma, Inc. (the "Company") certify that:

     (1) I have reviewed this annual report on Form 10-K of the Company;

     (2) Based on my  knowledge,  this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

     (3) Based on my knowledge,  the financial  statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Company as of, and for, the periods presented in this annual report.

                                                     /S/William A. Carter
                                                     -----------------------
                                                     William A. Carter, M.D.
                                                     Chief Executive Officer
                                                     April 11, 2003



     I, Robert Peterson,  Chief Financial Officer of Hemispherx Biopharma,  Inc.
(the "Company") certify that:

     (1) I have reviewed this annual report on Form 10-K of the Company;

     (2) Based on my  knowledge,  this annual report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report; and

     (3) Based on my knowledge,  the financial  statements,  and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Company as of, and for, the periods presented in this annual report.

                                                       S/ Robert E. Peterson
                                                       ----------------------
                                                       Robert Peterson
                                                       Chief Financial Officer
                                                       April 11, 2003


                                       1


        HEMISPHERx BIOPHARMA, INC AND SUBSIDIARIES

        Index to Consolidated Financial Statements

                                                               Page

  Report of Independent Certified Public Accountants. . . . .   F-2


  Consolidated Balance Sheets at December 31, 2001 and 2002 . . F-3

  Consolidated Statements of Operations for each of the years
  in the three-year period ended December 31, 2002. . . . . . . F-4

  Consolidated Statements of Changes in Stockholders' Equity
  and Comprehensive (Loss) for each of the years
  in the three-year period ended December 31, 2002  . . . . . . F-5


  Consolidated Statements of Cash Flows for each of the years
  in the three-year period ended December 31, 2002 . . . . . . .F-6


  Notes to Consolidated Financial Statements . . . . . .. . . . F-8


                                      F-1



               Report of Independent Certified Public Accountants


The Board of Directors and Stockholders
Hemispherx Biopharma, Inc.


     We have audited the accompanying  consolidated balance sheets of Hemispherx
Biopharma,  Inc. and  subsidiaries  as of December 31, 2001 and 2002 the related
consolidated  statements  of  operations,  changes in  stockholders'  equity and
comprehensive  (loss) and cash  flows for each of the three  years in the period
ended  December  31,  2002.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial position of Hemispherx
Biopharma,  Inc.  and  subsidiaries  as of  December  31,  2001 and 2002 and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2002 in  conformity  with  accounting  principles
generally accepted in the United States of America.



/s/ BDO SEIDMAN, LLP

Philadelphia, Pennsylvania
March 13, 2003, except for note 12, which is as of March 31, 2003

                                      F-2






                HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
                       Consolidated Balance Sheets
                       December 31, 2001 and 2002
                              (in thousands)
                                                        December 31,
                                                   ------------------------
                                                    2001            2002
                                                   -------         -------
                                                               
                                ASSETS
    Current assets:
     Cash and cash equivalents. . . . .            $3,107          $ 2,256
     Short term investments (Note 3). .             5,310              555
     Other receivables (Note 12)                        8            1,507
     Prepaid expenses and
      other current assets . . . . . .                381               71
                                                  -------        ---------
       Total current assets . . . . . .             8,806            4,389
     Property and equipment, net . . . .              246              155
     Patent and trademark rights, net. .            1,025              995
     Investments in unconsolidated affiliates       1,878              408
     Other assets . . . . . . . . .                    80               93
                                                  -------        ---------
       Total assets. . . . . . . . . .            $12,035         $  6,040
                                                  =======        =========

                 LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
     Accounts payable . . . . . . . . .           $   979          $   786
     Accrued expenses (Note 4). . . . .               293              678
                                                  -------        ---------
        Total current liabilities . . .             1,272            1,464
                                                  -------        ---------
    Commitments and contingencies
     (Notes 7,9, 10 and 12)

    Minority Interest in subsidiary (Note)(5c)          -             946

    Stockholders' equity
     (Note 5):
    Common stock. . . . . . . . . . .                   33              33
    Additional paid-in capital. . . .              106,832         107,155
    Accumulated other comprehensive
      income  (Note 2i). . . . . . . . .                17              35
    Accumulated deficit . . . . . . . .            (91,649)        (99,073)
    Treasury stock  . . . . . . . . . .             (4,470)         (4,520)
                                                   --------      ----------
        Total stockholders' equity. . .             10,763           3,630
                                                   --------      ----------
        Total liabilities and
         stockholders' equity . . . . .            $12,035       $   6,040
                                                   ========      ==========



  See accompanying notes to consolidated financial statements.

                                      F-3




                 HEMISPHERX BIOPHARMA, INC. AND SUBSIDIARIES
                    Consolidated  Statements of Operations For each of the years
    in the three-year period ended December 31, 2002
                (in thousands, except share and per share data)



                                                       December 31,
                                            ---------------------------------
                                             2000         2001       2002
                                            -------      -------     ------
                                                              
  Revenue: . . . . . . . . . .                $788         $390       $341
  License Fee income (Note9)                    -            -         563
                                            -------      -------     ------
                                               788          390        904
  Costs and expenses:
   Research and development . . . .          6,136        5,780       4,946
    General and
       administrative . . . . . . .          3,695        3,412       2,015
                                            -------      -------      -------
  Total costs and expenses . . .             9,831        9,192       6,961
Equity loss and write offs of
investments in unconsolidated
affiliates (Note 2c)                           (81)        (565)     (1,470)
Interest and other income . . . .              572          284         103
                                            -------      -------      -------

      Net loss. . . . . . . . . . .       $ (8,552)    $ (9,083)    $(7,424)
                                           ========     ========     ========


  Basic and diluted loss per share. .         $(.29)      $(.29)      $(.23)
                                            =======      ========     =======

  Weighted average shares
     outstanding. . . . . . . . . .       29,251,846    31,433,208  32,085,776
                                          ==========    ==========  ===========



See accompanying notes to consolidated financial statements.

                                      F-4



                   HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
         Consolidated Statements of Changes in Stockholders' Equity and
                         Comprehensive (loss)-beginning
     For each of the years in the three-year period ended December 31, 2002

                        (in thousands except share data )



                                                                                 

                                 Common          Common       Additional
                                  Stock          Stock        paid in        Deferred      Accumulated other
                                 Shares          .001 Par     capital        Compensarion   Comprehensive
                                                  Value                                     Income (loss)
                               ----------   -------------   ------------    -------------  --------------
Balance at December 31, ..     27,974,507   $         28    $     87,972    $       (310)   $        --


Common stock issued ......      2,393,381                          9,860            --               --
                                                      2

Purchase of equity .......           --             --                67            --               --
investment

Treasury stock purchased .           --             --              --              --               --

Treasury stock issued  in            --             --                 8            --               --
settlement of debt

Stock compensation and ...           --             --                87             310             --
service expense, net

Registration costs .......           --             --               (10)           --               --

Net  comprehensive  (loss)           --             --                --            --                 34
                                ----------   -------------   ------------    -------------  --------------
Balance at December 31, ..     30,367,888             30          97,984            --                 34

Common stock issued ......      2,155,900              3           8,072            --                 --

Purchase of equity
investment ...............         12,000           --                72            --                 --

Treasury stock purchased .           --             --              --              --                 --

Note issued for purchase
of stock .................           --             --               (60)           --                 --

Stock  issued in
settlement of debt .......         21,198           --                91            --                 --

Stock and stock warrant ..         19,000           --               673            --                 --
compensation expense

Net comprehensive (loss) .            --            --              --             --                (17)
                              ----------   -------------   ------------    -------------  --------------
Balance at December 31,2001    32,575,986            33        106,832              --                17

Common stock  issued .....           --             --              37              --               --


Treasury stock Purchased .           --             --              --              --               --

Stock issued in
settlement of debt .......         48,392           --             154              --               --

Stock and stock warrant ..                                                          --               --
compensation expense .....           --             --             132

Net comprehensive (loss) .                                                          --               18
                              -----------   -------------   ------------    -------------  --------------
Balance at December 31,2002    32,650,178   $        33     $  107,155      $       --       $        35
                              ===========   =============   ============    =============  =============
                                      F-5a
                            See accompanying notes to consolidated financial statements







                   HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
         Consolidated Statements of Changes in Stockholders' Equity and
                         Comprehensive (loss)-continued
     For each of the years in the three-year period ended December 31, 2002

                        (in thousands except share data )
                                                    
                                        Treasury              Total
                           Accumulated   stock     Treasury   stockholders'
                            deficit      shares    stock      equity
                           -----------  --------  ---------  -------------
Balance at December 31, .. $(74,014)    167,935   $ (1,019)   $12,657

Common stock issued ......      --      (20,000)       123      9,985

Purchase of equity .......      --     (100,000)       551        618
investment

Treasury stock purchased .      --      350,800     (3,591)    (3,591)

Treasury stock issued  in
settlement of debt .......      --       (3,089)        26         34

Stock compensation and
service expense, net......      --          --          --        397

Registration costs .......      --          --          --        (10)

Net  comprehensive  (loss)   (8,552)        --          --     (8,518)
                           ----------   --------  ---------   ------------
Balance at December 31,2000 (82,566)     395,646   (3,910)     11,572

Common stock issued ......      --          --          --      8,075

Purchase of equity
investment ...............      --          --          --         72

Treasury stock purchased .      --       120,060     (560)       (560)

Note issued for purchase
of stock .................      --          --          --        (60)

Stock  issued in
settlement of debt .......      --          --          --         91

Stock and stock warrant ..      --          --          --        673

Net comprehensive (loss) .   (9,083)        --          --      (9,100)
                          ----------   --------  ---------   ------------
Balance at
December 31,2001            (91,649)   515,706    (4,470)       10,763

Common stock  issued .....      --          --          --          37

Treasury stock Purchased .      --      27,500       (50)          (50)

Stock issued in
settlement of debt .......      --          --          --         154

Stock and stock warrant ..      --          --          --         132

Net comprehensive (loss) . (7,424)          --          --      (7,424)
                        ----------   --------  ---------   ------------
Balance at
December 31,2002         $(99,073)     543,206   $(4,520)       $3,630
                        ==========   ========= =========   ============
                                      F-5b
           See accompanying notes to consolidated financial statements






                   HEMISPHERx BIOPHARMA, INC. AND SUBSIDIARIES
                      Consolidated  Statements  of Cash  Flows  for  each of the
     years in the three-year period ended December 31, 2002

                                  (in thousands)





                                                      December 31,
                                              -----------------------------
                                              2000        2001        2002
                                             ------      ------      ------
                                                             

Cash flows from operating activities:
 Net loss . . . . . . . . . . . . .         $ (8,552)   $(9,083)    $(7,424)
Adjustments to reconcile net loss to net
  cash used in operating activities:
  Depreciation of property
   and equipment. . . . . . . . . . .         131            127          91
  Amortization of patent and
   trademark rights . . . . . . . .           356            397         206
  Equity loss and write offs of investments
            in unconsolidated affiliates. .     81           565       1,470
  Stock compensation and
    service expense . . . . . . . . .         397            673         132
  Changes in assets and liabilities:
   Other receivables. . . . . . . .            15             52      (1,293)
   Prepaid expenses
        and other current assets. . .        (463)           202         104
   Accounts payable . . . . . . . . .         210           (271)        (67)
   Accrued expenses . . . . . . . . .        (266)           139         385
   Security deposits. . . . . . . . .          17            (82)        (13)
                                            --------     ---------    --------
   Net cash used in
      operating activities. . . . . .       (8,074)        (7,281)    (6,409)
                                            ---------    ---------   --------
Cash flows from investing activities:
 Purchase of property and equipment .         (171)             -          -
 Additions to patent and trademark rights .   (197)          (218)     (176)
 Maturity of short term investments .         2,157         4,613     5,293
 Purchase of short term investments .        (4,589)       (5,293)     (520)
 Investments in unconsolidated affiliates      (411)          (22)        -
 Other investments. . . . . . . . . .           (34)            -         -
                                             -------     ---------   --------
      Net (used in) cash provided by investing
                       activities . .          (3,245)       (920)    4,597
                                             --------    ---------   --------


                                      F-6







                                   (CONTINUED)


                   HEMISPHERX BIOPHARMA, INC. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (Continued)
                                 (in thousands)
                                                       December 31,
                                              -----------------------------
                                                2000         2001        2002
                                               ------       ------      ------
                                                                
Cash flows from financing activities:
 Proceeds from stock subscriptions and issuance
          of common stock, net. . . .             2,250        72       $ 65

 Proceeds from issuance of preferred stock of        -          -        946
                           subsidiary
 Proceeds from exercise of
             stock warrants . . . . .             9,985      8,075        -
 Purchase of treasury stock . . . . .            (3,591)      (560)      (50)
                                                ----------  ---------    -------
     Net cash provided by
      financing activities. . . . . .             8,644      7,587       961
                                                --------  ----------   -------
     Net decrease in cash and
      cash equivalents. . . . . . . .            (2,675)      (614)     (851)
Cash and cash equivalents at
             beginning of year. . . .             6,396      3,721      3,107
                                              ----------   --------    -------
Cash and cash equivalents
                   at end of year . .        $    3,721    $ 3,107      $2,256
                                              ==========   ========    =======
Supplemental disclosures of cash flow information:
Issuance of treasury stock for
           Investment  . . . . . . .         $      618    $    -      $   -
                                              ==========   ========    =======
Issuance of common stock
      for accrued expenses. . . . . .        $       34    $    91     $   154
                                              ==========   ========    =======
Issuance of common stock
      for note receivable . . . . . .        $      -      $    60     $    -
                                              ==========   ========    =======



See accompanying notes to consolidated financial statements.
                                      F-7




               HEMISPHERX BIOPHARMA, INC. AND SUBSIDIARIES

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) Business


     Hemispherx   BioPharma,   Inc.  and   subsidiaries   (the   Company)  is  a
pharmaceutical  company using nucleic acid  technologies to develop  therapeutic
products for the treatment of viral diseases and certain cancers.  The Company's
drug technology uses specially configured  ribonucleic acid (RNA). The Company's
double-stranded RNA drug product, trademarked Ampligen(R) , is in human clinical
development  for various  therapeutic  indications.  The potential  efficacy and
safety  of  Ampligen(R)  is being  evaluated  clinically  for  three  anti-viral
indications:  myalgic encephalomyelitis,  also known as chronic fatigue syndrome
("ME/CFS"), human immunodeficiency virus (HIV) associated disorders, and chronic
hepatitis C (HVC) virus infection. The Company also has clinical experience with
Ampligen(R) used in treating  patients with certain cancers including renal cell
carcinoma  (kidney cancer) and metastatic  malignant  melanoma.  The Company has
other compounds to be evaluated.


     The consolidated  financial  statements include the financial statements of
Hemispherx  BioPharma,  Inc. and its  wholly-owned  subsidiaries  BioPro  Corp.,
BioAegean  Corp.  and Core BioTech Corp.  which were  incorporated  in September
1994, and are inactive,  and  Hemispherx  Biopharma-Europe  N.V./S.A.  which was
incorporated  in  1998  and  Hemispherx   Biopharma   Europe  S.A.,   which  was
incorporated during 2002. All significant intercompany balances and transactions
have been  eliminated  in  consolidation.  The Company also has  investments  in
unconsolidated  affiliates  which are accounted for on the equity or cost method
of accounting (see note 2c).

     On March 11, 2003, we acquired from Interferon Sciences, Inc. ("ISI") ISI's
inventory  of ALFERON N  Injection(R),  a  pharmaceutical  product  used for the
treatment  of certain  types of genital  warts,  and a limited  license  for the
production,  manufacturing,  use, marketing and sale of this product. As partial
consideration,  we issued 487,028 shares of our common stock to ISI. Pursuant to
our  agreements  with ISI, we are in the process of  registering  the  foregoing
shares for public sale.  Except for 62,500 of the shares  issued to ISI, we have
guaranteed the market value of the shares retained by ISI through March 11, 2005
to be $1.59 per share.

     On March 11, 2003,  we also entered into an agreement to purchase  from ISI
all of its  rights  to the  product  and other  assets  related  to the  product
including,  but not  limited to, real  estate and  machinery.  This  purchase is
contingent on us receiving appropriate Governmental approval for the real estate
transaction.  For these  assets,  we have  agreed to issue to ISI an  additional
487,028 shares and to issue 314,465 shares and 267,296  shares,  respectively to
two creditors of ISI. The Company will be required to satisfy other  liabilities
of ISI which aggregate approximately $521,000 and which are secured by a lien on
ISI's real  estate.  We have  guaranteed  the market  value of all but 62,500 of
these shares on terms substantially similar to those for the initial acquisition
of the ISI assets.

     We will  account for these  transactions  as a Business  Combination  under
Statement of Financial  Accounting  Standards  ("SFAS") No. 141  Accounting  for
Business Combinations.

     On May 1, 1997, the Company received permission from the U.S. Food and Drug
Administration ("FDA") to recover the cost of Ampligen(R) from patients enrolled
in the Company's  AMP-511  ME/CFS  open-label  treatment  protocol.  The cost of
Ampligen(R)  to the patient is $2,100 for the first eight weeks of treatment and
$2,400 for each additional eight-week period thereafter.

     In 1998, the Company initiated the recruitment of clinical investigators to
enroll   ME/CFS   patients   in  the   confirmatory   Phase  III  double   blind
placebo-controlled  clinical  study of  Ampligen(R).  This  clinical  trial  was
approved by the FDA in 1998 and is designed to test the safety and efficiency of
Ampligen(R) in treating ME/CFS.
                                      F-8


    The ME/CFS Cost Recovery  Treatment  Program in Belgium was started in 1994
with the approval of the Belgian  Regulatory  authorities.  Since its inception,
over 150 patients have participated in this program.  Clinical data collected in
the  treatment of these ME/CFS  patients  will be used to support the  Company's
European  Medical  Evaluation  Agency ("EMEA") Drug Approval  Application and in
applications in other  regulatory  jurisdictions.  A similar program underway in
Austria is undergoing expansion.

(2) Summary of Significant Accounting Policies

(a) Cash and Cash Equivalents

     Cash  equivalents  consist  of  money  market  certificates  and  overnight
repurchase  agreements  collateralized  by money market securities with original
maturities  of less  than  three  months,  with  both a cost and  fair  value of
$2,552,000 and $1,404,000 at December 31, 2001 and 2002, respectively.


(b) Short-term Investments


     Investments  with  original  maturities  of  more  than  three  months  and
marketable equity securities are considered  available for sale. The investments
classified as available for sale include debt  securities and equity  securities
carried at estimated  fair value of $5,310,000 and $555,000 at December 31, 2001
and 2002  respectively.  The  unrealized  gains and  losses  are  recorded  as a
component of shareholders' equity.

(c) Investments in unconsolidated affiliates

     Investments in Companies in which the Company owns 20% or more and not more
than 50% are accounted for using the equity method of accounting.

     Investments  in  Companies  in which the Company  owns less than 20% of and
does not  exercise a  significant  influence  are  accounted  for using the cost
method of accounting.

     In 1998,  the Company  invested  $1,074,000  for a 3.3% equity  interest in
R.E.D.  Laboratory ("R.E.D.").  R.E.D. is a privately held biotechnology company
for the development of diagnostic markers for Chronic Fatigue Syndrome and other
chronic immune diseases. We have a research collaboration  agreement with R.E.D.
to  assist  in  this  development.  R.E.D.  is  headquartered  in  Belgium.  The
investment was recorded at cost. During the three months ended June 30, 2002 and
December  31,  2002 we  recorded  non-cash  charges  of  $678,000  and  $396,000
respectively,  to  operations  with respect to our  investment  in R.E.D.  These
charges  were  the  result  of our  determination  that  R.E.D.'s  business  and
financial  position had  deteriorated to the point that our investment had been
permanently impaired.

     In  April,  1999  we  acquired  a 30%  equity  position  in the  California
Institute  of  Molecular  Medicine  ("CIMM")  for  $750,000  and entered  into a
research and development  arrangement.  CIMM'S research is focused on developing
therapies for use in treating patients  affected by Hepatitis C ("HCV").  We use
the equity  method of  accounting  with respect to this  investment.  During the
fourth quarter of 2001 we recorded a non-cash charge of $485,000 with respect to
our  investment  in CIMM.  This was a result of our  determination  that  CIMM's
operations  have not yet evolved to the point where the full  carrying  value of
our investment could be supported based on that company's financial position and
operating results.  The amount  represented the unamortized  balance of goodwill
                                      F-9


included  as part of our  investment.  During  2002, we wrote  down to zero our
remaining  investment based on that Company's continuing operating losses. These
charges are reflected in the  Consolidated  Statements  of Operations  under the
caption "Equity loss in unconsolidated  affiliates".  We still believe CIMM will
succeed in their  efforts to advance  therapeutic  treatment  of HCV. We believe
that CIMM's  Hepatitis C  diagnostic  technology  has great  promise and fills a
long-standing  global void in the  collective  abilities  to diagnose  and treat
Hepatitis C infection at an early stage of the disorder.

     The Company's investment in Ribotech,  Ltd. is also accounted for using the
equity method of accounting.  The Company  received  24.9% of Ribotech,  Ltd. as
partial compensation under the license agreement described in note 10. Ribotech,
Ltd.  has incurred  net losses  since  inception.  The Company does not share in
those losses in accordance with the licensing  agreement and is not obligated to
fund such losses. The net investment in Ribotech is zero as of December 31, 2001
and 2002.  During 2000, the Company prepaid  $500,000 to Ribotech,  Ltd. for raw
material purchases. $110,000 of materials were delivered in 2000 and the balance
of $390,000 was applied towards the purchase of materials during 2001.

     Investments in unconsolidated affiliates also includes an equity investment
in Chronix  Biomedical  ("Chronix").  Chronix  focuses upon the  development  of
diagnostics  for chronic  diseases.  The initial  investment was made in May 31,
2000 through the issuance of 50,000 shares of Hemispherx Biopharma,  Inc. common
stock from the  treasury.  On October 12, 2000 an  additional  50,000  shares of
common  stock  were  issued  from  the  treasury  for  a  total   investment  of
approximately $678,000. During 2001 additional common stock plus cash were given
to Chronix for a total  investment  at  $700,000.  The  percentage  ownership in
Chronix is  approximately  5.4% and is  accounted  for under the cost  method of
accounting.  During the quarter  ended  December 31, 2002, we recorded a noncash
charge of $292,000 with respect to our  investment in Chronix.  This  impairment
reduces our carrying  value to reflect a permanent  decline in Chronix's  market
value based on their current proposed investment offerings.

     Pursuant to a strategic  alliance  agreement,  the Company provided Chronix
with  $250,000  during  2000  to  conduct  research  in  an  effort  to  develop
intellectual  property on potential  new products  for  diagnosing  and treating
various chronic  illnesses  including  chronic fatigue  syndrome.  The strategic
alliance  agreement  provides the Company certain royalty rights with respect to
certain diagnostic  technology developed from this research and a right of first
refusal to license certain therapeutic  technology developed from this research.
The payment of $250,000 was charged to research and  development  expense during
2000.

(d) Property and Equipment                           (000 omitted)
                                                      December 31,
                                                    2001        2002
                                                    ----        ----
       Furniture, fixtures, and equipment        $  1,178   $      760
       Leasehold improvements                          96           85
                                                   -------   ----------
       Total property and equipment                 1,274          845
       Less accumulated depreciation                1,028          690
                                                   -------   ----------
       Property and equipment, net               $    246   $      155
                                                   =======   ==========

     Property and equipment consists of furniture,  fixtures,  office equipment,
and  leasehold   improvements   and  is  recorded  at  cost.   Depreciation  and
amortization  is computed  using the  straight-line  method  over the  estimated
useful  lives of the  respective  assets,  ranging  from  five to  seven  years.
                                      F-10


Depreciation  and  amortization  expense was $131,000, $127,000 and $91,000 for
2000, 2001 and 2002,  respectively.  In 2002, fully depreciated equipment in the
amount of $418,000 and fully depreciated leasehold improvements in Europe in the
amount of $12,000 were written-off due to the closing of European offices.

(e) Patent and Trademark Rights

     Effective  October 1, 2001, the Company adopted a 17 year estimated  useful
life for  amortization  of its  patent  and  trademark  rights  in order to more
accurately  reflect their useful life. Prior to October 1, 2001, the Company was
using a 10 year estimated useful life. The adoption of the 17 year life had been
accounted for as a change in accounting estimate.

     Patents and  trademarks are stated at cost  (primarily  legal fees) and are
amortized  using the  straight  line  method  over the life of the  assets.  The
Company  reviews its patents and  trademark  rights  periodically  to  determine
whether  they have  continuing  value.  Such review  includes an analysis of the
patent and  trademark's  ultimate  revenue  and  profitability  potential  on an
undiscounted  cash flow basis to support  the  realizability  of its  respective
capitalized cost. Management's review addresses whether each patent continues to
fit into the Company's strategic business plans. During the years ended December
31, 2000,  2001 and 2002,  the Company  decided not to pursue the  technology in
certain countries for strategic reasons and recorded charges of $32,000, $38,000
and $5,000,  respectively.  Amortization  expense  was  $324,000,  $359,000  and
$201,000 in 2000, 2001 and 2002,  respectively.  The accumulated amortization as
of December 31, 2001 and 2002 is $2,096,000 and $1,996,000, respectively.

(f) Revenue

     Revenue from the sale of Ampligen(R) under cost recovery clinical treatment
protocols  approved by the FDA is  recognized  when the treatment is provided to
the patient.

     Revenues  for   non-refundable   license  fees  are  recognized  under  the
performance  method. This method recognizes revenue to the extent of performance
to date under a licensing  agreement.  In computing earned revenue, it considers
only the amount of  non-refundable  cash actually  received to date. This method
considers  future  payments to be contingent and thus ignores the possibility of
future  milestone  payments  when  computing  the amount of revenue  earned in a
current period.

     During the periods ending  December 31, 2000, 2001 and 2002 the Company did
not receive any grant monies from local, state and or Federal Agencies.

     The terms of the  agreement  granting  the  licensee  marketing  rights for
Ampligen(R) for the treatment of myalgic/chronic  fatigue syndrome ("ME/CFS") in
Spain,  Portugal and Andorra  require the Company to provide the  licensee  with
technical,  scientific and  commercial  information.  The Company  fulfilled the
requirements  during the first quarter of 2002. The agreement  terms required no
additional performance on the part of the Company.

     The agreement  also  requires the licensee to pay of 1,000,000  Euros after
FDA approval of  Ampligen(R)  for the treatment of ME/CFS and a fee of 1,000,000
after  issuance  in  Spain  of  final  marketing   approval   authorization  for
Ampligen(R)  for  the  treatment  of  ME/CFS.  See  Note  6  for  more  detailed
information.

                                      F-11

(g) Net Loss Per Share

     Basic and diluted net loss per share is computed using the weighted average
number of shares of common  stock  outstanding  during  the  period.  Equivalent
common  shares,  consisting of stock  options and warrants,  are excluded from a
calculation of diluted net loss per share since their effect is antidilutive.

(h) Accounting for Income taxes

     Deferred  income  tax  assets  and  liabilities  are  determined  based  on
differences  between the financial  statement  reporting and tax bases of assets
and  Liabilities and are measured using the enacted tax rates and laws in effect
when the differences are expected to reverse. The measurement of deferred income
tax assets is  reduced,  if  necessary,  by a  valuation  allowance  for any tax
benefits  which are not expected to be realized.  The effect on deferred  income
tax assets and  liabilities of a change in tax rates is recognized in the period
that such tax rate changes are enacted.

(i) Comprehensive (loss)

     On  January  1,  1998,  the  Company   adopted  SFAS  No.  130,   Reporting
Comprehensive Income. Statement of Financial Accounting Standards (SFAS) No. 130
establishes   standards  for  reporting  and   presentation   of  the  Company's
comprehensive  (loss) and its components in a full set of financial  statements.
Comprehensive  (loss) consists of net loss and net unrealized  gains (losses) on
securities  and is  presented  in the  consolidated  statements  of  changes  in
stockholders' equity and comprehensive (loss).

(j) Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the reported  amounts of revenues and expenses for the reporting
period. Actual results could differ from those estimates.

(k) Foreign currency translations

     Assets and  liabilities of the Company's  foreign  operations are generally
translated into U.S. dollars at current exchange rates as of balance sheet date.
Revenues and  expenses  are  translated  at average  exchange  rates during each
period.  Transaction gains and losses that arise from exchange rate fluctuations
are included in the results of operations as incurred. The resulting translation
adjustments are immaterial for all years presented.

(l) Recent Accounting Standard and Pronouncements:

     In January 2003,  the Financial  Accounting  Standards  Board (FASB) issued
Interpretation   No.  46,,   "Consolidation  of  Variable   Interest   Entities"
("Interpretation No. 46"), that clarifies the application of Accounting Research
Bulletin No. 51,  Consolidated  Financial  Statements,  "to certain  entities in
which  equity  investors  do  not  have  the  characteristics  of a  controlling
financial  interest or do not have  sufficient  equity at risk for the entity to
finance its activities  without additional  subordinated  financial support from
other  parties.  Interpretation  No. 46 is applicable  immediately  for variable
interest entities created after January 31, 2003. For variable interest entities
created  to  January  31,  2003,  the  provision  of  Interpretation  No. 46 are
                                      F-12


applicable  no later  than  July 1,  2003. The  Company  does not  expect  this
Interpretation to have an effect on the consolidated financial statements.

     In August 2001, the FASB issued  Statement No. 143,  "Accounting  for Asset
Retirement Obligation" ("SFAS 143"), which provides the accounting  requirements
for retirement  obligation  associated with tangible long-lived assets. SFAS 143
requires  entities  to  record  the  fair  value of the  liability  for an asset
retirement obligation in the period in which it is incurred and is effective for
the Company's 2003 fiscal year. The adoption of SFAS 143 is not expected to have
a material impact on the Company's consolidated results of operations, financial
position or cash flows.

     In October 2001,  the FASB issued  Statement No. 144,  "Accounting  for the
Impairment or Disposal of Long-lived  Assets"  ("SFAS 144").  SFAS 144 addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets.  This statement  supersedes SFAS Statement No. 121,  "Accounting for the
Impairment of Long-Lived  Assets and for Long-Lived  Assets to Be Disposed Of, "
and the accounting and reporting provision of APB Opinion No. 30, "Reporting the
Results  of  Operations-Reporting  the  Effects  of  Disposal  of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
transactions.  "This new pronouncement also amends Accounting  Research Bulletin
(ARB) No. 51 "Consolidated Financial Statements,  "to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. SFAS
144  required  that one  accounting  model be used for  long-lived  assets to be
disposed of by sale, whether previously held and used or newly acquired and also
broadens the  presentation  of  discontinued  operation to include more disposal
transactions.  SFAS 144 is effective for fiscal years  beginning  after December
15, 2001 and interim periods within those fiscal years.  Adoption of SFAS 144 on
January 1, 2002, did not have impact on the Company's financial  position,  cash
flows or results of operation for the year ended December 31, 2002.

     In June 2002,  the FASB  issued  Statement  No. 146,  "Accounting  for Cost
Associated  with Exit or Disposal  Activities"  ("SFAS  146"),  which  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities,  and nullifies Emerging Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain  Employee  termination  Benefits and Other Costs to Exit
and  Activity  (including  Certain  Costs  Incurred in a  Restructuring)"  which
previously governed the accounting treatment for restructuring activities.  SFAS
146 applies to costs  associated  with an exit activity that does not involve an
entity  newly  acquired  in a business  combination  or with  disposal  activity
covered by SFAS 144. Those costs include, but are not limited to, the following:
(1) termination  benefits  provide to current  employees that are  involuntarily
terminated under the terms of a benefit  arrangement that, in substance,  is not
an ongoing benefit arrangement or individual deferred-compensation  contract,(2)
costs to  terminate  a contract  that is not a capital  lease,  and (3) costs to
consolidated facilities or relocated employees. SFAS 146 does not apply to costs
associated  with the  retirement of long-lived  assets covered by SFAS 143. SFAS
146  will be  applied  prospectively  and is  effective  for  exit  or  disposal
activities after December 31, 2002.

     In December  2002,  the FASB issued  Statement  No.  148,  "Accounting  for
Stock-Based  Compensation-Transition  and  Disclosure",  and  amendment  of FASB
Statement No. 123 ("SFAS").  SFAS 148 amends FASB Statement No. 123,  Accounting
for Stock-Based Compensation, to provide alternative method of transition for an
entity  that  voluntarily  changes to the fair  value  based of  accounting  for
stock-based employee  compensation.  It also amends the disclosure provisions of
that Statement to require prominent disclosure about the effects on reported net
income of an entity's  accounting  policy  decisions with respect to stock-based
employee  compensation.  Finally,  this Statement amends  Accounting  Principles
Board ("APB") Opinion No. 28, Interim Financial  Reporting to require disclosure
                                      F-13


about those effects in interim financial information. SFAS 148 is effective for
financial  statements  for fiscal  years ending  after  December  15, 2002.  The
Company  will  continue  to  account  for  stock-based  compensation  using  the
intrinsic  value method of APB Opinion No. 25,  "Accounting  for Stock Issued to
Employees, "but has adopted the enhance disclosure requirements of SFAS 148 (See
Note 10).

(m) Research and Development Costs

     Research and  development  related to both future and present  products are
charged to operation as incurred.

(n) Stock Compensation

     The Company  applies the intrinsic  value method in  accordance  Accounting
Principles  Bulletin  (APB)  Opinion  No. 25,  "Accounting  for Stock  Issued to
Employees" in accounting  for  stock-based  compensation  of its employees  and,
accordingly,  no  compensation  cost  has been  recognized  for  stock  purchase
warrants  and  options   issued  to  employees.   Had  the  Company   determined
compensation  cost based on the fair value at the grant date for its stock-based
compensation of its employees in accordance with FASB 123 the Company's net loss
would have been increased to the pro forma amounts indicated below:



                    (In Thousands except for per share data)

For the years ended December 31,    2000          2001          2002
                                     ----          ----          ----
  Net loss-as reported            $(8,552)      $(9,083)      $(7,424)


  Add: Stock based compensation
  included in net loss as reported,
  net of related tax effects         -               -             -

  Deduct: Stock based compensation
  determined under fair value based
  method for all awards, net of
  related tax effects                (237)         (632)       (1,085)


  Net loss - pro forma            $(8,789)      $(9,715)      $(8,509)

  Basic and diluted loss
  per share - as reported           $(.29)        $(.29)        $(.23)

  Basic and diluted loss
  per share - pro forma             $(.30)         $(.31)       $(.27)


     In 1999, the Company granted  275,000  warrants to employees in recognition
of services performed and services to be performed.  The fair value of the stock
purchase   warrants   granted  during  1999  was  also   determined   using  the
Black-Scholes  option  pricing  model  with  a  rate  of  5.18%,  volatility  of
135.4%-294.31%,  and expected  lives of 2 years.  These warrants are included in
the  2,633,000  non-public  warrants  outstanding  as of  December  31,  2000 as
described in footnote 5 (ii). There were no warrants granted to employees during
2000. During 2001 the Company granted 406,650 warrants to employees. The Company
granted to  employees  8,000  options in 2000 and  94,000  options in 2001.  See
                                      F-14


footnote 5(i).The fair value of stock options and warrants  granted during 2001
was  determined  using Black Scholes  Option Pricing Model with a rate of 4.23%,
volatility of 69.7% to 74.9% and expected life of three years. In 2002 1,622,000
warrants  were issued to  employees in  recognition  of services  performed  and
services to be performed. The fair value of the warrants granted during 2002 was
determined  using  Black  Scholes  Option  Pricing  model  with a rate of 5.23%,
volatility of 63.17%, and expected life of 2.5 and 4 years. The weighted average
fair value of those options and warrants granted during the years ended December
31, 2002, 2001 and 2000, were estimated as $0.62, $1.57 and $1.09,respectively.

     For stock  warrants  granted to  non-employees,  the Company  measures fair
value of the equity instruments utilizing the Black-Scholes method if that value
is more reliably  measurable than the fair value of the consideration or service
received. The Company amortizes such cost over the related period of service.

     The  exercise  price of all stock  warrants  granted  was equal to the fair
market value of the underlying  common stock as defined by APB 25 on the date of
the grant.

(3) Short-term investments:

Securities classified as available for sale are summarized below:
                                 (000's omitted)

                                            December 31, 2001
                                             ---------------
                                               Unrealized
                                             ---------------
                                    Adjusted                   Carrying
                                     cost      Gains  (Losses)    Value
                                   ---------   -----   -------   --------
General Motors Commercial Paper    $  3,977    $  13   $  -      $ 3,990
Ford Motors commercial paper            795        1      -          796
Calamos Mutual Market                   521        3      -          524
                                   ---------   -----   -------  --------
                      Total        $  5,293   $   17  $   -    $   5,310
                                   =========   =====   =======  ========

                                             December 31, 2002
                                             ---------------
                                               Unrealized
                                             ---------------

                                    Adjusted                  Carrying
                                     cost     Gains  (Losses)    Value
                                   ---------  -----  -------  --------
Calamos Mutual Market              $    521  $   34  $  -      $   555
                                   ---------  -----  -------  --------
                   Total           $    521  $   34  $ -       $   555
                                   =========  =====  =======  ========

                                      F-15


(4) Accrued Expenses

Accrued expenses at December 31, 2001 and 2002 consists of the following:

                                                  (000's omitted)
                                                    December 31,
                                                   -------------
                                                  2001       2002
                                                 -----     ------
Salaries . . . . . . . . . . . . . . . . .       $  85     $    6
Other Accrued expenses . . . . . . . . . .         208        222
Fees Associated with Litigation Settlement.         _         450
                                                 ------    -------
                                                 $ 293     $  678
                                                 ======    =======
(5) Stockholders' Equity

(a) Preferred Stock

     The  Company  is  authorized  to issue  5,000,000  shares of $.01 per value
preferred  stock  with  such  designations,  rights  and  preferences  as may be
determined by the board of directors.  There were no preferred shares issued and
outstanding at December 31, 2001 and 2002.

(b) Common Stock and Exercise of Stock Warrants

     The Company is  authorized  to issue  50,000,000  shares of $.001 par value
Common  Stock.  As of December  31,  2001 and 2002,  32,060,280  and  32,106,972
shares, net of shares held in the treasury, were outstanding, respectively.

     The exercise of stock warrants  generated  $9,985,000 and $8,075,000 in net
proceeds to the Company in 2000 and 2001, respectively.  There were no exercises
during 2002.

(c) New Equity Financing

     On March 20, 2002 our European Subsidiary Hemispherx Biopharma Europe, S.A.
("Hemispherx,  S.A.")  entered  into a Sales  and  Distribution  agreement  with
Laboratorios  del Dr.  Esteve  S.A.  ("Esteve").  Pursuant  to the  terms of the
Agreement, Esteve was granted the exclusive right to market Ampligen(R) in Spain
Portugal and Andorra for the treatment of Myalgic  Encephalitis/Chronic  Fatigue
Syndrome  ("ME/CFS").  In addition to other terms and other projected  payments,
Esteve paid an initial and non  refundable  fee of 625,000 Euros  (approximately
$563,000) to Hemispherx  S.A. on April 24, 2002 as the first part of a series of
milestone based payments.

     During March 2002, Hemispherx Biopharma Europe , S.A. (Hemispherx S.A.) was
authorized  to issue up to 22,000,000  Euros of seven  percent (7%)  convertible
preferred  securities.  Such securities will be guaranteed by the parent company
and will be  converted  into a  specified  number of shares of  Hemispherx  S.A.
pursuant to the securities  agreement.  Conversion is to occur on the earlier of
an initial  public  offering of Hemispherx  S.A. on a European stock exchange or
September 30, 2003.

     Esteve  purchased  1,000,000  Euros of Hemispherx  Biopharma  Europe S.A.'s
                                      F-16


convertible  preferred  equity  certificates  on May 23, 2002. During 2002, the
terms and conditions of these  securities  were changed so that these  preferred
equity  certificates  will be  converted  into the  common  stock of  Hemispherx
Biopharma,  Inc.  (HEB) in the event that a  European  IPO is not  completed  by
September  30,  2003.  The  conversion  rate is to be 300  shares of  Hemispherx
Biopharma,  Inc.'s  common  shares  for each 1,000  Euro  convertible  preferred
certificate. As a result the Company recorded approximately $946,000 as minority
interest in subsidiary on its balance sheet.

     On December 18, 2002,  we proposed that Esteve  convert  their  convertible
preferred equity certificates into Hemispherx common stock pursuant to the terms
of the agreement and all unpaid dividends at the market price on that conversion
date. On January 9, 2003, Esteve accepted our proposal. We are in the process of
registering these shares for public sale.

     On March 13, 2003, we issued 347,445 shares of our common stock to Provesan
SA, an affiliate of Esteve S.A., in exchange for 1,000,000  Euros of convertible
preferred  equity  certificates  and any  unpaid  dividends.  As a result of the
exchange,  the minority  interest in subsidiary was transfered to  stockholders'
equity on such date.

     The contingent  conversion price was more than the then market value of the
parent  company's  or  subsidiaries'  common  stock  at each of that  respective
measurement dates. As a result and in accordance with Emerging Issues Task Force
(EITF) No. 00-27  "Application  of Issue No. 98-5  (Accounting  for  Convertible
Securities  with  Beneficial  Conversion  Features  or  Contingently  Adjustable
Conversion  Ratios) to Certain  Convertible  Instruments",  the  Company did not
ascribe any value to any contingent conversion feature.

(d) Common Stock Options and Warrants

(i) Stock Options

     The 1990 Stock Option Plan provides for the grant of options to purchase up
to 460,798  shares of the Company's  Common Stock to employees,  directors,  and
officers of the Company and to  consultants,  advisors,  and other persons whose
contributions  are  important to the success of the Company.  The  recipients of
options  granted  under the 1990 Stock Option  Plan,  the number of shares to be
converted  by each  option,  and the  exercise  price,  vesting  terms,  if any,
duration and other terms of each option  shall be  determined  by the  Company's
board of directors or, if delegated by the board, its Compensation Committee. No
option is exercisable more than 10 years and one month from the date as of which
an option  agreement is executed.  These shares  become vested  through  various
periods  not to exceed  four  years  from the date of grant.  The  option  price
represents the fair market value of each underlying share of Common Stock at the
date of grant, based upon the public trading price.
                                      F-17



     Information  regarding the options approved by the Board of Directors under
the 1990 Stock Option Plan is summarized below:





                           ___________2000___________         ___________2001___________          ________2002________
                                                                                            

                                                Weighted                          Weighted                           Weighted
                                                Average               Option      Average                            Average
                                    Option      Exercise              Price       Exercise                Option     Exercise
                          Shares      Price     Price       Shares                Price        Shares     Price      Price
                          -------   -------   -------       ------    ------     --------      -------    ------     -------
Outstanding,
beginning of
year                    294,000     $1.06-6.00    $3.60    218,567    $1.06-6.81    $3.45    306,263      $1.06-4.34    $3.58

Granted                   8,000     $3.00-6.81   $ 4.88     94,000    $4.03         $4.03         -       -               -

Canceled                 (76,677)   $3.50-4.34   $ 4.09      (6,304)  $4.34-6.81    $5.91    (11,598)     $3.00-4.34    $3.71



Exercised                (6,756)    $1.06-3.50   $ 2.75           -           -           -                -           -
                        -------                              ------                            -------
Outstanding, end of
year                     218,567    $1.06-6.81   $ 3.45     306,263   $1.06-4.34    $3.58      294,665    $1.06-434     $3.57
                        =======                              ======                            =======


Exercisable              198,717    $1.06-6.81   $ 3.48     234,263   $1.06-4.34    $4.67      252,746    $1.06-4.34    $3.50
                        =======                              ======                            =======
Weighted  average
remaining
contractual life
(years)              3.83 years                            3.57 years                        3.68 years
                        =======                              ======                            =======
Exercised in
current and prior
years                  (37,791)                             (37,791)                          (37,791)

Available for
future grants          204,440                              116,744                            170,261
                       =======                              =======                           =======


     In December  1992,  the Board of  Directors  approved the 1992 Stock Option
Plan (the 1992 Stock  Option  Plan) which  provides  for the grant of options to
purchase  up to  92,160  shares  of the  Company's  Common  Stock to  employees,
directors,  and officers of the Company and to consultants,  advisers, and other
persons whose  contributions  are  important to the success of the Company.  The
recipients of the options  granted under the 1992 Stock Option Plan,  the number
of shares to be covered by each option,  and the exercise price,  vesting terms,
if any,  duration  and other terms of each  option  shall be  determined  by the
Company's  board of directors.  No option is exercisable  more than 10 years and
one month from the date as of which an option agreement is executed. To date, no
options have been granted under the 1992 Stock Option Plan.

     The Company's  1993 Employee  Stock  Purchase Plan (the 1993 Purchase Plan)
was  approved by the board of  directors  in July 1993.  The outline of the 1993
Purchase  Plan  provides for the  issuance,  subject to  adjustment  for capital
changes, of an aggregate of 138,240 shares of Common Stock to employees.

     The 1993 Purchase Plan is administered by the Compensation Committee of the
board of directors. Under the 1993 Purchase Plan, Company employees are eligible
to participate in semi-annual plan offerings in which payroll  deductions may be
used to purchase  shares of Common Stock.  The purchase price for such shares is
equal to the lower of 85% of the fair market value of such shares on the date of
grant or 85% of its fair  market  value of such shares on the date such right is
exercised. There have been no offerings under the 1993 Purchase Plan to date and
no shares of Common Stock have been issued thereunder.

                                      F-18
(ii) Stock warrants


Number of warrants exercisable into shares of common stock



                           ___________2000___________          ___________2001__________            _______2002_______
                                                                                           
                                              Weighted                           Weighted                          Weighted
                                              Average                            Average                           Average
                                    Option    Exercise                  Option   Exercise                  Option  Exercise
                          Shares     Price    Price          Shares     Price    Price           Shares    Price   Price
                         --------   --------  ---------   ----------  ---------  ---------   -----------  -------- --------
Outstanding,                                                                   .
beginning of
year                    14,058,010  $1.75-10.85   $3.90   11,624,168  $1.75-12 00     $4.05   6,927,110  $1.75-16.00 $4.77

Granted                    293,800  $6.00-12.00    6.40      856,650  $5.00-16,00     $9.89   1,802,000  $2.00-600   $2.07

Canceled                 (341,017)  $2.00-10.85    6.01  (3,396,508)  $2.50-4.00      $3.89   (750,000)  $3.50-6.00  $3.72

Exercised               (2,386,625) $1.75-4.00     4.19  (2,157,200)  $1.75-4.00      $3.75    (11,300)  $1.75-7.50  $3.30
                         ---------                        ----------                          --------
Outstanding, end of                                                            .
year                    11,624,168  $1.75-12.00   $4.05    6,927,110  $1.75-16 00     $4.77   7,967,810  $1.75-16.00 $3.18
                         =========                        ==========                          =========
Exercisable             11,624,168  $1.75-12.00   $4.05    6,927,110  $1.75-16.00     $4.77   6,345,810  $1.75-16.00 $3.48
                         =========                        ==========                          =========
Weighted  average
remaining
contractual life
(years)                 2.66 years                         4.05 years                         4.03 years
                        ==========                        ==========                          ==========
Years exercisable        2001-2006                          2002-2006                          2003-2008
                        ==========                        ==========                          ==========


Certain of the stock warrants  outstanding  are subject to adjustments for stock
splits and dividends.

Warrants issued to stockholders

     In 2000,  149,807  warrants  expired and 147,000 warrants were converted to
common stock. At December 31, 2000,  there were 305,160 warrants  remaining.  In
2001,  73,000 were  converted to common  stock.  At December 31, 2001 there were
232,160 warrants  remaining.  In 2002, 10,000 were converted to common stock. At
December 31, 2002 there were 222,160 warrants remaining.  These warrants have an
exercise price of $3.50 per share and expire in October 2004.

Other stock warrants

     In addition,  the Company has other issued warrants  outstanding - totaling
7,745,650 which consists of the following:

     In November  1994,  the Company  granted  Rule 701  Warrants to purchase an
aggregate of 2,080,000 shares of Common Stock to certain officers and directors.
These Warrants are exercisable at $3.50 per share and, if not exercised, were to
expire in September,  1999. On February 19, 1999 the Board of Directors extended
the expiration date for three more years. This extension  resulted in a non-cash
charge of approximately  $3,097,000. In 1999 235,000 warrants were exercised and
5,000  warrants  were  exercised  in 2000.  At  December  31,  2000,  there were
1,840,000 Rule 701 warrants remaining. In 2001 20,000 of these warrants expired,
leaving a balance of  1,820,000  in warrants  outstanding  at December 31, 2001.
During 2002,  420,000  warrants  expired and the Company extended the expiration
                                      F-19


date of the  remaining  balance of  1,400,000 for a period of five years to now
expire on September 30, 2007.  These stock  warrants  have an exercise  price of
$3.50. In accordance  with FASB  Interpretation  No. 44,  Accounting for Certain
Transactions   involving  Stock  Compensation,   no  compensation   expense  was
recognized as the exercise  price at the extension  date exceeded the fair value
of the underlying common stock.

     In May 1995, the Company and certain  officers,  directors and shareholders
entered into a standby finance agreement pursuant to which the parties agreed to
provide an aggregate of  $5,500,000  in financing to the Company  during 1995 in
the event that existing and additional  financing was  insufficient to cover the
cash needs of the Company  through  December 31, 1996. In exchange,  the Company
issued warrants to purchase an aggregate of 2,750,000  shares of Common Stock at
$1.75 per share to the parties.  In 1999,  290,000,  in 2000,  216,500, in 2001,
200,000 and in 2002,  1,300 of these warrants were exercised,  leaving a balance
of these warrants of 1,450,200. These warrants expire June 30, 2005.

     In connection with the stock issued in September,  1997, the Company issued
385,067  warrants to several  entities to purchase common stock at $4 per share,
149,034 of these  warrants  were  exercised in 1998,  173,300 were  exercised in
1999, and 34,333 were exercised in 2000. The remaining  28,400 warrants  expired
December 31, 2001.

     In the years 2000,  2001 and 2002 the Company issued  293,800,  450,000 and
25,000  warrants,   respectively,  to  investment  banking  firms  for  services
performed  on behalf of the Company.  Accordingly,  the company  recorded  stock
compensation expense of $397,000, $673,000 and $133,000 for the years 2000, 2001
and 2002  respectively.  These warrants have various  vesting dates and exercise
prices ranging from $4.00 to $16.00 per share. In 2000, 75,000 of these warrants
were exercised.  1,193,800 warrants were outstanding at December 31, 2002. These
warrants are exercisable in five years from the date of issuance.


     In 2000 2001 and 2002 the Company had  non-public  warrants  outstanding of
2,633,000 2,254,650 and 3,701,650  respectively.  These warrants are exercisable
at rates of $2.50 to $10.00 per share of common  stock.  The exercise  price was
equal to the fair market  value of the stock on the date of grant.  During 2002,
the Company  granted  1,777,000  warrants to employees  for services  performed.
These warrants have a weighted  average  exercise price of $2.07 per share,  and
have been included in the pro-forma loss calculation in note 2(n).  During 2001,
370,000 of the non public  warrants were exercised and 415,000  expired  without
being  exercised.  2,254,650 of the  non-public  warrants  were  outstanding  at
December 31, 2001.  During  2002,  none of these  warrants  were  exercised  and
750,000  expired.  3,701,650 of the  non-public  warrants  were  outstanding  at
December 31, 2002.  During 2002 the Company also extended the expiration date of
322,000 of these  warrants for a period of five years to now expire in the years
ending 2007 and 2008.  These stock  warrants have exercise  prices  ranging from
$3.50 to $4.00 In accordance FASB  Interpretation No. 44, Accounting for Certain
Transactions   involving  Stock  Compensation,   no  compensation   expense  was
recognized as the exercise  price at the extension  date exceeded the fair value
of the underlying common stock.


(e) Stock Repurchase

     On February 19, 1999,  the Board of Directors  authorized the repurchase of
up to  200,000  shares of the  Company's  common  stock on the open  market.  On
February 8, 2000, the Board authorized the repurchase of another 200,000 shares.

     The  Company's  repurchases  of  shares of common  stock  are  recorded  as
"Treasury  Stock" and result in a  reduction  of  "Stockholders'  equity."  When
                                      F-20


treasury shares are reissued, the Company uses a first-in, first-out method and
the excess of repurchase cost over reissuance price is treated as a reduction of
"Additional paid-in capital."

(f) Rights offering

     On November 19, 2002, the Board of Directors of Hemispherx Biopharma,  Inc.
(the  "Company")  declared  a  dividend  distribution  of  one  Right  for  each
outstanding  share of  Common  Stock to  stockholders  of record at the close of
business on November  29, 2002 (the  "Record  Date").  Each Right  entitles  the
registered  holder  to  purchase  from  the  Company  a unit  consisting  of one
one-hundredth of a share (a "Unit") of Series A Junior  Participating  Preferred
Stock,  par value $.01 per share (the "Series A Preferred  Stock") at a Purchase
Price of $30.00 per Unit,  subject to adjustment.  The  description and terms of
the Rights are set forth in a Rights Agreement (the "Rights  Agreement") between
the Company and Continental Stock Transfer & Trust Company, as Rights Agent.

     Initially,  the  Rights  are  attached  to all  Common  Stock  certificates
representing  shares then outstanding,  and no separate Rights Certificates will
be distributed. Subject to certain exceptions specified in the Rights Agreement,
the Rights will  separate  from the Common  Stock and a  Distribution  Date will
occur upon the  earlier of (i) 10 days  following a public  announcement  that a
person or group of affiliated or associated persons (an "Acquiring  Person") has
acquired  beneficial  ownership  of 15% or more (or 20% or more for  William  A.
Carter,  M.D.) of the outstanding shares of Common Stock (the "Stock Acquisition
Date"), other than as a result of repurchases of stock by the Company or certain
inadvertent  actions by institutional  or certain other  stockholders or (ii) 10
business  days (or such later date as the Board shall  determine)  following the
commencement  of a tender offer or exchange  offer that would result in a person
or group  becoming an Acquiring  Person.  Until the  Distribution  Date, (i) the
Rights  will  be  evidenced  by  the  Common  Stock  certificates  and  will  be
transferred with and only with such Common Stock  certificates,  (ii) new Common
Stock  certificates  issued  after  the  Record  Date will  contain  a  notation
incorporating  the Rights  Agreement by reference  and (iii) the  surrender  for
transfer of any certificates  for Common Stock  outstanding will also constitute
the transfer of the Rights  associated with the Common Stock represented by such
certificate. Pursuant to the Rights Agreement, the Company reserves the right to
require prior to the  occurrence of a Triggering  Event (as defined below) that,
upon any exercise of Rights,  a number of Rights be exercised so that only whole
shares of Preferred Stock will be issued.

(6) Segment and Related Information

     The Company  operates in one segment,  which is the performance of research
and  development  activities  related  to  Ampligen(R)  and  other  drugs  under
development.


                                      F-21




The following table present revenues by country based on the location of the use
of the product services.


                                    (000's omitted)
                         ------------------------------------
                         2000          2001              2002
                         -----        ------            -----
United States            $506          $274              $237
Belgium                   272           107                74
Other                      10             9                30
                         -----        ------            ------
                         $788         $ 390              $341
                         =====        ======            ======

     In  addition,  the  Company  recorded  License  Fee Income in the amount of
$563,000 from a Company located in Europe.  The Company employs an insignificant
amount of net property and equipment in its foreign operations.



(7) Research, Consulting and Supply Agreements

     In December,  1999,  the Company  entered  into an  agreement  with Biovail
Corporation International ("Biovail").  Biovail is an international full service
pharmaceutical   company   engaged  in  the   formulation,   clinical   testing,
registration and manufacture of drug products  utilizing  advanced drug delivery
systems.  Biovail is  headquartered  in Toronto,  Canada.  The agreement  grants
Biovail the exclusive  distributorship  of the Company's product in the Canadian
territories subjects to certain terms and conditions.  In return, Biovail agrees
to  conduct  certain  pre-marketing  clinical  studies  and  market  development
programs, including without limitation,  expansion of the Emergency Drug Release
Program in Canada with respect to the Company' products.  Biovail agrees to work
with the Company in preparing and filing of a New Drug  Submission with Canadian
Regulatory  Authorities.  Biovail invested $2.25 million in Hemispherx equity at
prices above the then current  market price and agreed to make further  payments
based on reaching certain regulatory milestones.  The Agreement requires Biovail
to  penetrate  certain  market  segments at specific  rates in order to maintain
market exclusivity.


     The Company has entered into  agreements for consulting  services which are
performed at medical research  institutions and by medical and clinical research
individuals. The Company's obligation to fund these agreements can be terminated
after the initial funding period, which generally ranges from one to three years
or on an as-needed monthly basis. During the year ending December 31, 2000, 2001
and 2002 the Company  incurred  approximately  $924,000,  $595,000  and $395,000
respectively, of consulting service fees under these agreements. These costs are
charged to research and development expense as incurred.


(8) 401(K) Plan

     The  Company  has a defined  contribution  plan,  entitled  the  Hemispherx
BioPharma Employees 401(K) Plan and Trust Agreement (the 401(K) Plan). Full time
employees  of the  Company  are  eligible  to  participate  in the  401(K)  Plan
following  one year of  employment.  Subject to certain  limitations  imposed by
federal tax laws,  participants  are eligible to  contribute  up to 15% of their
salary  (including   bonuses  and/or   commissions)  per  annum.   Participants'
                                      F-22


contributions  to the  401(K)  Plan  may be matched  by the  Company  at a rate
determined annually by the Board of Directors.

     Each  participant   immediately   vests  in  his  or  her  deferred  salary
contributions,  while  Company  contributions  will vest over one year. In 2000,
2001 and 2002 the Company provided  matching  contributions to each employee for
up to 6% of annual pay aggregating $48,000, $48,000 and $38,000 respectively.


(9) Royalties, License, and Employment Agreements

     The Company  also has entered  into a licensing  agreement  with a group of
individuals  and Hahnemann  University  relating to their  contributions  to the
development of certain compounds, including Ampligen(R), and to obtain exclusive
information  and  regulatory  rights  relating  to these  compounds.  Under this
agreement,  the Company will pay 2% of net sales proceeds of Ampligen(R)  not to
exceed an aggregate amount of $6 million per year through 2005.

     In August  1988,  the Company  entered  into a  pharmaceutical  use license
agreement with Temple University (the Temple  Agreement).  In July, 1994, Temple
terminated  the Temple  Agreement.  In November  1994,  the  Company  filed suit
against  Temple  in the  Superior  Court of the  State  of  Delaware  seeking  a
declaratory judgment that the agreement was unlawfully  terminated by Temple and
therefore  remained  in full force and  effect.  Temple  filed a  separate  suit
against the Company  seeking a declaratory  judgment that its agreement with the
Company was properly  terminated.  These legal  actions  have now been  settled.
Under the  settlement,  the parties have entered into a new  pharmaceutical  use
license  agreement  (New Temple  Agreement)  that is  equivalent in duration and
scope to the  previous  license.  Under the terms of the New  Temple  Agreement,
Temple granted the Company an exclusive  world-wide  license for the term of the
agreement for the commercial  sale of Oragen  products using patents and related
technology  held by  Temple,  which  license is  exclusive  except to the extent
Temple is required to grant a license to any  governmental  agency or non-profit
organization  as a condition  of funding for  research  and  development  of the
patents and technology licensed to the Company.

     The  Company  has  contractual  agreements  with two of its  officers.  The
aggregate annual base compensation under these contractual  agreements for 2000,
2001 and 2002 was  $686,000,  $603,000 and $620,000  respectively.  In addition,
certain of these officers are entitled to receive  performance  bonuses of up to
25% of the annual base salary (in addition to the bonuses  described  below). In
2000,  2001 and 2002 no  performance  bonuses  were  granted.  In 2001,  Certain
officers were granted  warrants and options to purchase 426,650 shares of Common
Stock at $4.01 per share. In 2002,  certain  officers were granted  warrants and
option to purchase  1,220,000 shares of common stock at $2.00 - $4.03 per share.
One of the  employment  agreements  provides for bonuses based on gross proceeds
received  by  the  Company  from  any  joint  venture  or  corporate  partnering
agreement.

     In October  1994,  the  Company  entered  into a licensing  agreement  with
Bioclones (Propriety) Limited  (SAB/Bioclones) with respect to co-development of
various RNA drugs,  including Ampligen(R) , for a period ending three years from
the expiration of the last licensed patents.  The licensing  agreement  provides
SAB/Bioclones with an exclusive  manufacturing and marketing license for certain
southern  hemisphere  countries  (including  certain countries in South America,
Africa and  Australia as well as the United  Kingdom and Ireland  (the  licensed
territory).  In exchange  for these  marketing  and  manufacturing  rights,  the
licensing  agreement provides for: (a) a $3 million cash payment to the Company,
all of which was  received  during the year ended  December  31,  1995;  (b) the
formation and issuance to the Company of 24.9% of the capital stock of Ribotech,
Ltd., a company which developed and operates a new  manufacturing  facility that
                                      F-23


produces raw material components of Ampligen(R) and(c) royalties of 6% to 8% of
net sales of the licensed products in the licensed territories as defined, after
the first $50 million of sales.  SAB/Bioclones  will be granted a right of first
refusal to manufacture and supply to the Company licensed  products for not less
than one third of its world-wide sales of Ampligen(R),  excluding  SAB/Bioclones
related sales. In addition,  SAB/Bioclones  will have the right of first refusal
for oral  vaccines in the  licensed  territory.  In 2000,  the  Company  paid to
Ribotech a total of $500,000 for the current and future  purchases  and delivery
of  polymers.  Of the  $500,000  advanced  in 2000,  a balance of  $390,000  was
included in other assets in 2000 and was used for purchases of polymers in 2001.
In 2002, $262,000 was paid to Ribotech for delivery at Polymers.

     In October 1994,  the Board of Directors  granted a director of the Company
the right to receive 3% of gross  proceeds of any licensing fees received by the
Company  pursuant to the  SAB/Bioclones  licensing  agreement,  a fee of .75% of
gross  proceeds in the event that SAB Bioclones  makes a tender offer for all or
substantially  all of the Company's assets,  including a merger,  acquisition or
related  transaction,  and a fee  of 1% on  all  products  manufactured  by  SAB
Bioclones.  The Company may prepay in full its obligation to provide commissions
within a ten year period.

     On March 20, 2002, our European  subsidiary  Hemispherx  Biopharma  Europe,
S.A.  ("Hemispherx  S.A.") entered into a sales and Distribution  agreement with
Laboratories  Del Dr.  Esteve  S.A.  ("Esteve").  Pursuant  to the  terms of the
agreement,  Esteve was  granted the  exclusive  right to market  Ampligen(R)  in
Spain,  Portugal  and  Andorra  for the  treatment  of  Myalgic/Chronic  Fatigue
Syndrome  ("ME/CFS").  In addition to other terms and other projected payments.,
Esteve paid an initial and  non-refundable  fee of 625,000 Euros  (approximately
$563,000)  to  Hemispherx  S.A.  on April  24,  2002.  Esteve is to pay a fee of
1,000,000 Euros after U.S. Food and Drug Administration  approval of Ampligen(R)
for the treatment of ME/CFS and a fee of 1,000,000  Euros upon Spain's  approval
of the final marketing  authorization for using Ampligen(R) for the treatment of
ME/CFS.

     In connection  with the two agreements  entered into with ISI (See Note 1),
the Company is obligated to pay ISI a 6% royalty on the net sales of the Alferon
N Injection product.


(10) Leases

     The  Company has several  noncancelable  operating  leases for the space in
which its principal offices are located and certain office equipment.



     Future minimum lease payments under  noncancelable  operating leases are as
follows:

                                 (000's omitted)
               Year ending                               Operating
                December 31,                             leases
               -----------                             ---------
           2003. . . . . . . . . . . . . . . . . . . .   $   279
           2004. . . . . . . . . . . . . . . . . . . .       286
           2005. . . . . . . . . . . . . . . . . . . .       240
           2006. . . . . . . . . . . . . . . . . . . .       193
           2007. . . . . . . . . . . . . . . . . . . .        65
                                                      ----------
           Total minimum lease payments. . . . . . . .   $ 1,063
                                                      ==========
                                      F-24


    Rent expense  charged to operations  for the years ended December 31, 2000,
2001  and  2002  amounted  to  approximately  $347,000,  $294,000  and  $307,000
respectively.  The term of the lease for the  Rockville,  Maryland  facility  is
through  June,  2005 with an average rent of $8,000 per month,  plus  applicable
taxes and  charges.  The term of the lease  for the  Philadelphia,  Pennsylvania
offices is through April,  2007 with an average rent of $15,000 per month,  plus
applicable taxes and charges.


(11) Income Taxes

     As of December  31,  2002,  the Company has  approximately  $66,000,000  of
federal net  operating  loss  carryforwards  (expiring in the years 2004 through
2022) available to offset future federal  taxable  income.  The Company also has
approximately $15,000,000 of state net operating loss carryforwards (expiring in
the years 2003 through 2007)  available to offset  future state taxable  income.
The utilization of certain state net operating loss carryforwards may be subject
to annual limitations.

     Under the Tax Reform Act of 1986, the  utilization of a  corporation's  net
operating loss  carryforward  is limited  following a greater than 50% change in
ownership.  Due to the  Company's  prior and current  equity  transactions,  the
Company's  net  operating  loss  carryforwards  may  be  subject  to  an  annual
limitation  generally  determined by multiplying the value of the Company on the
date of the  ownership  change by the federal  long-term  tax exempt  rate.  Any
unused annual  limitation may be carried forward to future years for the balance
of the net operating loss carryforward period.

     Deferred income taxes reflect the net tax effects of temporary  differences
between  carrying  amounts of assets and  liabilities  for  financial  reporting
purposes and the carrying amounts used for income tax purposes. In assessing the
realizability of deferred tax assets,  management  considers  whether it is more
likely than not that some  portion or all of the deferred tax assets will not be
realized.  The  realization  of  deferred  tax  assets  is  dependent  upon  the
generation  of future  taxable  income  during the  periods  in which  temporary
differences representing net future deductible amounts become deductible. Due to
the uncertainty of the Company's  ability to realize the benefit of the deferred
tax asset, the deferred tax assets are fully offset by a valuation  allowance at
December 31, 2001 and 2002.


     The  components of the net deferred tax asset of December 31, 2001 and 2002
consists of the following:

                                                (000,s omitted)

Deferred tax assets:                        2001                  2002
                                          ------                 ------
Net operating losses                     $20,790                $22,440
Accrued Expenses and Other                    21                    (16)
Capitalized Research and
development costs                          4,634                  3,763
                                          ------                 ------
                                          25,445                 26,187
Less: Valuation Allowance                 25,445                 26,187
                                          ------                 ------
Balance                                    $ -0-                  $ -0-
                                          ======                 ======
                                      F-25

(12) Contingencies

     On September 30, 1998, we filed a multi-count  complaint  against Manuel P.
Asensio,  Asensio & Company,  Inc.  ("Asensio").  The action  included claims of
defamation,  disparagement,  tortuous interference with existing and prospective
business  relations  and  conspiracy,  arising  out of the  Asensio's  false and
defamatory  statements.  The complaint  further alleged that Asensio defamed and
disparaged  us  in  furtherance  of  a  manipulative,   deceptive  and  unlawful
short-selling  scheme in August and September,  1998. In 1999,  Asensio filed an
answer and  counterclaim  alleging  that in  response to  Asensio's  strong sell
recommendation  and other press releases,  we made defamatory  statements  about
Asensio. We denied the material  allegations of the counterclaim.  In July 2000,
following dismissal in federal court for lack of subject matter jurisdiction, we
transferred  the action to the  Pennsylvania  State  Court.  In March 2001,  the
defendants  responded  to the  complaints  as amended and a trial  commenced  on
January 30, 2002. A jury verdict  disallowed  the claims  against the defendants
for defamation and  disparagement and the court granted us a directed verdict on
the  counterclaim.  On July 2, 2002 the Court entered an order granting us a new
trial against  Asensio for defamation  and  disparagement.  Thereafter,  Asensio
appealed the granting of a new trial. This appeal is now pending in the Superior
Court of Pennsylvania.

     In June 2002, a former ME/CFS  clinical trial patient and her husband filed
a claim in the Superior Court of New Jersey,  Middlesex County,  against us, one
of our clinical trial  investigators  and others alleging that she was harmed in
the ME/CFS clinical trial as a result of negligence and breach of warranties. We
believe the claim is without  merit and we are  defending  the claim  against us
through our product liability insurance carrier.

     In June 2002, a former  ME/CFS  clinical  trial  patient in Belgium filed a
claim in  Belgium,  against  Hemispherx  Biopharma  Europe,  NV/SA,  our Belgian
subsidiary,  and one of our clinical trial  investigators  alleging that she was
harmed in the Belgium ME/CFS clinical trial as a result of negligence and breach
of  warranties.  We believe the claim is without  merit and we are defending the
claim against us through our product liability insurance carrier.

     In July 2002,  we filed suit in the United  States  District  Court for the
Eastern  District of  Pennsylvania  against our insurance  company seeking (1) a
judicial order declaring our rights and the obligations of our insurance carrier
under the insurance policy our insurance  carrier sold to us (2) monetary damage
for breach of contract  resulting  from our insurance  carrier  refusal to fully
defend us in  connection  with the Asensio  litigation  (3) monetary  damages to
compensate us for our insurance  carrier  breach of its fiduciary duty faith and
dealing  and  (4)  monetary  damages,  interest,  cost,  and  attorneys  fees to
compensate us for violation of the Pennsylvania Bad Faith Statute.  On March 31,
2003 we settled our outstanding  claim with our insurance carrier for $1,500,000
relating to  reimbursement of expenses in connection with our Asensio law suits.
We expect to realize  approximately  $1,050,000  of this amount after payment of
expenses  related to the settlement.  Such amount was recorded during the fourth
quarter  2002 as a  reduction  in General  and  Administrative  expenses  in our
statement of operations.

     In March 2003,  one of our former law firms filed a complaint  in the Court
of Common Pleas of Philadelphia  County against us for alleged legal fees in the
sum of $65,051.  We believe  the claim is without  merit and are  defending  the
matter.

(13) Related Party Transactions

     We have employment  agreements  with certain of our executive  officers and
have granted such officers and directors of the Company  options and warrants to
purchase common stock of the Company, as discussed in Notes 2(n) and 9.
                                      F-26


    A director of the  Company,  is an attorney  in private  practice,  who has
rendered  corporate  legal  services  to us from time to time,  for which he has
received fees. A Director of the Company, lives in Paris, France and assists our
European  subsidiaries  in their  dealings  with  medical  institutions  and the
European Medical Evaluation Authority. A Director of the Company,  assists us in
establishing  clinical trail protocols as well as performs other scientific work
for us from  time to time.  For these  services,  these  Directors  were paid an
aggregate of $173,500,  $144,955 and $170,150 for the years ending  December 31,
2000, 2001 and 2002 respectively.

     William A. Carter,  Chief  Executive  Officer of the  Company,  received an
aggregate of $12,486 in short term advances which were repaid as of December 31,
2001. All advances bare interest at 6% per annum. The Company loaned $60,000 to,
a Director of the Company in November, 2001 for the purpose of exercising 15,000
class A redeemable warrants. This loan bears interest at 6% per annum.

     We paid  $42,775,  $57,750 and $33,450 for the years  ending  December  31,
2000, 2001 and 2002, respectively to Carter Realty for the rent of property used
at various  times in 2002 by us. The  property is owned by others and managed by
Carter Realty.  Carter Realty is owned by Robert Carter,  the brother of William
A. Carter.

(14) Concentrations of credit risk

     Financial   instruments,   which   potentially   subject   the  Company  to
concentrations of credit risk,  consist  principally of cash. The Company places
its cash with high-quality financial institutions.  At times, such amount may be
in excess of Federal Deposit Insurance Corporation insurance limits of $100,000.

                                      F-28


(15) Quarterly Results of Operation (unaudited)
     (in thousand except per share data)

                                                2001
                              ---------------------------------------------
                         First       Second      Third       Fourth
                        Quarter      Quarter     Quarter     Quarter     Total
                        -------      --------    -------     --------   -------
Revenue                    127         $  101      $   76      $  86   $   390

Costs and expenses       2,676          2,504       2,262      1,750     9,192

Net loss                (2,480)        (2,343)     (2,145)    (2,115)   (9,083)
                        -------      --------     -------     --------  -------
Basic and diluted
   loss per share        $(.08)         $(.08)      $(.07)     $(.07)    $(.29)
                        -------      --------     -------     --------  -------

                                               2002 (1)
                              ---------------------------------------------
                         First       Second      Third       Fourth
                        Quarter      Quarter     Quarter     Quarter     Total
                        -------      --------    -------     --------   -------
Revenues and license
fee income              $  613         $  134      $   79      $  78   $   904

Costs and expenses       2,121          2,097       1,961        782     6,961

Net loss                (1,488)        (2,634)     (1,891)    (1,411)   (7,424)
                        -------      --------     -------     --------  -------
Basic and diluted
   loss per share        $(.05)         $(.08)      $(.06)     $(.04)    $(.23)
                        -------      --------     -------     --------  -------

     (1) During the fourth quarter of 2002,  the Company  recorded write offs of
certain investments in unconsolidated affiliates of approximately $688,000. (See
note  2(c)).  Additionally,  during the  fourth  quarter  of 2002,  the  Company
recorded, as a reduction  of general and  administrative  expenses, an amount of
$1,050,000 representing the net settlement with its insurance carrier. (See Note
12)


(16)  Debenture Financing

     On March 12, 2003, We issued an aggregate of $5,426,000 in principal amount
of 6% Senior  Convertible  Debentures  due January 31, 2005 and an  aggregate of
743,288  Warrants  to  two  investors  in  a  private  placement  for  aggregate
anticipated  gross  proceeds  of  $4,650,000.  Pursuant  to  the  terms  of  the
Debentures, $1,550,000 of the proceeds from the sale of the Debentures have been
held back and will be released to us if, and only if, we acquire ISI's  facility
with in a set  timeframe.  The  Debentures  mature on January  31, 2005 and bear
interest at 6% per annum,  payable quarterly in cash or, subject to satisfaction
of certain  conditions,  common stock.  Any shares of common stock issued to the
investors as payment of interest  shall be valued at 95% of the average  closing
price of the common stock during the five  consecutive  business  days ending on
the third business day  immediately  preceding the applicable  interest  payment
date. Pursuant to the terms and conditions of the Senior Convertible Debentures,
we have pledged all of our assets as  collateral  and are subject to comply with
certain financial and negative  covenants,  which include but are not limited to
the repayment of principal balances upon achieving certain revenue milestone.
                                      F-28


    The Debentures  are  convertible at the option of the investors at any time
through January 31, 2005 into shares of our common stock.  The conversion  price
under the  Debentures  is fixed at $1.46 per share,  subject to  adjustment  for
anti-dilution  protection for issuance of common stock or securities convertible
or exchangeable into common stock at a price less than the conversion price then
in effect.

     The investors  also received  Warrants to acquire at any time through March
12, 2008 an aggregate of 743,288  shares of common stock at a price of $1.68 per
share.  On March 12, 2004,  the exercise price of the Warrants will reset to the
lesser of the  exercise  price then in effect or a price equal to the average of
the daily price of the common  stock  between  March 13, 2003 and March 11, 2004
(but in no event less than $1.176 per share).  The exercise price (and the reset
price)  under  the  Warrants  also  is  subject  to  similar   adjustments   for
anti-dilution protection.

     We entered  into a  registration  rights  agreement  with the  investors in
connection   with  the  issuance  of  the  Debentures  and  the  Warrants.   The
registration  rights  agreement  requires  that we register the shares of common
stock issuable upon conversion of the  Debentures,  as interest shares under the
Debenture and upon exercise of the Warrants.  In accordance with this agreement,
we filed a  registration  statement on form S-3 with the Securities and Exchange
Commission.  If the registration  statement is not declared effective within the
time period  required by the  agreement  or, after it is declared  effective and
subject to certain  exceptions,  sales of all shares  required to be  registered
thereon cannot be made pursuant thereto,  then we will be required to pay to the
investors  their  pro  rata  share  of  $3,635  for  each  day any of the  above
conditions exist with respect to this registration statement.














                                      F-29










                                                                Exhibit 99.1



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection  with the Annual Report of  Hemispherx  Biopharma,  Inc. (the
"Company")  on Form 10-K for the fiscal  year ended  December  31, 2002 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
I, William A. Carter, Chief Executive Officer of the Company,  certify, pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the  Sarbanes-Oxley Act
of 2002, that:


               (1) The Report fully  complies with the  requirements  of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and


               (2) The information  contained in the Report fairly presents,  in
all material respects,  the financial  condition and result of operations of the
Company.



                                                   /S/ William A. Carter
                                                   ------------------------
                                                   William A. Carter
                                                   Chief Executive Officer
                                                   April 15, 2003





                                      F-30



                                                               Exhibit 99.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





     In connection  with the Annual Report of  Hemispherx  Biopharma,  Inc. (the
"Company")  on Form 10-K for the fiscal  year ended  December  31, 2002 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
I, Robert Peterson, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the  Sarbanes-Oxley Act of
2002, that:


               (1) The Report fully  complies with the  requirements  of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and


               (2) The information  contained in the Report fairly presents,  in
all material respects,  the financial  condition and result of operations of the
Company.



                                                    /S/ Robert Peterson
                                                    ----------------------
                                                    Robert Peterson
                                                    Chief Financial Officer
                                                    April 15, 2003










                                      F-31

EX-99.2N OTH CONSENT

                                             Exhibit 23.01


CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Hemispherx Biopharama, Inc.
Philadelphia, Pennsylvania

We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (SEC File No. 333-57134)
of our report dated March 13, 2003, except for Note
12 which is of March 31, 2003, relating to the consolidated
financial statements of Hemispherx Biopharma, Inc. and
subsidiaries for the year ended December 31, 2002
appearing in the Company's Annual Report on Form 10-K.





                                      /x/ BDO Seidman, LLP

Philadelphia, Pennsylvania
April 15, 2003

EX-99.D CONTRACTS

              SALES AND DISTRIBUTION AGREEMENT

THIS AGREEMENT (this "Agreement") is made effective as of March 20,
2002 (the "Effective Date"), by and between

      HEMISPHERX BIOPHARMA EUROPE, S.A.

      26-28 rue Marius Aufan
      92300 Levallois-Perret
      Paris, France

                                   ("Hemispherx")

- -and
      LABORATORIOS DEL DR. ESTEVE, S.A.
      Av. Mare de Deu de Montserrat, 221
      08041 Barcelona, Espana

                                   ("Esteve")

      (each a "Party" and collectively the "Parties").

WITNESSETH:

WHEREAS Hemispherx has certain rights relating to a specially
configured ribonucleic acid which is being developed for marketing under
the trademark "Ampligenr";

WHEREAS Esteve is in the business of Marketing pharmaceutical products
in Spain, Portugal and Andorra;

WHEREAS Esteve desires to obtain certain marketing rights for
Ampligenr in Spain, Portugal and Andorra;

WHEREAS in consideration for Esteve's commitment to pay to
Hemispherx the payments specified in this Agreement, and to provide for
the development and Marketing of Ampligenr in Spain, Portugal and
Andorra, Hemispherx desires to grant to Esteve an exclusive
distributorship to Market the Product in Spain, Portugal and Andorra; and

WHEREAS the Parties hereto desire to set forth the terms and conditions
of such Marketing;

NOW THEREFORE, in consideration of the premises and the covenants
and promises contained herein, and intending to be legally bound hereby,
the Parties agree as follows:




1.			DEFINITIONS

1.01	For purposes of this Agreement, the following terms, when used with
initial capital
letters, shall have the meaning set forth below. Other terms are defined
elsewhere in this Agreement and those terms, when used with initial capital
letters, shall also have the defined meanings whenever they appear in this
Agreement. As to the terms defined and used herein, the singular shall be
understood to include the plural and vice-versa, unless the context clearly
indicates to the contrary.

1.02	"Affiliate" means any corporation, company, firm, partnership, or
other entity which Controls, is Controlled by or is under common Control
with a Party. Any entity which buys all, or substantially all, of the
assets of Hemispherx shall be deemed to be an affiliate of Hemispherx.

1.03	"REGULATORY APPROVAL"
means approval by EMEA or by a national regulatory authority of the
Territory of the commercial sale of the Product for use in the treatment of
patients with ME/CFS.

1.04	"Commercial Year" means the twelve-month period commencing on
the Product Launch and each succeeding twelve-month period thereafter.

1.05	"Control" means the ability of any entity (the "Controlling" entity),
directly or indirectly, through ownership of securities, by agreement or by
any other method, to direct the manner in which more than fifty percent
(50%) of the outstanding voting rights of any other entity (the "Controlled"
entity), whether or not represented by securities, shall be cast, or the right
to receive over fifty percent (50%) of the profits or earnings of, or to
otherwise control the management decisions of, such other entity (also a
`Controlled" entity).

1.06	"Esteve's Distribution Center" means Esteve's distribution facilities
in Spain and Portugal, as designated by Esteve.

1.07	"EMEA" means the European Medicines Evaluation Agency.

1.08	"Market" means to promote, distribute, market, advertise and/or
sell, and Marketing shall have a corresponding meaning.

1.09	"Oragens" means certain low molecular weight, broad spectrum
antiviral compounds, typically consisting of three nucleotides held together
with special back bone (or phosphodiester) linkages. These compounds act
in part via enhancement of the body's own 2-5A/RnaseL cellular pathways.

1.10	"ME/CFS" means myalgic encephalitis/chronic fatigue syndrome.

1.11	"Other Indication/s" means indications other than ME/CFS.

1.12	"Party" means each of Hemispherx and Esteve.

                                  2




1.13	"Patents" means the patents and/or patent applications held by
Hemispherx or an Affiliate of Hemispherx regarding the Product in the
Territory, as listed in Schedule 1.13, and any patents and patent
applications on the Product which Hemispherx or an Affiliate of
Hemispherx may hold in the Territory including any reissues substitutions,
confirmations, registrations, revalidations, additions, continuations in part,
divisions, extensions, renewals, and restorations thereof and any
supplemental protection certificates.

1.14	"Product" means any product developed and/or acquired by
Hemispherx based on Poly I Poly C12 U, the chemical name of which is
polyriboinosinic: polyribocytidylic (12:1) uridylic acid in all forms in which
it may be approved in Spain, Portugal and Andorra, including, without
limitation, lyophilized and liquid forms.

1.15	"Product Launch" means the date of the first commercial sale of
Product by Esteve to an arm's length customer in the Territory.

1.16	"Territory" means Spain, Portugal and Andorra.

1.17	"Trademark" means the trademark to be registered by Hemispherx
for the commercialization of the Product in the Territory.

2.			GRANT OF EXCLUSIVE DISTRIBUTORSHIP

2.01	Subject to the terms of this Agreement, Hemispherx hereby grants
to Esteve an exclusive right to Market the Product in the Territory during
the term of this Agreement, for use in the treatment of patients with
ME/CFS.

Esteve shall purchase the Product for Marketing in the Territory only from
Hemispherx.

2.02	In the event that, during the term of this Agreement, Hemispherx
decides to develop the Product for Other Indications, Hemispherx shall, at
the time of initiation of phase III clinical trials for any such indication, so
notify Esteve in writing and shall provide Esteve with information on such
Other Indications as is reasonably necessary for Esteve's evaluation of
interest. Upon receipt of such notice and information, Esteve shall have a
period of sixty (60) days to deliver to Hemispherx a written notice of its
interest in distributing, marketing and selling the Product for each such
Other Indication in the Territory. If Esteve does not deliver such notice to
Hemispherx within such period, Hemispherx shall thereafter have no
further obligation to Esteve with respect to each such Other Indication. If
Esteve delivers to Hemispherx a notice confirming its interest in such
Product, for ninety (90) days following Hemispherx's receipt of Esteve's
notice, the Parties shall engage in exclusive, good-faith negotiations for the
terms upon which Hemispherx would appoint Esteve as the licensee of the
Product in such Other Indications in the Territory which shall be
consistent, insofar as reasonably possible, with the terms of this Agreement.
If the Parties have failed to reach agreement on such terms by the end of
such ninety (90)-day period, then Hemispherx shall thereafter have no
further obligations to Esteve with respect to such Other Indications;
provided, however, that in such event, Hemispherx will not enter into any
agreement relating to the distribution, marketing and sale of the Product
for the same indications in the Territory with a third party on terms

                                  3




which, taken as a whole, are materially more favorable to such third party
than those last offered in writing by Hemispherx to Esteve.

2.03	Hemispherx shall, at the time of the conclusion of Phase II clinical
trials for any indication of Oragens, notify Esteve in writing and shall
provide Esteve with a copy of the relevant Phase II clinical study final
report(s) together with any additional existing information under the
custody, possession or control of Hemispherx on Oragens and such
indication as is necessary for Esteve's evaluation of interest in a manner
that is reasonably intended to provide a basis for Esteve's decision as to
whether to exercise its option hereunder. At Esteve's request, Hemispherx
shall provide Esteve with any additional existing information under the
custody, possession or control of Hemispherx to the extent that such
additional information is reasonably necessary for Esteve to evaluate its
possible interest in Oragens. Upon receipt of such notice and information,
Esteve shall have a period of ninety (90) days to deliver to Hemispherx a
written notice of its interest in distributing, marketing and selling Oragens
for each such indication in the Territory. If Esteve does not deliver such
notice to Hemispherx within such period, Hemispherx shall thereafter have
no further obligation to Esteve with respect to the use of Oragens for each
such indication. If Esteve delivers to Hemispherx a notice confirming its
interest in Oragens for such indication, for ninety (90) days following
Hemispherx's receipt of Esteve's notice, the Parties shall engage in
exclusive, good-faith negotiations for the terms upon which Hemispherx
would appoint Esteve as the licensee of Oragens in such indication in the
Territory which shall be consistent, insofar as reasonably possible, with the
terms of this Agreement for the licensing of the Product. If the Parties have
failed to reach agreement on such terms by the end of such ninety (90)-day
period, then Hemispherx shall thereafter have no further obligations to
Esteve with respect to the use of Oragens for such indication; provided,
however, that in such event, Hemispherx will not enter into any agreement
relating to the distribution, marketing and sale of Oragens for the same
indication in the Territory with a third party on. terms which, taken as a
whole, are materially more favorable to such third party than those last
offered in writing by Hemispherx to Esteve.


3.			MANUFACTURE AND SUPPLY OF THE PRODUCT

	Supply of Product

3.01	Hemispherx shall supply all quantities of the Product required by
Esteve for Marketing in the Territory, in final packaged and labeled form,
and in accordance with the provisions of this Agreement.

3.02	Hemispherx shall satisfy Esteve's requirements for and fill all
Esteve's orders for the Product in the Territory. In the event of any
temporary shortfall in the availability of the Product, Hemispherx's
available supply of Product shall be allocated proportionately according to
the sales of the Product in the Territory and in the European Union not
including the Territory during the most recently ended six (6) month
period. In the event that the Parties should not reach an agreement on the
allocation of Product, the issue shall be submitted to an independent third
party designated by mutual agreement, whose


                                  4




decision shall be final. The costs arising from its intervention shall be
borne by the Party whose statements were incorrect.

Product Quality

3.03	Hemispherx warrants that upon delivery of Product in accordance
with this Agreement, Esteve shall have good title to the Product and that
the Product:

     (a)shall have been manufactured, stored and shipped in
        accordance with all applicable good manufacturing practices,
        all other applicable laws, rules, regulations and regulatory
        requirements in the country of manufacture and in the
        Territory, and shall conform to the specifications as may be
        amended from time to time set forth in a REGULATORY
        APPROVAL;

     (b)shall not be adulterated or misbranded as provided for under
        any applicable law, order or regulation in effect in the
        country of manufacture and the Territory;

     (c)shall have a shelf life of at least twenty-four (24) months from
        the date of shipping to Esteve, provided the Product, after
        delivery, is stored in accordance with all good manufacturing
        practices, all other applicable laws, rules, regulations and
        regulatory requirements;

     (d)shall be labeled, packaged and shipped in accordance with
        labeling, packaging and shipping standards mutually agreed
        upon by the parties and in accordance with all applicable
        laws and regulatory requirements in the Territory; and

     (e)shall comply in all respects with a REGULATORY
        APPROVAL and the product monograph for the Product.

Inspection and Right of Return of Product

3.04	Hemispherx shall provide to Esteve within thirty (30) days after the
issuance of a REGULATORY APPROVAL all of the technical data and methodologies
necessary for Esteve to perform any finished product quality control testing
that Esteve may wish to conduct on the Product.

3.05	Hemispherx shall make any arrangements necessary for the
conducting of finished product quality control testing within thirty (30)
days after the issuance of a REGULATORY APPROVAL. Hemispherx
shall conduct or shall have conducted in a laboratory located in a European
Union country, at its own expense, all tests required by a REGULATORY
APPROVAL for the Product to determine the compliance of the Product
supplied to Esteve with the requirements of paragraph 3.03 of this
Agreement and with a REGULATORY APPROVAL, and shall provide the
results of all such testing to Esteve together with each Product shipment
delivered to Esteve.


                                 5




3.06	Esteve may conduct, but shall not be obliged to conduct, such tests
as it deems necessary to determine the compliance of the Product with the
requirements of a REGULATORY APPROVAL and this Agreement.
Esteve may notify Hemispherx within thirty (30) days of its actual receipt of
each shipment of the Product of any non-compliance of the Product with
the requirements of paragraph 3.03 of this Agreement revealed by such
testing. If no notice of non-compliance is delivered to Hemispherx within
such thirty (30) day period, the Product so delivered shall be deemed to
comply with paragraph 3.04 of this Agreement.

3.07	The provisions of paragraph 3.06 do not apply to any deficiencies in
the Product that could not reasonably be detected through visual inspection
by Esteve, within thirty (30)days of actual receipt of the Product by Esteve
(a "latent defect"). Esteve shall notify Hemispherx of any such deficiencies
within thirty (30) days after they become known to Esteve.

3.08	Within thirty (30) days after receipt of any notice delivered by
Esteve pursuant to paragraphs 3.06 or 3.07, Hemispherx and Esteve shall
confer on the matter, and Hemispherx shall notify Esteve as to whether or
not it concurs with Esteve's determination. If Hemispherx concurs with
Esteve's determination, Esteve shall, at Hemispherx's request and expense,
return the rejected Product to Hemispherx, and Esteve shall not be
responsible to pay Hemispherx for such Product.

3.09	If Hemispherx disagrees with Esteve's determination under
paragraph 3.08 the matter shall be submitted to an independent third party
tester acceptable to both parties. If the third-party tester concurs with
Esteve's determination, Esteve shall, at Hemispherx's request and expense,
return the rejected Product to Hemispherx and Esteve shall not be
responsible to pay Hemispherx for such Product. If the arbitrator concurs
with Hemispherx's determination, Esteve shall be responsible to pay
Hemispherx for such Product.

3.10	Except as set forth in paragraph 3.03, Hemispherx shall have no
obligation to Esteve for breach of any of the warranties as to the quality
of any Product determined to be defective under paragraphs 3.06 or 3.07.


4.	DISCLOSURE OF KNOW-HOW AND TECHNICAL AND CLINICAL SUPPORT

4.01	Promptly after the signature of this Agreement and from time to
time as it becomes available during the term of this Agreement,
Hemispherx shall provide Esteve with such technical, scientific and
commercial information, documentation and data relating to the Product
which may be developed or acquired by Hemispherx, its Affiliates and
other distributors and which may be required or useful for the exercise by
Esteve of its rights and obligations under this Agreement.

4.02	Hemispherx shall, upon adequate notice at the request of Esteve,
provide free of charge, except for out of pocket expenses incurred for
travel, lodgings and meals, reasonable training regarding the proper
administration of the Product to patients, to

                                   6



employees, consultants and sub-contractors of Esteve or any Affiliate of
Esteve, at such locations as Esteve may reasonably specify.

5.	MARKETING OF THE PRODUCT

        Esteve's Marketing Obligations

5.01	Esteve shall introduce the Product in the Territory within ninety
(90) days after issuance of the REGULATORY APPROVAL for the
Product in the Territory (including price and reimbursement approvals)
subject to receipt of the Product from Hemispherx.

5.02	Esteve shall use diligent efforts and shall devote to Marketing the
Product such resources as are necessary to Market the Product in the
Territory, including using its best efforts to obtain pricing approval in the
Territory for sale of each 400 mg unit of the Product at a laboratory selling
price of ?230 and of each 200 mg unit of the Product at a laboratory selling
price of ?161.

        Training and Promotional Materials

5.03	Hemispherx shall during the term of this Agreement make available
to Esteve all promotional, advertising, educational and training materials
developed by Hemispherx or its Licensees for use with the Product, which
materials may be used by Esteve in developing promotional materials for
use in the Territory.

5.04	Esteve shall during the term of this Agreement make available to
Hemispherx all promotional, advertising, educational and training
materials developed by Esteve for use with the Product which materials
may be used by Hemispherx in developing promotional materials.

5.05	Esteve shall comply with all applicable laws and regulations
governing the sale, promotion and advertising of the Product in the
Territory.

6.	REGULATORY AFFAIRS

        Dealings with Regulatory Bodies

6.01	Hemispherx shall agree with Esteve on the strategy and procedures
to be followed in the Territory in seeking commercial approval of the
Product for ME/CFS with any regulatory authority based in the Territory.
Hemispherx shall consult with Esteve on the strategy and procedures to be
followed in seeking commercial approval of the Product for ME/CFS with
the European Medicines Evaluation Agency and for other jurisdictions
within the European Union and shall provide to Esteve for comment and
review all registration packages and applications relating to same prior to
the filing with any regulatory authority.

6.02	Hemispherx will be responsible, at its cost and expense, for
preparing registration packages and filing for the Product and for
obtaining in the Territory the REGULATORY APPROVAL for the
Product for the treatment of ME/CFS in the name of Hemispherx.

                                 7




When filing for the REGULATORY APPROVAL, Hemispherx will
designate Esteve as its distributor for the Product for the treatment of
ME/CFS in the Territory. Hemispherx will endeavor in good faith to obtain
the REGULATORY APPROVAL for the Product for the treatment of
ME/CFS as expeditiously as possible, and shall, at its own cost and expense,
conduct such studies, including, without limitation, chemical manufacturing
control, toxicology, dose-finding, pharmacokinetic and other clinical work
as may reasonably be necessary. Hemispherx will be responsible for
maintaining the REGULATORY APPROVAL at its expense during the
term of this Agreement and will promptly notify Esteve in writing of any
change in the status of such approvals

6.03	All communications by Esteve with any drug regulatory authority in
the Territory relating to the Product as Marketed in the Territory shall be
confirmed by Esteve in writing to Hemispherx, and Esteve shall provide to
Hemispherx copies of all documents sent to or received from any drug
regulatory authority in the Territory regarding the Product.

6.04	Esteve shall be responsible for responding to all Product-related
inquiries, Product quality complaints, and reports received from lay
persons and/or Health Care professionals from within the Territory.

6.05	Each Party shall obtain and maintain, at its own cost and expense,
all other licenses, permits and authorizations necessary to perform its
respective duties under this Agreement, and shall cooperate with the other
in applying for and obtaining any governmental approvals necessary to
implement the terms of this Agreement.

6.06	Esteve shall, at its own expense, apply for any establishment license
necessary to enable it to carry out its obligations under this Agreement.

7.	QUARTERLY FORECASTS AND ORDERS

        Forecasts

7.01	At least one hundred and twenty (120) days before the anticipated
issuance of a REGULATORY APPROVAL upon Hemispherx's request, and within ten
(10) business days following the end of each calendar quarter thereafter
during the term of this Agreement, Esteve shall supply to Hemispherx, a
twelve (12) month rolling forecast of Esteve's projected requirements for
the Product in the Territory.

7.02	Within sixty (60) days of Esteve's initial purchase order,
Hemispherx shall supply to Esteve all quantities of the Product required
for the Product Launch as specified in Esteve's initial purchase order.

7.03	Esteve shall deliver subsequent purchase orders for the Product to
Hemispherx no less than ninety (90) days prior to the required date of
delivery. Within ten (10) days of receipt of an order, Hemispherx shall send
to Esteve a written confirmation of such order, at which point such order
shall be binding upon Esteve and Hemispherx. Each order shall state the
date and location where delivery shall be made. Hemispherx shall dispatch
to Esteve the requisite quantity of Product to fulfill such orders. In the
event that Esteve's

                                  8




orders exceed projected requirements for the Product Hemispherx shall use
its best efforts, to provide the full amount of Esteve's requested quantities
of Product and to meet Esteve's requested delivery dates.

7.04	All Product shall be shipped by Hemispherx, DDP (Incoterms 2000)
to Esteve's Distribution Center as Esteve may specify in its purchase order
for the Product.

        Minimum Purchase Requirements

7.05	Provided that Hemispherx has complied with its obligations under
this Agreement, Esteve shall, commencing in the year of Product Launch
and in each Commercial Year thereafter throughout the term of this
Agreement, purchase from Hemispherx the minimum amount of the
Product specified in Schedule 7.05.

8. 	PAYMENTS, RECORDS, REPORTS AND AUDITS

        Initial and Subsequent Fees

8.01 Esteve shall pay to Hemispherx:

(a) A fee of 625,000 Euros within thirty (30) days of receipt of
Hemispherx's invoiced issued upon execution of this Agreement.

(b) A fee of 1,000,000 Euros within thirty (30) days of receipt of
Hemispherx's invoice issued after approval by the United States Food and
Drug Administration of the commercial sale of the Product in the United
States for use in the treatment of patients with
ME/CFS.

(c) A fee of 1,000,000 Euros within thirty (30) days of receipt of
Hemispherx's invoice issued after the issuance of the final marketing
authorization (including price and reimbursement) for the Product in
Spain.

In the event any tax or withholding is levied by any taxing authority
in connection with the accrual or payment of any sum hereunder, Esteve
shall have the right to pay such tax or withholding to the relevant taxing
authorities on behalf of Hemispherx and to deduct from amounts due to
Hemispherx the amount paid for such taxes or withholding, provided that
Esteve shall deliver to Hemispherx evidence of such payment.

The above amounts shall be non-refundable, except if this
Agreement is terminated by Esteve in accordance with the provisions of
paragraph 14.05 at a time when Esteve is not in material breach of any
term or provision of this Agreement.

Initial Investment

8.02	Within thirty (30) days of execution of this Agreement, Esteve shall
purchase from Hemispherx, and Hemispherx shall sell to Esteve, ?1,000,000
of Hemispherx's seven percent (7%) Convertible Bonds due 30 September,
2003.

                                9




Clinical Trial Support

8.03	(a) Promptly following execution of this Agreement Hemispherx and
Esteve shall formulate a Strategic Alliance Committee ("SAC") to be
chaired by William A. Carter, M.D. and co-chaired by Dr. Antoni Esteve.
The SAC shall meet promptly upon formation, and at least quarterly
thereafter, and shall (a) devise and approve a protocol for a pilot Clinical
Trial ("Pilot Trial") for the treatment of patients with HIV and HCV to be
conducted by Esteve in the Territory (b) select the same or other targeted
indication(s) of clinical research trial(s) ("Clinical Trial(s)") to be
conducted by Esteve in the Territory utilizing the Product (c) devise and
approve protocol(s) for the Clinical Trial(s), and (d) maintain~ oversight
and ultimate control of the Pilot Trial and the Clinical Trial(s).

The representatives of Esteve shall be collectively entitled to one (1)
vote and the representatives of Hemispherx shall be collectively entitled to
one (1) vote. The decisions of the SAC shall be adopted unanimously. In the
event that within thirty (30) business days a dispute cannot be amicably
resolved within the SAC despite the good faith efforts of the Parties, the
Parties agree to refer the dispute to the decision of an external expert
suitably qualified to resolve such dispute which is mutually acceptable to
both Parties, whose decision shall be final. In resolving the dispute, the
appointed expert shall take into account clinical development practices and
procedures common in the pharmaceutical industry and appropriate with
reference to the specific Pilot Trial and Clinical Trial

Hemispherx shall provide Esteve, free of charge, with all necessary
Products in order to conduct both the Pilot Trial and the Clinical Trial(s).

Esteve shall, promptly following receipt of the appropriate
authorizations and the necessary Products to conduct the Pilot Trial,
diligently initiate, implement and administer the Pilot Trial in the
Territory under the oversight and ultimate control of the SAC. In initiating,
implementing and administering the Pilot Trial Esteve shall, under the
direction of the SAC, establish a budget, in accordance with generally
accepted accounting principles, reflecting no overhead costs and only direct
costs, and shall expend not less than approximately ?300,000 of Esteve's
funds on the Pilot Trial.

Esteve shall, promptly following commercial approval of the
Product for the treatment of ME/CFS in the United States by the United
States Food and Drug Administration ("FDA Approval") and after receipt
of the appropriate authorizations and the necessary Products to conduct the
Clinical Trial(s), diligently initiate, implement and administer the Clinical
Trial(s) in the Territory under the oversight and ultimate control of the
SAC. In initiating, implementing and administering the Clinical Trial(s)
Esteve shall, under the direction of the SAC, establish a budget, in
accordance with generally accepted accounting principles, reflecting no
overhead costs and only direct costs, and shall expend ?2,000,000, subject to
a credit for all sums expended on the Pilot Trial, of Esteve's funds on the
Clinical Trial(s) within twenty four (24) months of FDA Approval, or such
longer term as may be considered appropriate by the SAC taking into
consideration the Protocol of the Clinical Trial(s).



                                  10




Notwithstanding the foregoing Esteve may, at its sole discretion, initiate,
implement, administer the Clinical Trial(s) in the Territory as well as
expend the amounts referred to in the preceding paragraph before
obtaining the FDA Approval

Esteve shall, no less frequently than once each six (6) months,
provide to the SAC an updated projected budget, including a report on all
disbursements to date, on the Pilot Trial and the Clinical Trials(s), all in
accordance with generally accepted accounting principles. Additionally,
Esteve shall provide to Hemispherx such support, assistance and
cooperation in the preparation and prosecution of REGULATORY
APPROVAL based on the Pilot Trial and the Clinical Trial(s) as may then
reasonably be requested by Hemispherx.

        (b) Such economic expenditure by Esteve shall be taken into
consideration when establishing the economic terms for the license of the
targeted indication under the conditions provided in paragraph 2.02.

        (c) Hemispherx shall have and retain ownership of and title to all
trademarks, patents and other intellectual property rights in all inventions,
discoveries and other intellectual property (all herein "Intellectual
Property") which are made, conceived, reduced to practice or generated by
the Pilot Trial and the Clinical Trial(s) and Esteve shall cooperate with
Hemispherx in perfecting and protecting said Intellectual Property.

        Price

8.04	The price of the Product shall be ?115 per 400mg unit and ?80.5 per
200 mg unit and Esteve shall pay to Hemispherx 115 Euros for each 400mg
unit and 80.5 Euros for each 200 mg unit of Product purchased. Such prices
shall be DDP Esteve's Distribution Centers in the Territory. In the event
that Esteve, utilizing its best efforts, is only able to obtain pricing approval
for sale of the Product in the Territory ("Approved Pricing") at prices less
than those set forth in paragraph 5.02, and, provided the Approved Pricing
is not less than the then lowest approved pricing of the Product by any
other nation a member of the European Union as of the Effective Date,
Hemispherx agrees to meet with Esteve to explore in good faith the
possibility of an adjustment of the price of the Product to be paid by Esteve
to Hemispherx in order to preserve Esteve's fifty percent (50%) gross
margin.

8.05	Hemispherx shall invoice Esteve for each shipment of Product
ordered by Esteve. Esteve shall pay each such invoice within thirty (30)
days of the date of the invoice.

8.06	Esteve shall be responsible for the payment of any duties, levies or
taxes applied to the sale of the Product into the Territory by any relevant
Spanish, Portuguese or Andorran tax authority(s).

8.07	Hemispherx shall determine the appropriate carrier to be used to
ship the Product to Esteve and shall bear the cost of shipment and
insurance. Esteve shall be responsible for all cost of shipping the Product
from an Esteve Distribution Center to the customers.




                                  11




8.08	All sums due to Hemispherx under this Agreement shall be paid by
Esteve to Hemispherx in immediately available funds by wire transfer to
the bank account as Hemispherx may specify in writing.

9.	ADVERSE REACTIONS AND RECALLS

        Adverse Reaction Reporting and Product Complaints

9.01	Each of Esteve and Hemispherx shall comply with (a) all adverse
reaction reporting systems in force in the Territory, and (b) the adverse
reaction reporting requirements of EMEA and/or the relevant authorities,
as applicable.

9.02	Esteve shall promptly advise Hemispherx of any adverse reaction
information that comes to its attention. Hemispherx shall submit adverse
reaction reports to EMEA and/or to the relevant authorities in the
Territory in accordance with the applicable regulations, and provide a copy
of all such submissions to Esteve. Hemispherx shall be solely responsible for
compiling such adverse event information and making any reports required
to EMEA and/or to the relevant authorities in the Territory. Hemispherx
shall promptly notify Esteve of all adverse reaction information and reports
received by Hemispherx from its licensees outside the Territory and copies
of all correspondence with any regulatory authority concerning such
reports.

9.03	Each of Hemispherx and Esteve shall immediately notify the other of
any information it receives regarding any threatened or pending action by
EMEA or other regulatory agency which may affect the safety or efficacy
claims of the Product or the continued marketing of the Product in the
Territory. Upon receipt of any such information, Hemispherx will consult
with Esteve in an effort to arrive at a mutually acceptable procedure for
taking appropriate action; provided, however, that nothing contained
herein shall be construed as restricting the ability of Hemispherx or Esteve
to make a timely report of such matter to any governmental agency or take
other action that it deems to be appropriate or required by applicable law
or regulation. For the sake of clarity, the Product shall only be withdrawn
from the Territory for the reasons stated in 9.06 below. Each of
Hemispherx and Esteve shall provide such information regarding the
Product to the other.

9.04	Each of the Parties shall throughout the duration of this Agreement
maintain records and otherwise establish procedures to assure compliance
with all regulatory, professional, and other legal requirements which apply
to the promotion and marketing of the Product in the Territory.

        Recalls

9.05	Esteve shall notify Hemispherx immediately of any recall or
withdrawal of the Product from the market in the Territory required by
EMEA or the regulatory authorities in the Territory. At Hemispherx's
request, Esteve shall perform any recall required and shall obtain and
receive any Product that has been recalled.



                                12




9.06	In the event that either Party proposes to recall or withdraw the
Product from the market for health and safety reasons, the Party desiring
such recall or withdrawal shall notify the other Party immediately. Both
Parties shall then meet and discuss such proposal with a view to reach a
consensus on the pertinence of the recall, provided, however, that each
Party shall eventually be entitled to recall the Product if it considers in good
faith that the recall is necessary due to serious health and safety reasons.

9.07	In the event that any batches or shipments of the Product are
subject to a recall, Hemispherx shall, subject to the provisions of paragraph
9.05, conduct the recall and shall bear the cost and expense of any recall,
except that Esteve shall bear the cost and expense of any recall shown to
have been required as the result of any breach by Esteve of this Agreement.
If the recall is not attributable to the fault of one Party only, the cost
        of the recall shall be shared equally by the Parties.


10.	PRE AND NON REGULATORY APPROVAL

Prior to and in the event of non REGULATORY APPROVAL of the
Product for the treatment of ME/CFS in the Territory Esteve shall have the
right to provide the Product for the treatment of ME/CFS in the Territory
on a named patient and/or a foreign medication sale basis, with the price to
be paid by Esteve to Hemispherx for the Product to be negotiated in good
faith with consideration being given to Esteve's gross margin on such sales.
11.	INTELLECTUAL PROPERTY
	Ownership of Intellectual Property

11.01	Hemispherx or its Affiliates shall have and retain ownership of and
title to all trademarks, patents and other intellectual property rights in the
Product, including without limitation all inventions, discoveries and
improvements and other intellectual property relating to the Product which
are made, conceived, reduced to practice or generated by the Parties or
their respective Affiliates, including employees, agents and other
representatives or contractors, in the course of work performed under this
Agreement and/or any other agreements between the Parties relating to the
Product. Hemispherx shall own the Trademark in the Territory.
Hemispherx shall register the Trademark in the Territory and shall
maintain such registration in force during the term of this Agreement.

        Patent and Trademark

11.02	Hemispherx or its Affiliates shall have the exclusive right and
obligation to prepare, file, prosecute and maintain at its or their own
expense all patent and trademark applications and patents and trademarks
relating to the Product and shall use reasonable efforts to file such
applications as may be required to protect the intellectual property
associated with the Product in the Territory. At Hemispherx's expense,
Esteve shall provide reasonable assistance to Hemispherx to facilitate the
filing and maintenance of all such patent and trademark applications and
patents and trademarks, and shall execute all

                                 13



documents which Hemispherx deems necessary or desirable therefor.
Without limiting the foregoing, Hemispherx shall file a Certificate of
Addition on Spanish patent number ES 2.018.903 for the purpose of
expanding the present coverage in Spain to the Product's use in the
treatment of ME/CFS.

        Retention of Certain Rights

11.03	Subject to paragraph 11.02 above, each Party (i) shall retain
ownership of all intellectual property rights in its own trademarks, logos
and other intellectual property used in the Marketing of the Product and to
the extent necessary to permit the other Party to lawfully fulfill its
obligations in relation to Marketing the product in the Territory pursuant
to the terms of this Agreement, and (ii) hereby grants to the other Party a
gratuitous, royalty-free license (or sublicense, as the case may be) to use
such intellectual property for the sole purpose of so Marketing the Product
in the Territory pursuant to the terms of this Agreement.

11.04  Hemispherx hereby grants Esteve an exclusive right to use the
Trademark to be registered by Hemispherx in the Territory.

       Infringement by Third Parties

11.05  Each Party shall promptly notify the other following the discovery of
any infringement or unauthorized use of the other Party's intellectual
property rights used in the promotion of the Product. The Party whose
rights are infringed shall determine within sixty (60) days following such
notice whether to prosecute the alleged infringement and whether to
enforce its intellectual property rights against the alleged infringer. If the
Party whose rights are infringed determines to prosecute the infringement,
that Party shall bear the costs and expenses of the prosecution. Should the
Party whose rights are infringed fail to determine whether to prosecute
within the sixty (60) day period set forth above, or determine not to initiate
any action against the alleged infringer, the other Party shall have the right
to initiate such action at its own expense, and in the name of the other Party
if advisable. In the event either Party brings an action pursuant to this
paragraph 11.05, the other Party shall provide the Party bringing such
action with reasonable assistance at the prosecuting Party's expense. Any
recovery from any such action shall first be applied in satisfaction of
expenses and legal fees incurred by the Parties in connection with the
action, and any balance remaining from any such recovery shall be divided
between the Parties pro rata according to the losses incurred by the Parties
by reason of the infringement that was the subject of the action.

        Claims of Infringement

11.06	Either Party shall notify the other promptly in the event of the
receipt of notice of any action, suit or claim alleging infringement of
any intellectual property right held by a third party. Defense of all
such claims shall be subject to Article 13.

11.07	If Hemispherx, Esteve or any of their respective Affiliates or
customers shall be sued by a third party for infringement of a patent, or a
claim shall be made of infringement of a patent because of the manufacture,
use or sale of the Product or any regulatory or other

                                  14



action is initiated by a third party to delay or affect the sale of the
Product then the Party which has been sued or becomes aware of such a suit or
regulatory or other action shall promptl~7 notify the other Party in writing
of the institution of such suit or regulatory or other action. Hemispherx
shall have the right to defend at its own expense, and have control over any
such litigation or suit. Esteve shall have the right to participate in such
suit or action at its own expense. If Hemispherx declines to defend any action
relating to or arising from the Marketing of the Product in the Territory
promptly and diligently, Esteve may, at its own expense, defend such action
in the name of Hemispherx if necessary, subject to Hemispherx's
unqualified right to assume the defense and control of any such suit or
action at its own expense.

11.08	Either Hemispherx or Esteve may at its own expense conduct all
negotiations for the settlement of any claim in respect of which it has agreed
to indemnify the other, and the defense and settlement of any litigation that
may arise therefrom, but shall not at any time make any admission or take
any steps which might be prejudicial to the settlement or successful defense
by the other of any claim unless and until the other has been notified of the
claim and has stated its intention in writing not to negotiate or defend the
claim.

        No Implied License

11.09	Except as specifically provided herein, nothing in the Agreement
does, or is intended to, or shall be construed to create, confer, give effect to
or otherwise imply in Esteve or anyone claiming through Esteve any license,
right, or property interest in the Product the Patents, the Trademark, or
any trade secrets, know how or property relating to the Product.

12.	CONFIDENTIALITY

12.01	"Confidential Information" means any confidential or proprietary
information, knowledge, intellectual property, pre-clinical and clinical
information or data, technical and/or non-technical material or property,
relating to the Product and/or Oragens, their manufacture, or Marketing
delivered by one Party ("Supplier") to the other Party ("Recipient").

12.02	Recipient will employ the same degree of care to keep all
Confidential Information confidential as it employs with respect to its own
information of like importance, and will not disclose any Confidential
Information to any third party, except to consultants and employees of
themselves or Affiliates who need or are entitled to know such Confidential
Information for the purposes of carrying out the object of this Agreement,
and who are under an obligation to keep that information confidential The
Recipient shall maintain a written list of the identity of each such third
party, including employees of Recipient, to whom confidential information
is disclosed. Confidential Information may be disclosed to Esteve's
Licensees and potential Licensees only with Hemispherx prior written
approval, which approval shall not be unreasonably withheld or delayed.

12.03	All Confidential Information shall remain the property of Supplier.
Upon the written request of Supplier upon termination or expiration of this
Agreement, all tangible Confidential Information received from Supplier
(including all copies thereof and samples)

                                 15



shall be promptly returned to Supplier; provided that Recipient may
provide one (1) copy of such tangible Confidential Information to its
General Counsel to be retained in a secure location for purposes of
identifying its obligations under this Agreement.

12.04	The obligations of confidentiality and non-use set forth in this
Article 12 of this Agreement shall not apply to any portion of the
Confidential Information that:

        (a)is or becomes public or available to the general public
        otherwise than through the act or default of Recipient or any
        authorized third party; or

        (b)is obtained by Recipient from a third party who is lawfully in
        possession of such Confidential Information and is not
        subject to an obligation to Supplier of confidentiality or non-
        use; or

        (c)is previously known to Recipient prior to disclosure to
        Recipient by Supplier; or

        (d)is furnished to others by Supplier without restrictions on
        confidentiality and non-use similar to those contained in this
        Agreement; or

        (e)is acquired, independently developed, discovered or arrived
        at by the party possessing the information, or which is
        independently developed, discovered or arrived at by the
        Recipient, without use of the Confidential Information
        received from the Supplier; or

        (1)is used by Hemispherx or Esteve in the Marketing of the
        Product and/or Oragens.

12.05	In the event that either Party is requested or required (by
deposition, interrogatories, requests for information or documents in legal
proceedings, subpoena, civil investigative demand or other similar process)
to disclose any of the Confidential Information of the other Party, the Party
to whom such request or requirement applies (the "Mandated Party") shall
provide the other Party (the "Protected Party") with prompt written notice
of any such request or requirement so that Protected party may seek a
protective order or other appropriate remedy and/or waive compliance
with the provisions of this Confidentiality obligation. If, in the absence of a
protective order or other remedy or the receipt of a waiver by Protected
Party, the Mandated Party or its representatives are nonetheless, in the
opinion of their counsel, legally compelled to disclose Confidential
Information to any tribunal or else stand liable for contempt or suffer other
censure or penalty, the Mandated Party may, without liability hereunder,
disclose to such tribunal only that portion of the Confidential Information
which such counsel advises the Mandated Party is legally required to be
disclosed, provided that Mandated party exercises commercially reasonable
efforts to preserve the confidentiality of the Confidential Information and
provides to the Protected Party a copy of any written opinion relied on.

12.06	Nothing in this Agreement shall be construed as giving Recipient
any right, title, interest in or. ownership of the Confidential Information.


                                 16




12.07	The provisions of this Article 12 shall survive any termination or
expiry of this Agreement for a period of five (5) years.

13.	INDEMNIFICATION

13.01	Hemispherx, together with its successors and assigns, hereby agrees
to indemnify and hold Esteve harmless from and against all losses, costs,
claims, actions, liabilities, including liability for death or personal injury,
and expenses (including reasonable attorneys' fees), incurred by Esteve
which result from or arise in connection with

       (a)the breach of any representation, covenant or warranty of
       Hemispherx contained in this Agreement.

       (b)any product liability claim relating to the Product including
       without limitation, any claim based upon any use of Product,
       or any defect in the Product that was manufactured by, or for
       Hemispherx or by an Affiliate or licensee thereof; or

       (c)any act or omission of Hemispherx or of Hemispherx's
       officers, directors, employees or agents (including, without
       limitation, statements or representations that are inconsistent
       with, or contrary to the Product labeling), or

       (d)any claims or allegations by a third party that the sale or use
       of the Product or the use of the Trademark infringes that
       third party's intellectual property rights,

except to the extent that any such liability, cost, loss or expense is
attributable to the negligent or intentional malfeasance of Esteve in
connection with the performance of its duties and obligations hereunder.

13.02	Esteve, together with its successors and assigns, hereby agrees to
indemnify and hold Hemispherx harmless from and against any and all
losses, costs, claims, actions, liabilities, including liability for death or
personal injury, and expenses (including reasonable attorneys' fees)
incurred by Hemispherx which result from or arise in connection with

       (a)the breach by Esteve of any representation, covenant or
       warranty of Esteve contained in this Agreement;

       (b)the Marketing of the Product in the Territory by Esteve, its
       Affiliates, and the directors, officers, employees and agents
       thereof, except to the extent that the losses, costs claims,
       actions, liabilities and expenses result from an infringement
       of Hemispherx's warranties provided for in Article 16.01, or

       (c)any act or omission of Esteve or of Esteve's officers,
       directors, employees or agents (including without limitation
       statements or representations that are inconsistent with, or
       contrary to the Product labeling)

                                  17



except to the extent that any such liability, cost, loss or expense is
attributable to the negligent or intentional malfeasance of Hemispherx in
connection with the performance of its duties and obligations hereunder.

        Procedure for Indemnification

13.03	Upon receiving notice of any claim or suit under paragraph 13.01 or
13.02 above, the indemnified Party shall immediately notify the
indemnifying Party and shall allow the indemnifying party and/or its
insurer the opportunity (subject to Hemispherx's obligations to assume
control of any and all third party infringement claims as described in
paragraph 11.06) to assume direction and control of any and all third party
infringement claim, including, without limitation the settlement thereof at
the sole option of the indemnifying Party or its insurer. The indemnified
Party agrees to cooperate with the indemnifying Party in the conduct of any
negotiations, dispute resolution or litigation of any such claim or suit; and
the indemnifying Party shall inform the indemnified Party of the progress
of the claim or suit at such time and in such manner as is reasonable under
the circumstances.

        Insurance

13.04	During the period of time beginning with the Product Launch and
continuing for five (5) years after the expiration or termination of this
Agreement, the Parties shall each maintain in force product liability
insurance coverage, with commercially reasonable limits adequate to cover
their obligations under this Agreement under ordinary terms and
conditions which are customary in the pharmaceutical sector. A certificate
of insurance shall be provided by each Party to the other promptly upon
request from the other Party.

14.	TERM AND TERMINATION

        Term and Renewal

14.01	This Agreement shall become effective immediately, and, unless
terminated pursuant to the provisions of this Agreement, shall continue in
effect for the longer of (a) a period of ten (10) years from the date of
Product Launch, or (b) a period until the date of expiration of the last to
expire of the Patents exploited by Esteve hereunder, or (c) the period of
regulatory data protection for the Product in accordance with the
applicable regulations in the Territory.

14.02	Upon expiration of the term set forth in Article 14.01, Esteve shall
have the right to extend the term of this Agreement for successive periods
of two (2) years, provided that it has complied with its contractual
obligations under this Agreement. If Esteve wishes to exercise such right, it
shall so notify Hemispherx in writing no later than one hundred and eighty
(180) days prior to the expiration of the initial term of this Agreement or of
the relevant extension.

Should the term of this Agreement be extended in accordance with the
provisions of the preceding paragraph, the parties shall discuss in good
faith the supply price of the Product taking into consideration the market
situation prevailing at that time.

                                18




        Termination by Either Party

14.03	Either Party may terminate this Agreement immediately upon
written notice if, after issuance of a REGULATORY APPROVAL, the
Product is withdrawn from the Territory for a period of more than ninety
(90) days for serious adverse health or safety reasons.

14.04	Either Party may terminate this Agreement immediately upon
written notice if, at any time, the other Party:

        (a)files in any court a petition in bankruptcy or insolvency or for
        reorganization or for an arrangement or for the appointment
        of a receiver or trustee of such Party or of its assets;

        (b)proposes a written agreement of composition for extension of
        its debts;

        (c)is served with an involuntary petition against it filed in any
        insolvency proceeding, and such petition is not dismissed
        within sixty (60) days after the filing thereof;

        (d)proposes or is a party to any dissolution or liquidation; or

        (e)makes an assignment for the benefit of its creditors.

14.05	Except as otherwise provided in this Agreement, either party may
terminate this Agreement if the other party materially breaches any term
or provision of this Agreement, ninety (90) days after giving the breaching
Party written notice of such breach, unless:

        (a)the breaching Party cures the breach within such ninety (90)
        day period; or

        (b)if a cure of such breach cannot reasonably be effected within
        such ninety (90) day period, the breaching party commences
        the cure of such breach within such ninety (90) day period
        and diligently prosecutes such cure to completion

        Termination by Hemispherx

14.06

(a) In the event that Esteve fails to meet eighty percent (80%) of the
minimum purchase requirement of Schedule 7.05 in any Commercial Year,
and provided that per capita sales of the Product in the Territory for the
treatment of patients with ME/CFS in such Commercial Year do not exceed
per capita sales of the Product in France for the treatment of patients with
ME/CFS in such calendar year, Hemispherx may within ninety (90) days of
the end of that Commercial Year and upon thirty (30) days written notice
to Esteve elect to transform `Esteve's exclusive right to Market the Product
in the Territory to a non exclusive right to Market Product in the Territory.


                                  19




Upon receipt of written notice of an election by Hemispherx to elect to
transform Esteve's exclusive right to Market the Product in the Territory
to a non exclusive right to Market Product in the Territory Esteve may
retain its exclusive right to Market the Product in the Territory if within
thirty (30) days of the receipt of such notice Esteve purchases sufficient
Product from Hemispherx to make up the shortfall in its minimum
purchase requirements.

(1!) In the event that Esteve fails to meet sixty percent (60%) of the
minimum purchase requirements of paragraph 7.05 in any Commercial
Year, and provided that per capita sales of the Product in the Territory for
the treatment of patients with ME/CFS in such Commercial Year do not
exceed per capita sales of the Product in France for the treatment of
patients with ME/CFS in such calendar year, Hemispherx may within
ninety (90) days of the end of that Commercial Year and upon thirty (30)
days written notice to Esteve terminate this Agreement.

Upon receipt of written notice of an election by Hemispherx to terminate
this agreement Esteve may retain its exclusive right to Market the Product
in the Territory, and this Agreement shall not be terminated if within thirty
(30) days of the receipt of such notice Esteve purchases sufficient Product
from Hemispherx to make up the shortfall in its minimum purchase
requirements.

        Termination by Esteve

14.07	In the event Hemispherx does not supply the Product for the
Territory for a period of ninety (90) consecutive days for any reason other
than as contemplated by paragraph 9.06 (serious adverse health or safety
reasons) or Article 15 (force majeure), Esteve may, within thirty (30) days
from the expiration of the ninety (90) day period referenced in this
paragraph, terminate this Agreement upon thirty (30) days written notice
to Hemispherx. In the event Esteve does not elect to terminate this
Agreement pursuant to this Article 14.07, the Agreement shall remain in
full force and effect and Esteve's minimum purchase requirements and
other factors, as appropriate, shall be adjusted appropriately for the period
in which the supply of the Product was interrupted.

14.08	Esteve may further terminate forthright this Agreement if the
results of the clinical trial being conducted by Hemispherx which is
described in Schedule 14.08 (hereinafter, the "Clinical Trial") are not
positive, such results being essential to Esteve to maintain its interest
in the Product. The Parties agree that the results of the Clinical Trial will
be considered positive if efficacy is established as determined in
paragraph 3.1. of the Protocol (Primary Endpoints).

To such purpose, Hemispherx shall immediately provide to Esteve the final
report of the Clinical Trial, together with any other relevant information
to assess the results of the Clinical Trial Should Hemispherx not receive a
termination notice from  Esteve within thirty (30) days following reception
of the final report by Esteve, it shall be considered that Esteve has waived
any termination rights it may have pursuant to this  Article 14.08.

In the event of termination of this Agreement pursuant to this Article 14.08,
it is agreed that:

                                 20




(i)	Hemispherx may retain any amounts already paid by Esteve
hereunder prior to the termination of this Agreement, and

(ii)	Esteve shall not pay any additional amount (nor perform any
activity) hereunder, in particular pursuant to Articles 8.01, 8.02 and 8.03
hereinabove, and Hemispherx shall not claim any such additional amounts
(nor request the performance of any such activities).

        Effect of Expiration of Termination

14.09	Expiration or termination of this Agreement for any reason shall not
release any Party from any obligation and any liability which, at the time of
such expiration or termination, has already accrued to the other Party or
which is attributable to a period prior to such expiration or termination,
nor shall it preclude either Party from pursuing all rights and remedies it
may have hereunder with respect to any breach of this Agreement.

14.10	The rights and obligations of the Parties set forth in Articles 11, 12
and 13 and this Article 14.09, 14.10 and 14.11 shall survive expiration or
termination of this Agreement for any reason.

14.11	Upon expiration or termination of this Agreement, Esteve shall have
the right to continue to sell its existing inventory of Product in the Territory
for a period of six (6) months from the effective date of such expiration or
termination.

15.	FORCE MAJEURE

15.01	Neither Party shall be liable for failure to perform any of its
obligations hereunder if such failure is due to strikes, locks-outs or other
labor disturbances, riots, floods, fires, accidents, wars, embargoes, delays
of carriers, inability to obtain materials from sources for supply, acts,
injunctions, or restraints of governments (whether or not now threatened)
or any other cause beyond the reasonable control of such Party, which was
not reasonably foreseeable on the date this Agreement was entered into,
and which could not reasonably have been avoided (each a "Force Majeure
Event"). Upon the occurrence of any Force Majeure Event, the Party whose
performance is affected shall immediately give written notice of such Force
Majeure Event, the Party whose performance is affected shall immediately
give written notice of such Force Majeure Event to the other Party, and
shall thereafter exert all reasonable efforts to overcome the Force Majeure
Event and resume performance of this Agreement. If, despite such efforts,
the Party is unable to overcome the Force Majeure Event and resume
performance of this Agreement within six (6) months following notification
given hereunder, then the other Party may terminate this Agreement upon
expiration of such six (6) month period by written notice to the non-
performing Party.

15.02	No Party shall have the right to avail itself of this Article 15 in the
event the Force Majeure Event arises from an act or from any negligence of
the Party.

15.03	Each Party shall bear its own costs arising out of or resulting from
the occurrence of any Force Majeure Event.


                                  21




16.	REPRESENTATIONS AND WARRANTIES

16.01	Unless specifically stated below, each Party hereby represents and
warrants to the other Party as follows:

(a)    Such Party is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is
organized; has the corporate or other power and authority
and the legal right to conduct its business as it is now being
conducted; and is in compliance with all requirements of
applicable law, except to the extent that any noncompliance
would not have a material adverse effect on the properties,
business, or financial or other condition of such Party and
would not materially adversely affect such Party's ability to
perform its obligations under this Agreement.

(b)	Such Party has the corporate or other power and authority
and the legal right to enter into this Agreement and to
perform its obligations hereunder and has taken all necessary
corporate or other action on its part to authorize the
execution and delivery of this Agreement and the
performance of its obligations hereunder. This Agreement
has been duly executed and delivered on behalf of such Party,
and constitutes a legal, valid and binding obligation,
enforceable against such Party in accordance with its terms,
except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and
other similar laws affecting the
enforcement of creditors' rights generally from time to time
in effect and general principles of equity.

(c)	Such Party shall comply with all applicable laws and
regulations in the Territory in connection with the
performance of its duties hereunder.

(d)	The execution and delivery of this Agreement and the
performance of such Party's obligations hereunder shall not
conflict with, violate the provisions of, constitute a default or
give rise to rights of any entity under (a) the party's Articles
of Incorporation or Bylaws; (b) any requirement of
applicable laws or reg~1ations; (c) any judgment, decree or
order of any court or governmental or regulatory agency
applicable to the Party, its subsidiaries, its Affiliates or their
respective assets; or (d) any agreement, commitment or
contractual obligation of such Party or of any of its
subsidiaries or Affiliates by which they or their respective
assets are bound, except such conflicts that do not materially
adversely affect such Party's ability to perform its obligations
under this Agreement.

(e)	Hemispherx specifically represents and warrants that there is
no pending or threatened lawsuit or proceeding of any
governmental or regulatory authority against or concerning
Hemispherx in connection with the respective obligations to
be performed hereunder, which if adversely determined,
would (a) prohibit the execution, delivery or performance of
this Agreement or (b) have a material, adverse effect on
Hemispherx or on the

                                  22




ability of Hemispherx to consummate the transactions contemplated
hereby or to perform its obligations under this Agreement.

(I)	Hemispherx warrants and represents that to the best of its
knowledge the manufacture, sale or use of the Product and the use of
Hemispherx's Confidential Information and the Trademarks in the
Territory do not infringe any third parties rights.

(g)	Hemispherx warrants and represents that prior to the execution of
this Agreement it has disclosed to Esteve all information known to
Hemispherx (including such information on the Products, Patents
and patent rights of third parties) reasonably relevant to Esteve in
order to assess its interest in entering into this Agreement, and that
no material information actually known to Hemispherx as of the
Effective Date regarding the foregoing has been withheld from
Esteve to Hemispherx.

(h)	Hemispherx warrants and represents that it will pursue the
applications for the REGULATORY APPROVAL for the Product
in the Territory.

(i)	Esteve specifically represents that, in entering into this Agreement,
Esteve is relying solely upon its independent investigation of
Hemispherx's business and its independent consultation with such
professional, legal and accounting advisors as it deems necessary,
and is not acting in reliance on any statements, instruments,
certificates, documents representations or warranties other than
those contained or referred to in this Agreement.

(j)	Esteve specifically represents and warrants that there is no pending
or threatened lawsuit or proceeding of any governmental or
regulatory authority against or concerning Esteve in connection with
the respective obligations to be performed hereunder, which if
adversely determined, would (a) prohibit the execution, delivery or
performance of this Agreement or (b) have a material adverse effect
on Esteve or on the ability of Esteve to consummate the transactions
contemplated hereby or to perform its obligations under this
Agreement.

(k)	Esteve warrants and represents that prior to the execution of this
Agreement it has disclosed to Hemispherx all information known to
Esteve reasonably relevant to Hemispherx in order to assess its
interest in entering into this Agreement, and that no material
information actually known to Esteve as of the Effective Date
regarding the foregoing has been withheld from Hemispherx to
Esteve.








                                  23




17.	MISCELLANEOUS

Changes in Regulatory or Market Conditions

17.01	In the event of a material change of regulatory or market
circumstances in the Territory in respect of those originally anticipated as
of the date of the execution of this Agreement, which may adversely affect
the commercial basis of this Agreement, the party affected by such material
change shall notify the other and the parties shall meet to discuss the
altered circumstances and re-negotiate in good faith the terms of this
Agreement which may be affected by such material change (i.e. minimum
purchases and/or supply prices, as may be appropriate).

Notices

17.02	Except as otherwise provided herein, any notice or other
communication sent or delivered hereunder shall be in writing and shall be
effective if hand delivered or if sent by facsimile transmission (confirmed by
overnight courier) or overnight courier and addressed as follows.

if to Hemispherx:

Hemispherx BioPharma Europe, S.A.
26-28 rue Marius Aufan
92300 Levallois-Perret
Paris, France
Attention: Richard C. Piani
Facsimile: 01133147152719

With a copy to:

Hemispherx Biopharma, Inc.
1617 JFK Blvd.
Philadelphia, Pennsylvania 19103
U.S.A.
Attention: William A. Carter, M.D.
Facsimile: (215) 988-1739

If to Esteve:

LABORATORIOS DR. ESTEVE, S.A.
Av. Mare de Deu de Montserrat, 221
08041 Barcelona, Espana

Attention: Director, Business Development & Licensing Facsimile:
34.93.433.00.72



                                  24




or to such address as either Party shall hereafter designate by like
notice to the other Party. A notice shall be deemed to have been given
on the date of receipt by the Party.

        Allocation of Costs

17.03	Each of the Parties shall employ, at its own costs and expense, such
personnel, computer and communications support, facilities and expertise
as is reasonably necessary for the performance of its responsibilities under
this Agreement. Except as otherwise provided by this Agreement, each
Party shall bear all expenses related to the performance of its obligations
under this Agreement, including without limitation all out-of-pocket and
administrative costs and expenses.

        Assignment

17.04	Neither Party may assign this Agreement or any rights hereunder
except upon prior written consent of the other Party, which consent may be
withheld in such other Party's sole discretion. Notwithstanding the
foregoing, either Party may assign its rights and obligations to its
          Affiliates, although no such assignment shall relieve the Party of its
          primary  responsibility for performance hereunder.

Esteve is hereby entitled, subject to written approval by Hemispherx, which
approval shall not be unreasonably withheld, to appoint a local sub-
distributor for the Product in Madeira (Portugal), in which case Esteve
shall be responsible for ensuring compliance of any such sub-distributor
with all applicable obligations or duties under this Agreement.

Esteve shall further be entitled, subject to written approval by Hemispherx,
which approval shall' not be unreasonably withheld, to sub-contract the
storage and physical distribution of the Products in Portugal to a third
party, in which case Esteve shall be responsible for ensuring compliance of
any such third party with all applicable obligations or duties under this
Agreement.

This Agreement shall be binding upon, and inure to the benefit of, the
permitted assigns and successors of the Parties hereto.

        Waiver

17.05	The failure of either Party hereto at any time to require
performance by the other Party of any provision of this Agreement shall
not affect the right of such Party to require future performance of that
provision. Except as otherwise provided herein, any waiver by either Party
of any breach of any provision of this Agreement must be in writing to be
effective and shall not be construed as a waiver of any continuing or
succeeding breach of such provision or a waiver of any other right under
this Agreement.

        Entire Agreement

17.06	This Agreement constitutes the entire understanding of the Parties
hereto and supersedes all previous agreements between the Parties with
respect to the matters

                                  25



contained herein. No modifications of this Agreement shall be binding upon
either Party unless approved in writing by an authorized representative of
each of the Parties.


        Partial Invalidity

17.07	In case any one or more of the provisions contained herein shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Agreement, but this Agreement shall be construed as if
such invalid, illegal or unenforceable provision or provisions had never
been contained herein unless the deletion of such provision or provisions
would result in such a material change as to cause consummation of the
transactions contemplated hereby to be impossible.

        Execution in Counterparts

17.08	This Agreement may be executed in counterparts, including
counterparts transmitted by telecopier or facsimile, each of which shall
constitute an original and all of which shall be considered one and the same
Agreement. Counterparts or facsimile copies executed by all Parties shall
have the same effect as if the signatures to each counterpart or facsimile
copy were on the same document and copies of such documents shall be
deemed valid as originals. The Parties agree that all such signatures may be
transferred to a single document.

        Language

17.09	This Agreement is in the English language, which language shall be
controlling in all respects. All communications and notices to be made or
given pursuant to this Agreement shall be in the English language.


        Remedies Not Exclusive

17.10	The rights and remedies contained in this Agreement are not
intended to waive or preclude any other claims, rights or remedies which
may exist at law (whether statutory or otherwise) or in equity with respect
to the matters covered hereby:

        Governing Law

17.11	This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the State of Pennsylvania, United States,
without regard to the choice of law principles thereof, unless otherwise
provided for in this Agreement.

        Arbitration

17.12	Subject to the provisions of 17.13 and 8.03, all disputes arising in
connection with this Agreement shall be finally settled by arbitration, in
Geneva, Switzerland under the provisions of the International Chamber of
Commerce by one or more arbitrators

                                  26






appointed in accordance with the law of the State of Pennsylvania, United
States. The Parties commit themselves to accept and comply with the
decision of the arbitrator or arbitrators.

17.13	Any disputes with respect to the application of, or the compliance of
either party with, any provisions of this Agreement shall be resolved in an
arbitration conducted pursuant to the provisions of Schedule 17.13. This
provision shall not preclude the right of either party to address any
competent court or tribunal in order to obtain interim measures.

        Announcements

17.14	Neither Party shall make any public announcement or press release
regarding the content or signature of this Agreement without the other
party's prior written consent other than as may be required by law. If such
public announcement or press release is required by law the Parties shall
use their reasonable endeavours to agree to the text and content thereof
prior to making such public announcement or press release.


IN WITNESS WHEREOF, and intending to be bound hereby, each
of the Parties hereto have caused this Agreement to be executed by its duly
authorized officer as of the day and year first above written.
Hemispherx Biopharma Europe, S.A.	Laboratorios
                                        del Dr. Esteve, S.A.,
     /s/ William a. Carter                     /s/ Juan Esteve
By: ________________________	        By:   ________________
           CEO                                 Vice-President
Title: _____________________            Title:_________________




                                 27




SCHEDULE 1.13 - PATENTS
	COUNTRY	PATENT NO.
	Spain	ES 2.018.903
	Spain	ES 2.098.273
	Portugal	PT 9 1.094
	Portugal	PT 95.601





































                                 28




SCHEDULE 17.13 - ARBITRATION

Any arbitration conducted pursuant to the provisions of Article 17 of this
Agreement shall be in accordance with the following terms.

Either Party may elect to commence the arbitration. Such election shall be
effective if made by written notice (the "Arbitration Notice") transmitted
by facsimile to the other Party hereto and further sent in the manner set
forth in accordance with the notice provisions of this Agreement. The date
on which the Arbitration Notice is received via facsimile is the notice date
("Notice Date").

The arbitration shall be conducted and determined in accordance with the
then prevailing commercial arbitration rules of the International Chamber
of Commerce, or its successor, for arbitration of commercial disputes,
except that the procedure mandated by said rules shall be modified as
follows:

A.	A single arbitrator to be mutually agreed upon by the parties within
five (5) business days of the Arbitration Notice Date shall conduct
the arbitration. If the parties are unable to agree upon a single
arbitrator within five (5) business day period, the parties shall
request that the International Chamber of Commerce appoint a
single qualified arbitrator in accordance with its procedures.

B.	The location, and any procedural rules the arbitrator wishes to
establish, for the arbitration will `be determined by the arbitrator
within five (5) business days of the appointment of the arbitrator.
The arbitrator shall commence the arbitration hearing within fifteen
(15) business days of the Notice Date, and the arbitration shall be
completed within seven (7) business days of the date that it is
commenced. The arbitrator shall render a decision in the matter
within five (5) business days after the arbitration is completed. Such
decision shall be final and binding and neither Party shall appeal the
decision on any basis to any Court.

C.	Upon any failure, refusal or inability of an arbitrator to act,
his or her successor shall be appointed in the same manner as provided for
his or her original appointment.

The arbitrator shall render his decision and award in writing with
counterpart copies to both parties. The arbitrator shall have no right to
modify the provisions of this Agreement. The arbitrator shall have the right
to award interest. The costs of the arbitration, including the fees and'
expenses of counsel, expert and witness fees and costs of the arbitrator shall
be in the discretion of the arbitrator, who shall have the power to make any
award which is just in the circumstances.





                                29




SCHEDULE 7.05 - MINIMUM PURCHASE REQUIREMENTS

Esteve shall purchase Product in each of the years indicated in the
following minimum quantities:

		     Minimum Number of 400mg Equivalent Units*
Commercial Year	           of Product to be Purchased
________________________________________________________________

Year 1:**	                        102,320
Year 2:	                                255,920
Year 3:	                                307,040
Year 4:	                                409,440
Year 5: and each succeeding Commercial
             Year of the Agreement.	424,000


*Each 490 mg equivalent unit shall consist of either (a) one 400 mg
unit, or (b) two 200 mg units


**For the purposes of the computation of the purchases made by Esteve,
the amounts of Product purchased prior to the date of Product Launch
shall be considered as purchased during Year 1.

















                                30




SCHEDULE 14.08 - CLINICAL TRIAL CONDUCTED BY HEMISPHERX


PROTOCOL NO.:

AMP-516


TITLE:

A multi-center, double-blind, randomized, placebo-controlled study of the
efficacy and safety of Poly I:Poly C12U (Ampligenr) 400 mg iv twice weekly
versus placebo in patients with severely debilitating chronic fatigue
syndrome (CFS)/myalgic encephalomyelitis (ME).


















                            31

EX-99.D CONTRACTS

                 TREATMENT PROTOCOL
               DISTRIBUTION AGREEMENT


     THIS DISTRIBUTION AGREEMENT (the "Agreement") is
entered into this 9 day of February, 1998, by and between Hemispherx
Biopharma, Inc. ("HEB"), a Delaware corporation, and Kimberly Home
Health Care, Inc., d/b/a Olsten Health Services ("Olsten"), a Missouri
corporation.

                      RECITALS

HEB has developed Poly I, Poly C12U, a pharmaceutical product for
the treatment of Chronic Fatigue Syndrome ("CFS") and other indications
to be marketed under the brand name AmpligenTM ("Product");

HEB has developed a protocol with respect to the Product ("AMP-
511 Protocol" attached hereto as Exhibit "A" for reference only) and has
received authorization from the Food and Drug Administration ("FDA") in
a letter from Dr. Janet Woodcock, dated May 1, 1997 approving HEB's
request for distribution of the Product in accordance with the AMP-511 (all
hereinafter the "Authorization") on a cost recovery basis;

Olsten is a wholesale and retail distributor of numerous
pharmaceutical products, has a nationwide retail and certain international
wholesale distribution networks in place, and has the ability and desire to
serve as a preferred distributor for HEB's Product;

HEB wishes to appoint Olsten to distribute the Product to Patients
under the AMP-511 protocol for CFS on a distributor basis and wishes to
appoint Olsten as one of their distributors of the Product on the terms and
conditions set forth below, and Olsten desires to accept such non-exclusive
appointment, on the terms and conditions set forth below.

NOW THEREFORE, the parties agree as follows:

1. 	Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below, unless the context clearly
requires otherwise.

1.1	"Affiliate" of a Party shall mean any corporation or
non-corporate business entity which controls, is controlled by, or is under
common control with such Party. A corporation or non-corporate business
entity shall be regarded as in control of another corporation if it owns or
directly or indirectly controls at least forty percent (40%) of the voting
stock of the other corporation, or (a) in the absence of the ownership of at
least forty percent (40%) of the voting stock of a corporation or (b) in the
case of a non-corporate business entity, if it possesses, directly or
indirectly, the power to direct or cause the direction of the management
and policies of such corporation or non-corporate business entity, as
applicable.

1.2	"Contract Year" shall mean the period of twelve
consecutive calendar months commencing upon the Effective Date and each
subsequent successive twelve-month period.

1.3	"Effective Date" shall mean the date first written
above.




1.4	An "Event of Default" with respect to a Party shall
mean any of the following event.

(i)	Any material breach of this Agreement by such
Party; or

(ii)	The entry of a decree or order for relief by a
court of competent jurisdiction in respect of such Party in an involuntary
case under the Federal Bankruptcy Code, as now or hereafter constituted,
or any other applicable federal or state insolvency or other similar law and
the continuance of any such decree or order unstayed and in effect for a
period of sixty (60) consecutive dates; or

(iii) 	The filing by such Party of a petition for relief
under the Federal Bankruptcy Code, as now constituted or hereafter
amended, or any other applicable federal or state insolvency or other
similar law.

1.5	"Patient" shall mean a person recommended by a MD
or a DO for the treatment of Chronic Fatigue Syndrome (CFS) with
Ampligen, and accepted in writing by HEB under the AMP-511 Protocol,
on either a cost recovery or gratis basis.

1.6	"Party" shall mean either party to this Agreement.

1.7	"Person" shall refer to any natural person,
corporation, partnership or association.

1.8	"Supplies" shall mean the equipment and other
supplies necessary for the safe and effective use of the Product. Said
equipment and other supplies shall include, but not be limited to, those
items set forth on Appendix I.

1.9	"Territory" refers to all of the fifty (50) states in the
United States.


2. 	APPOINTMENT OF DISTRIBUTOR; SUPPLY
ARRANGEMENT.

	 2.1	(a)	HEB hereby appoints Olsten as a distributor of
HEB's Product in and for the Territory for the treatment of Patients with
CFS in the U.S. under treatment protocol AMP-511.

2.2	Subject to the termination provisions in Article 13,
Olsten hereby agrees to serve as HEB's distributor of HEB's Product in
and for the Territory during the term of this Agreement.

2.3	In the event that HEB obtains FDA approval of its
New Drug Application for the Product in the treatment of CFS ("Product
Approval"), the parties shall negotiate, in good faith the terms and
conditions of an agreement whereby Olsten is a distributor of the Product
in the Territory for HEB ("Distribution Agreement"). If FDA Product
Approval is obtained, and the parties do not enter into a Distribution
Agreement within six (6) months of the date of the FDA Product Approval,
HEB shall pay to Olsten an amount up to but not to exceed, in the
aggregate, the sum of $500,000.00 for all documented costs and expenses
incurred by Olsten in connection with the pharma-economic EPI-Q Study



and dedicated personnel (including salary and benefits) referred to in
Section 2.17 below. HEB shall pay such amount to Olsten within thirty (30)
business days following HEB's receipt of a documented invoice from Olsten
for such costs and expenses.

2.4	Within thirty days following the Effective Date of this
Agreement, HEB shall deliver to Olsten its drug utilization forecast for the
first Contract Year and will provide a list of current and potential clinical
sites. At least two (2) months prior to the beginning of each subsequent
Contract Year, HEB shall furnish Olsten with a good faith forecast for such
Contract Year. In return, Olsten will advance payment at the start of each
month for that month's forecasted drug utilization based on HEB `s Patient
forecast; provided however, that reconciliation of forecast and actual
utilization will be made on a monthly basis and any under utilization will
reduce the next months required advanced payment.

2.5	Olsten agrees to purchase the Product, and to
reconstitute/thaw the Product at the fee schedule set forth in Appendix I.
In addition, if the Product receives FDA approval, then HEB agrees that the
fee schedule shall be in effect for Patients enrolled in the AMP-S 11
Protocol at the time of FDA Product Approval and Olsten shall be entitled
to purchase the Product for said Patients at the prices set forth therein.
The fee schedule shall continue for those Patients for the lesser of one
(1) year following the date of the FDA Product Approval, or the date upon
which the parties execute the Distributorship Agreement described in
Section 2.3 above.

2.6	HEB agrees to use its best efforts to provide Olsten's
requirements for the Product in a timely fashion without interruption. HEB
agrees that if it exercises its rights under Section 13.3, it will
continue to be bound by this Section until the effective date of the
termination of this Agreement.

2.7	Olsten will provide those Distribution and
Warehousing Services described in Appendix II.

2.8	Olsten shall make such Supplies as are required for
the infusion of the Product available for purchase by any Patient serviced
by Olsten Health Services pharmacies or infusion units. In no event,
however, shall Olsten directly or indirectly require any Person (including
without limitation any Patient) to purchase Supplies or any other goods or
services from Olsten or from any other particular source as a condition of
receiving Product.

2.9	Olsten shall make available to each Patient, in
accordance with the Authorization, the Product Services and the
Reimbursement Services described in Appendix III hereto for the fees set
forth below.

2.10	Olsten shall maintain on a current basis in computer
databases and in such other format as may be reasonably requested by
HEB (taking into account Olsten's current information systems
capabilities) the information set forth in Appendix VI. All such information
shall be maintained in duplicate and at least one copy shall be stored in a
safe and secure environment. Olsten shall provide periodic reports to HEB
of such information as provided in Appendix IV.

2.11	Olsten shall have the right to return any expired,
defective or damaged Product to HEB for replacement of the same Product



or for a credit against future purchases (at Olsten's discretion); provided,
however, that any Product with an obvious defect that could reasonably be
expected to be discovered by Olsten in the ordinary course of business
(e.g., a damaged box) may be returned not later than thirty (30) days after
its receipt by Olsten. There will be no additional charge to Olsten for
replacement of the Product.

2.12	Olsten shall take title to the Product when it receives
the Product from HEB, HEB's designated agent, or assignment thereof
from the Patient.

2.13	The medication charges, which will be billed to
Patients by Olsten, without additional markup, are set forth in Appendix I.

2.14	Olsten agrees to distribute the Product in the
Territory through any means it determines to be reasonably appropriate
and which are in compliance with any and all applicable federal or state
statutes and regulations.

2.15	Olsten agrees to administer HEB's corporate
Compassionate Care Program in accordance with the written guidelines
and protocols of HEB. Eligibility guidelines will be set by HEB. The Parties
agree that Olsten shall not be obligated to pay for the Product provided by
Olsten to such indigent Patients under the Compassionate Care Program.

2.16	Olsten agrees to provide a certain amount of nursing
services without charge to such indigent Patients that HEB has identified to
Olsten in accordance with HEB's written Compassionate Care Program
and to whom Olsten has provided the Product (as set forth in Section 2.17).
The Parties agree that Olsten shall only be obligated to provide nursing
services without charge to a number of Patients equal to five (5%) percent
of the total number of Patients, and shall not be obligated for any free
nursing services beyond the five (5%) percent referenced herein.

2.17	Olsten agrees to provide financial support up to a
maximum amount of Five Hundred Thousand Dollars ($500,000) in the
aggregate to HEB in connection with the AMP-511 Protocol upon such
payment schedule as the parties may mutually agree and attach to this
Agreement as Appendix V. This financial support shall be used only for any
of the three purposes set forth herein:

(a)	To provide to HEB a pharma-economic study
of the cost/benefit of the Product in comparison with other commercially
available products and services for the treatment of CFS (under PE-100
Protocol). The parties agree that EPI-Q shall be used to perform this study
and that Olsten shall be entitled to review any material relating to this
study and to receive any drafts and final product produced by EPI-Q. The
parties further agree that HEB shall have the right to audit, on an ongoing
basis, all services and obligations to be performed by Olsten and EPI-Q in
relation to the pharma-economic study to be performed in accordance with
the PE-100 Protocol. Olsten shall make payment directly to EPI-Q
pursuant to the EPI-Q contract.

(b)	To compensate one Project Manager
(employed by OHS), experienced in clinical trials and knowledgeable about
FDA rules and regulations regarding clinical trials, whose obligations and
responsibilities shall, without limiting same, include: overseeing and
coordinating the performance of all Olsten and Epi-Q obligations under the
Agreement with the AMP-511 and the PE100 Protocols, FDA regulations
and any applicable Federal or State laws or regulations;




(c)	To provide adequate coverage by one or more
Clinical Research Nurse(s) (employed by Olsten) at six (6) clinical sites to
carry out the Studies under AMP-511 and the PE- 100 Protocols identified
to Olsten by HEB. The Clinical Research Nurse's obligations and
responsibilities shall without limiting same, include: (1) assisting and
performing tasks with regard to the AMP-511 and PE- 100 Protocols at the
direction of Hemispherx Medical Director; (2) recording, or causing to be
recorded, all data required by the AMP-S 11 and PE-100 Protocols and the
Patient Case Book. The parties acknowledge that Clinical Research
Nurse(s) may be employed by Olsten on a full-time or part-time basis,
provided they meet Olsten's obligations hereunder.

2.18	In the event that the aggregate amount of funds
required to support the three activities described in Section 2.17 (a) - (c)
above exceed Olsten's commitment of $500,000, Olsten shall have no
further obligation to provide additional funding to or on behalf of HEB or
to continue to support any of the activities described therein.


3. 	COMPENSATION.

3.1	Olsten agrees to pay for the Product based on the
purchase price fee schedule set forth in Appendix I, as set forth in
paragraph 2.4.

3.2	Fees to Distributor.

(a)	Warehousing and Distribution Services Fee.
For the Warehousing
and Distribution Services provided by Olsten (as described in Appendix II
hereto), HEB agrees to pay to Olsten every calendar quarter a fee equal to
five (5%) percent of the net wholesale price of each unit of Product
distributed by Olsten during such quarter.

(b)	Product and Reimbursement Services Fee. For
the Product and Reimbursement Services and reports provided by Olsten
(as described in Appendix III hereto), HEB agrees to pay to Olsten every
calendar quarter a services fee equal to five (5%) percent of the net
wholesale price of each unit of Product distributed by Olsten during such
quarter.

(c)	Information Services Fee. For the Information
Services and reports provided by Olsten (as described in Appendix IV
hereto), HEB agrees to pay to Olsten every calendar quarter a services fee
equal to two (2%) percent of the net wholesale price of each unit of Product
distributed by Olsten during such quarter.

(d)	Payment Terms. Promptly after the end of each
quarter, Olsten shall deliver to HEB an invoice showing the amount of such
Product distributed and the calculation of the fee owing for such quarter.
Such invoice shall be due and payable within thirty (30) days following
HEB `s receipt of such invoice.

(e)	Post-FDA Approval Fees. In the event that
HEB obtains FDA approvalfor the Product, the parties agree that the fees
set forth above shall be in effect and Olsten shall be entitled to receive
such fees for Patients enrolled in the AMP-S 11 Protocol, for the lesser of
one (1) year from the date of FDA approval, or the date upon which the
parties execute a definitive Distributorship Agreement.




4.	PATENT, LICENSE AND OTHER INTELLECTUAL PROPERTY RIGHTS.

4.1	HEB represents that it is the exclusive owner of
various United States issued patents which concern the compound Poly I
:PolyC12U (Hereinafter referred to as Ampligenr), which validly issued
patents concern the clinical utilization of the product in various chronic
viral disorders, including without limitation Chronic Fatigue Syndrome.
Also, HEB represents that it is the exclusive owner of an orphan drug
designation for the disorder CFS, which designation specifically prohibits
for a period of 7 years other pharmaceutical manufacturers from
introducing this product for the treatment of CFS. HEB also represents
that it is the holder of various IND's with the FDA which permit clinical
evaluation of the test compound, and also the company is in good standing
with respect to various manufacturing documents which are necessary to
file with the FDA from time-to-time to support the utilization of the product
in clinical investigation within the United States. To the Company's
knowledge, no other pharmaceutical manufacturers have similar patents
issued in the United States or similar regulatory status with the FDA with
respect to this product. HEB further warrants that Olsten, by virtue of any
of its actions taken pursuant to this Agreement, and the patent/licensing
rights described herein, will not infringe upon or violate the rights of any
third parties. As set forth in Section 8, HEB agrees to protect, indemnify,
and hold Olsten harmless from any and all claims of infringement based on
patent, trademark, copyright, or trade secrets which may be brought by
third parties against Olsten in. respect of the Product.

(a)	HEB specifically warrants that there are no
other agreements, amendments or licenses that affect HEB's authority or
ability to enter into this Agreement.

(b)	HEB further warrants that it has obtained any
and all necessary governmental and contractual consents for ownership and
distribution rights to the Product under the AMP-511 Protocol, including
all dosage and administration forms (e.g., injectable, IV) described in the
protocol.

4.2	HEB warrants that, prior to the execution of this
Agreement, it has not assigned, encumbered, pledged, mortgaged, used as
collateral, granted a security interest or lien in or otherwise engaged
in any action that affects its ability to grant Olsten the right to
distribute the Product in the Territory.

4.3	HEB agrees that, during the term of this Agreement,
it will not engage in any action that could be anticipated to adversely
affect HEB's ability to grant Olsten the right to distribute the Product as
provided in Sections 2.1 and 2.2.

4.4	Olsten will distribute the Product under a
trademark(s) designated by HEB. HEB warrants and represents that the
designated trademark(s) shall not infringe the rights of any third parties.
HEB also warrants that it will register all trademark designated by it in the
United States Patent and Trademark Office, and further that, it has within
the last three (3) years made commercial use in the United States of the
trademarks Ampligen and that to its knowledge, no third-party is presently
using Ampligen in connection with any product in the United States.





4.5	Olsten agrees that it will distribute the Product in
original packaging (except under the practice of pharmacy) bearing a
notice of copyright and which shall be registered in the United States
Copyright Office. HEB warrants and represents that this original
packaging will not infringe the rights of any third parties.


5.	GENERAL WARRANTIES.

5.1	HEB warrants that the Product shall: (i) be free from
defects in design, material and workmanship; (ii) be in compliance with
applicable law and all regulatory requirements of the Food and Drug
Administration ("FDA"), including but not limited to those related to the
adulteration or misbranding of products within the meaning of Section 501
and 502 of the Food Drug and Cosmetics Act; (iii) not be articles which may
not be introduced into interstate commerce pursuant to the requirements of
Section 505, 514, 515, 516 or 520 thereof; (iv) be manufactured in
accordance with current FDA Good Manufacturing Practices as required
by 21 C.F.R. 210 and 820.

5.2	Olsten warrants that it possesses all federal and state
licenses and permits necessary to its performance of this Agreement and
agrees to comply, in all material respects, with all federal and state laws
applicable to it for retail distribution and is a licensed exporter of
pharmaceuticals internationally.

5.3	HEB warrants that it possesses or will possess at time
of Patient treatment all federal and state licenses and permits necessary to
its performance of this Agreement and agrees to comply, in all material
respects, with all federal and state laws applicable to it.


6.	REGULATORY MATTERS.

6.1	HEB represents that the Product has received
clearance from the FDA to be administered in the Territory for the
indication of chronic fatigue syndrome, in accordance with the
"Authorization", that current sites in the United States have received
Institutional Review Board approval and that all federal and state permits
for the manufacture, importation, design, testing, inspection, labeling,
warning, instructions for use, sale and distribution of all the Product
in the Territory under the protocol have been obtained. HEB agrees that
it shall be solely responsible for, and comply with, all applicable federal
and state laws governing the regulation of the manufacture, importation,
design, testing, inspection, labeling, sale, warning and instructions for
use of all the Product in the Territory.

6.2	Olsten shall notify HEB promptly of any inspection by
any federal, state or local regulatory representative concerning the Product
and shall provide HEB with a summary of the results of such inspection
and such actions, if any, taken to remedy conditions cited in such
inspections.

6.3	Olsten shall disclose all fees required to be disclosed
under any state or federal program which provides cost or charge based
reimbursement to Olsten for the Product provided under this Agreement as
required by the applicable provisions of 42 U.S.C. 1320a-7b. Olsten



further represents and warrants that it, and any of its Affiliates, are in
compliance with, and during the term of this Agreement covenants that it
and its Affiliates shall remain in compliance with, any federal or state laws
applicable to the fees paid by HEB pursuant to this Agreement, including
without limitation, any laws requiring the proper disclosure and/or
reporting of fees.

6.4	Each party agrees to inform the other party promptly
(but in no event no later than forty-eight (48) hours after becoming aware
of same) of any information concerning any complaint involving the
Product or any adverse drug experience (as defined in 21 CFR 314.80),
injury, toxicity, or sensitivity reaction associated with the clinical
use of the Product, whether or not considered related to the Product.
If the adverse drug experience is serious, as defined in 21 CFR 314.80
(including an adverse drug reaction as detailed in AMP-511 Protocol
(Appendix VI,) then each party shall notify the other party within
twenty-four (24) hours. All notifications to HEB shall be made via facsimile.

6.5	If there is a recall or withdrawal of the Product, then
Olsten agrees to stop shipping recalled lots immediately, and in no event
later than twenty-four (24) hours after Olsten receives written notification
of such recalls. Olsten shall cooperate in any such recall, at HEB's expense
if the recall was prompted by events preceding Olsten's receipt of product.

6.6	Olsten agrees to reasonably cooperate with any
inspection of the Product shipment conducted by a governmental agency.
Olsten shall promptly give notice to HEB of any Product shipment
inspected by a government agency.

6.7	HEB agrees to reimburse Olsten for any costs or
expenses (including attorneys' fees) Olsten may incur due to recalls,
withdrawals, replacements or government inspections of any the Product if
the recall was prompted by events preceding Olsten' s receipt of product.
Olsten shall prepare an invoice of such costs which invoice shall be paid by
HEB within thirty (30) days of its receipt of such invoice.

6.8	Olsten shall at all times during the Term of the
Agreement comply, in all material respects, with all federal and state laws,
regulations and orders applicable to its operations as a wholesale and/or
retail distributor.

7. 	INDEMNIFICATION.

7.1	HEB will indemnify, defend, and hold harmless
Olsten, its affiliates, parents, subsidiaries, directors, officers,
agents and employees (collectively, "Olsten Indemnitees") from and
against, and reimburse Olsten Indemnitees for, any and all claims,
demands, actions, causes of action, losses, judgements, damages,
costs and expenses (including, but not limited to, attorneys' fees, court
costs and costs of settlement) arising out of claims against a Olsten
Indemnitee based on: (a) HEB's manufacture of the Product; (b) the death of,
or bodily injury to, any person on account of the use of the Product, to
the extent such death or bodily injury results from a defect relating to
the Product or arising out of any negligence or wrongful conduct of HEB;
(c) any recall or withdrawal of the Product if the recall was prompted
by events preceding Olsten's receipt of product; (d) HEB's violation of
any applicable law or government regulation; (e) any claims that Olsten's
distribution or sale of the Product infringes the patent or other
proprietary rights of any third party; or (f) any breach by HEB of
any of its representations, warranties, covenants or agreements in this
Agreement.




7.2	Olsten will indemnify, defend, and hold harmless
HEB, its affiliates, parents, subsidiaries, directors, officers, agents and
employees (collectively "HEB Indemnitees") from and against, and
reimburse HEB Indemnitees for, any and all claims, demands, actions,
causes of action, losses, judgements, damages, costs and expenses
(including, but not limited to, attorneys' fees, court costs and costs of
settlement) arising out of claims against a HEB Indemnitee based on: (a)
the death of, or bodily injury to, any person on account of the use of the
Product, to the extent such death or bodily injury results from Olsten's
negligence or willful misconduct; (b) Olsten's violation of any applicable
law or govermnental regulation as it relates to the distribution of the
Product, the Product Services, and Reimbursement Services; (c) any breach
by Olsten of any of its representations, warranties, covenants or agreements
in this Agreement; or (d) any recall or withdrawal if the recall was
prompted by events following Olsten's receipt of product.

7.3	Olsten agrees that upon receipt of any claim or
liability asserted in writing against it which would give rise to a claim
against HEB under this Section, it shall promptly notify HEB in writing of
the same within fourteen (14) business days. HEB agrees that Olsten is
entitled to retain counsel of its own choosing at Olsten's expense to the
extent necessary, in Olsten's sole discretion, to protect Olsten's interests
and to act as co-counsel in the litigation or settlement of any claim or
threatened claim. Olsten agrees that so long as HEB does not enter any
settlement agreement or consent judgment that admits liability on the part
of Olsten or which fails to include an unconditional release of Olsten from
all liability from all asserted or threatened claims, HEB shall have the
right to control the defense, settlement, and prosecution of any litigation.
Anything in this section notwithstanding:

(i)	If there is a reasonable probability in the
opinion of Olsten's counsel that a claim may materially and adversely affect
Olsten other than as a result of monetary damages or other monetary
payments for which HEB will be able to indemnify Olsten, Olsten shall have
the right to defend, and with HEB's prior consent, compromise and settle
such claim. Olsten's right to indemnification in such cases shall be limited
to its attorney's fees and costs plus any monetary settlement amount.

(ii)	In the event that Olsten determines in its sole
discretion, based upon the written advice of counsel, that there is a
conflict in the position or defenses to be asserted by HEB and Olsten
regarding liability, Olsten shall be entitled to its own defense,
including the right, with HEB's prior consent, to settle or compromise
all or any of the claims against it, at HEB's expense.

7.4	HEB agrees that upon receipt of any claim or liability
asserted in writing against it which would give rise to a claim against
Olsten under this Section, it shall promptly notify Olsten in writing
of the same within fourteen (14) days. Olsten agrees that HEB is entitled
to retain counsel of its own choosing at HEB's expense to the extent necessary,
in HEB's sole discretion, to protect HEB's interests and to act as co-counsel
in the litigation or settlement of any claim or threatened claim. HEB agrees
that so long as Olsten does not enter any settlement agreement or consent
judgment that admits liability on the part of HEB or which fails to include
an unconditional release of HEB from all liability from all asserted or
threatened claims, Olsten shall have the right to control the defense,
settlement, and prosecution of any litigation. Anything in this section
notwithstanding:



(i)	If there is a reasonable probability in the
opinion of HEB's counsel that a claim may materially and adversely affect
HEB other than as a result of monetary damages or other monetary
payments for which Olsten will be able to indemnify HEB, HEB shall have
the right to defend, and with Olsten's prior consent, compromise and settle
such claim. HEB's right to indemnification in such cases shall be limited to
its reasonable attorney's fees and costs plus any monetary settlement
amount.

(ii)	In the event that HEB determines in its sole discretion, based
upon the written advice of counsel, that there is a conflict
in the position or defenses to be asserted by HEB and Olsten regarding
liability, HEB shall be entitled to its own defense, including the right,
with Olsten's prior consent, to settle or compromise all or any of the
claims against it, at Olsten's expense.

7.5	The obligation of an indemnifying party under this
Section 7.0 shall not be diminished by the indemnifying party's failure to
provide the notice required above except to the extent such failure actually
and materially adversely affects the indemnifying party's ability to defend
such matter.


8. 	RECORDS AND ACCOUNTING.

8.1	During the term hereof and for three (3) years
thereafter, or such longer period as may be required by law, Olsten shall
maintain accurate records as required to meet applicable local, state and
federal laws and regulations. Except as otherwise required by any such laws
or regulations, Olsten shall provide HEB access to any requested
documentation related to this Agreement during reasonable business hours.
HEB shall give Olsten seven (7) business days' prior written notice of such
examination. Such examinations will not occur more than twice annually,
and such examination will be undertaken only to such extent necessary to
verify that Olsten has complied with the terms of this Agreement.


9. 	ASSIGNMENT.

9.1	Neither party may assign any of its rights or delegate
any of its obligations under this Agreement without the prior written
consent of the other party, except in connection with the sale of
substantially all of a party's assets, in which case the party shall assign
this Agreement to the buyer of the assets, and which shall not require consent.
Notwithstanding the previous sentence, either party may assign its rights or
delegate its duties to any of its parents, subsidiaries, or affiliates without
written consent of the other party. Any unauthorized attempted assignment
or delegation shall be null and void and of no force or effect, unless ratified
by the other party once it learns of the attempted assignment or delegation.


10. 	INSURANCE.

10.1	HEB will maintain in effect during the term of this
Agreement a comprehensive general liability policy and products liability
policy and HEB shall immediately after the Effective Date of this
Agreement designate Olsten as an additional named insured on such



policies. The General Liability Insurance policy shall be in an amount not
less than One Million Dollars ($1,000,000) per incident, and Two Million
Dollars ($2,000,000) in the aggregate. The Product Liability Insurance
policy shall be in an amount not less than One Million Dollars ($1,000,000)
per incident with a deductible of no less than $10,000. These policies shall
provide for ten (10) days notice to Olsten by the Insurer by Registered or
Certified Mail, return receipt requested, in the event of any modifications,
cancellation, or termination thereof. HEB agrees to provide Olsten with a
certificate of insurance evidencing compliance with this section within
fifteen (15) days of execution of this Agreement.

Olsten will maintain in effect during the term of this
agreement a comprehensive general liability policy and Olsten shall
immediately after the effective date of this Agreement designate HEB as an
additional insured on such policy. The General Liability Insurance Policy
shall be in an amount not less than one million Dollars ($1,000,000) per
incident and two million Dollars ($2,000,000) in the aggregate. The policy
shall provide for ten (10) days notice to HEB by the Insurer by Registered
or Certified Mail, return receipt requested in the event of any
modifications, cancellation, or termination thereof. Olsten agrees to provide
HEB with a certificate of insurance evidencing compliance with this section
within fifteen (15) days of execution of this Agreement.


11.	CONFIDENTIALITY AND REPORTS.

11.1	"Confidential Information" of a party shall mean any
and all information including, but not limited to, the terms and conditions
of this Agreement, and any other information that is or has been disclosed
in writing or orally by such party to the other party which is either
confidential or proprietary in nature; provided, however, that
"Confidential Information" shall not include information which:

(i)	Is or becomes generally available to the public
through no fault of the receiving party;

(ii)	Was known to the receiving party before such
party received it under this Agreement and was not acquired, directly or
indirectly, from the disclosing party; or

(iii) Is disclosed in good faith to the receiving party by
a third party lawfully in possession of such information and who was not
under an obligation of nondisclosure with respect of such information.

11.2	Each party acknowledges that it may have heretofore
received and may from time to time hereafter receive Confidential
Information of the other party, and such party receiving such Confidential
Information shall do the following:

(1)	Maintain such Confidential Information in
confidence and shall not disclose such Information to any third party;

(ii)	Not use such Confidential Information other
than in performance of this Agreement; and




(iii) Disclose such Confidential Information to its
employees or to employees of its affiliates only to the extent that such
employees need to know such Confidential Information to carry out the
receiving party's obligations under this Agreement.

11.3	Each party agrees to maintain confidential both
during the term of this Agreement and for a period of five (5) years
thereafter all Confidential Information provided to it pursuant to this
Agreement and shall not, without the specific written consent of the other
party, disclose it to any third party (except as required by law) or use it
for its own purpose (except as contemplated herein).


12.	JOINT PUBLICITY.

12.1	If either party wishes to make a public disclosure
concerning or the relationship established hereunder and such disclosure
mentions the other party by name or description, such other party shall be
provided with an advance copy of the disclosure and shall have ten (10)
business days within which to approve or disapprove such use of its name
or description (including mention of the name of the Product). Either party
shall not unreasonably withhold or delay approval. Failure to respond
within such twenty-one (21) business days shall be deemed to be approval.
Absent approval, no public disclosure shall use the name of or otherwise
describe such party except to the extent required by law, or to the extent
that the description of the other party is limited to public information
about the availability of the Product. Notwithstanding the foregoing, the
parties acknowledge that Olsten and HEB are publicly traded companies, and
they hereby consent to disclosure of this Agreement and their relationship
(to the extent necessary or desirable in the disclosing party's judgment)
in the disclosing party's filings with the Securities and Exchange
Commission and its respective disclosures to its stockholders.


13.	TERM AND TERMINATION OF AGREEMENT.

13.1	This Agreement shall become effective on the date
first written above and shall have a term of one (1) year calculated from the
Effective Date. This Agreement shall automatically renew for successive
additional one (1) year terms unless, not less than one hundred eighty (180)
days prior to the anniversary date, either party notifies the other of its
intent to terminate this Agreement as of the anniversary date.

13.2	The initial term of this Agreement or any renewal
term may be terminated only as follows:

(i)	This Agreement may be terminated at any time
upon the mutual written consent of both parties.

(ii)	At any time after the first Contract Year,
either HEB or Olsten shall have the right to terminate this Agreement
without cause upon not less than one hundred eighty (180) days prior
written notice to the other.





(iii) This agreement will automatically terminate when
HEB receives New Drug Approval for commercial sales of the Product.

13.3	This Agreement may be terminated by either Party
upon the occurrence of an Event of Default with respect to the other Party,
provided that such Party shall first give to the defaulting Party written
notice of the proposed termination or cancellation of this Agreement,
specifying the grounds therefor, and the other Party shall have sixty (60)
days after such notice is given to cure such default. Termination or
cancellation of this Agreement pursuant to this Section 13.3 shall not affect
any other rights or remedies which may be available to the non defaulting
Party nor shall it relieve either Party of obligations incurred prior to
termination, including Olsten's obligation to pay for Product ordered by
and delivered to it pursuant to this Agreement.

13.4	This Agreement may be terminated by either party
immediately upon notice to the other, if the other party shall make an
assignment for the benefit of creditors, shall file a petition in bankruptcy,
        is  adjudicated insolvent or bankrupt, or if a receiver or trustee is
        appointed with respect to a substantial part of such other party's
        property or a proceeding is commenced against it which will
        substantially impair its ability to perform hereunder.

13.5	Notwithstanding anything to the contrary, all rights
granted under or pursuant to this Agreement by HEB to Olsten are, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the
United States Bankruptcy Code, or replacement provision therefore (the
"Code"), licenses to rights to "intellectual property" as defined in the Code.
The parties agree that Olsten, as the licensee of such rights under this
Agreement, shall retain and may fully exercise all of its rights and elections
under the Code. The parties further agree that, in the event of the
commencement of bankruptcy proceedings by or against HEB under the
Code, Olsten shall be entitled, at its option, to retain all of its
rights under the Agreement, in accordance with the provisions of the Code.

13.6	Each of the parties to this Agreement shall be entitled
to enforce its rights under this Agreement to recover damages and costs
(including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor, regardless of any termination of this Agreement by such breaching
party pursuant to Section 13. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for a breach of any
provisions in Articles 2, 4, 11, and 12 of this Agreement and that any party
may, in its sole discretion, apply to any court of law or equity of competent
jurisdiction (without posting any bond or deposit) for specific performance
and/or other injunctive relief in order to enforce, or prevent any violations
of, these Sections of this Agreement.


14.	NON-SOLICITATION.

14.1	HEB agrees that during the term of this Agreement,
and for two (2) years thereafter, it shall not employ or retain on an
independent contractor basis, or solicit for employment or for an
independent contracting basis, any person who was, at any time during the
immediately preceding twelve (12) month period, employed by Olsten or
any of its affiliates, subsidiaries, or parents.






15.	ENFORCEMENT OF EXCLUSIVITY VIS-A-VIS THIRD PARTIES.

15.1	Olsten shall not, directly or indirectly, sell or
distribute or cause to be distributed, the Product outside the Territory.


16.	MISCELLANEOUS.

16.1	Choice of Law. This Agreement shall be governed by
and construed under the laws of the State of New York regardless of any
conflicts-of-laws rule to the contrary.

16.2	Waiver. No waiver of any default hereunder by either
party or any failure to enforce any rights hereunder shall be deemed to
constitute a waiver of any subsequent default with respect to the same or
any other provision hereof. No waiver shall be effective unless made in
writing with specific reference to the relevant provision(s) of this
Agreement and signed by a duly authorized representative of the party
granting the waiver.

16.3	Force Majeure. Notwithstanding any provision
contained herein to the contrary, neither part shall be deemed to be in
default hereunder for failing to perform or provide any of the services or
other obligations to be performed or provided pursuant to this Agreement
if such failure is the result of any labor dispute, act of God, inability to
obtain labor or materials, governmental restrictions or any other event
which is beyond the reasonable control of the party.

16.4	Notice. All notices and other communications made or
given under or in connection with this Agreement shall be validly given or
made if in writing and shall be effective either (a) when delivered in person
to the other party, or (b) on the same business day that it is transmitted by
facsimile to the facsimile number(s) set forth below, if transmitted prior to
5:00 p.m. Eastern Time on such business day, or on the first business day
following such transmission if transmitted after 5:00 p.m. Eastern Time or
if transmitted on a day other than a business day; provided a hard copy is
deposited within one (1) day after such transmissions in the U.S. mail,
postage prepaid, and addressed as set forth below for notices by U.S. mail;
or (c) on the third business day following its deposit in the U.S. mail,
postage prepaid, and addressed as follows:

	If to HEB:	Hemispherx Biopharma
		        One Penn Center
		        1617 JFK Boulevard
		        Philadelphia, PA 19103
		        Attn.: William A. Carter, M.D., F.A.C.P,
		        CEO and Chairman
		        Facsimile No.: (215) 988-1739

        If to OLSTEN:	Olsten Health Services
                        175 Broad Hollow Rd.
		        Melville, NY 11747
	                Attn.: ____________________
	                Facsimile No.:_____________






        With a copy to: Olsten Health Services
                        175 Broad Hollow Rd.
                        Melville, NY 11747
                        Attn.: Health Care Law Dept.
                        Facsimile No.: (516) 844-7414

16.5	Amendment. Neither this Agreement nor any of the
terms hereof may be terminated, amended, supplemented, waived or
modified orally, except by an instrument in writing signed by each party.

16.6	Survival of Provisions. Notwithstanding anything to
the contrary, Sections
2.3,  2.5, 2.11, and Article 8 (Records and Accounting), shall survive the
expiration or other termination of this Agreement for the respective periods
set forth therein and Article 7 (Indemnification), and Article 11
(Confidentiality) shall survive the expiration or other termination of this
Agreement for a period of three (3) years and five (5) years respectively.

16.7	Relationship of Parties. Olsten's relationship with
HEB hereunder shall be that of independent contractor, and neither party
shall be considered the agent, partner or employee of or a joint venture
with the other party, in its Performance of all duties under this Agreement.

16.8	Cumulative Remedies. Except as expressly provided
in this Agreement, and to the extent permitted by law, any remedies
described in this Agreement are cumulative and not alternative to any other
remedies available at law or in equity.

16.9	Severability. In the event that any one or more of the
provisions contained in this Agreement are for any reason held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
 Agreement, and  this Agreement shall be construed as if such invalid,
 illegal or  unenforceable provision or provisions had never been included.
 The parties   shall, in good faith, amend this Agreement to provide, to
  the extent possible,   each party with the benefits provided by such invalid
  or unenforceable  provision.

16.10	Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.

16.11	Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, but all of
which, when taken together, shall constitute one and the same instrument.

16.12	Signature Authority. Each signatory to this
Agreement has signature authority and is empowered on behalf of his or
her respective party to execute this Agreement.

16.13	Integration. This Agreement, together with all
appendices attached hereto, constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes all prior
oral or written agreements, commitments or understandings with respect
thereto.





In consideration of the mutual promises and covenants contained
herein and other good and valuable consideration, the undersigned have
agreed to be bound by this Agreement between Kimberly Home Health
Care, Inc., d/b/a Olsten Health Services and Hemispherx Biopharma, Inc.

KIMBERLY HOME HEALTH CARE, INC.,	HEMISPHERX BIOPHARMA, INC.
D/B/A OLSTEN HEALTH SERVICES


By:  __/s/ Robert A. Fusco_____	  By:  _/s/ William A. Carter_____

Its:     President                Its: CEO
________________________________  _________________________________











                          APPENDIX I
                   Fee Schedule for Product


THIS SCHEDULE IS REFERENCED IN 2.5 AS THE P1UCE OLSTEN AGREES TO
PURCHASE THE PRODUCT FROM HEB.

1)	Lyophilized 50mg vials of AmpligenTM -- $18.75 per 50mg vial

a)	200 mg dose -- $75.00 (4 x 50mg vials)
b)	400 mg dose -- $150.00 (8 x 50mg vials)

2)	Frozen AmpligenT solution

a)	200 mg dose -- $75.00
b)	400 mg dose -- $150.00

3)	AmpligenT solution

a)	200 mg dose - TBD
b)	400 mg dose - TBD

Pharmacy Fees

The Patient will be billed $75.00 (seventy-five dollars) per
prescription for preparation of the drug. Preparation of Ampligenr
solution from bottles will be according to procedures specified by HEB
document, Procedures for Receiving, Storing, and Using Ampligenr
Solution.


Supplies

The supplies listed below are needed for infusion of the Ampligenr
solution. These supplies will be shipped to the Patient with the drug as
needed. Patients without insurance coverage will be billed Olsten's usual
and customary price. If a Patient has insurance coverage, the Patients will
be billed the price the insurance company would allow for these supplies.

Item                Inventory Number         Item          Inventory Number
- -----------         ----------------    ------------------ ----------------
Hiblcleanse soap    ST-0576-04          3M plastic 1" tape     3M-1530-t
IV Pole             MS---0500           78" gravity tubing     AB-1859-48
Univ. adapter pin   AB17015-48          IV catheter 24g        DG---8324
Gloves(non-sterile) JJ---5885           Sabratek 3030 pump     RL-3030-R
Sharps container    WM-01861            7" ext. clave set      IC-C2002
IV start kit        RMG-5000            Opsites 4 X 5          SAN-4973
Alcohol pads        CL---01 10          Non-sterile drapes     GR-0187
3m1 syringes        BD---9585




                           APPENDIX II

             Warehousing and Distribution Services


1.Reconstitution, storage, and delivery to the Patient of the Product
shall be in a secure location and under the physical (temperature,
humidity, etc.) conditions specified by HEB document, Procedures
for Receiving, Storing, and Using Ampligenr Solution.

2.Cost to HEB for the Services hereunder is 5% of monthly total cost
of goods sold as outlined in section 3.2 (a).







                        APPENDIX III

             Product and Reimbursement Services


Product Services.

1.Payor Education Services. Olsten shall provide payer (excluding
Medicaid and Medicare) education information and presentations from
time to time as necessary to secure reimbursement or
otherwise to affect or improve reimbursement for Product
and/or associated costs.

2.Clinical Site Education Services. Education services in
conjunction with Medical Director of HEB and/or HEB's
Manager of Clinical Research to educate the principal
investigator, clinical study nurse and/or other support health
professionals at the investigators site, to include distribution
of HEB's clinical education material.

3.Clinical Monitoring Services. Clinical monitoring services,
including without limitation, services required by JCAHO,
federal law and state pharmacy laws; monitoring of IV line
maintenance, drug to food and drug to drug interactions,
Patient compliance, proper dose and concentration rates; and
Patient counseling as required.

4.Program Manager. Olsten will assign a program manager to
insure the success of this project.


II.	Reimbursement and Hotline Services.

1.Olsten will bill the Patient for drug, dispensing fee, and
supplies. Nursing services will also be billed to the Patient if
an Olsten nurse admimstrates the drug.

2.Olsten shall confirm initially whether a Patient, shipped by
Olsten, has insurance coverage or will otherwise be entitled
to reimbursement with respect to the Product or Supplies.

3.Olsten shall provide broad statement comprehensive
counseling services to Patients
with respect to insurance coverage, claims, or other
reimbursement issues.

4.Olsten shall use reasonable efforts to assist the Patient or the
Patient's representative,
as necessary, in securing insurance coverage or other means
of reimbursement for the Product and Supplies, including
without limitation assisting such Patient in pursuing claims
for reimbursement or coverage.




                   APPENDIX III

                    (continued)


5.Olsten shall advise and counsel the Olsten Health Services
study Patient or such Patient's representative with respect to
such Patient's insurance coverage and copayment
requirements, if any, with respect to the Product and
Supplies.

6.Olsten shall obtain, set up, operate, staff, and maintain a 1-
800 telephone assistance service. Such telephone service shall
be staffed 24 hours a day with qualified personnel to take
calls from Patients and Patient representatives regarding the
Product and use of the Product and emergency treatment
issues. Title to the telephone number shall be in the name of
HEB, but during the term of this Agreement Olsten shall
have responsibility for the cost of maintaining, staffing, and
operating this 1-800 number. Within (15) days after the end
of each calendar month, Olsten shall deliver to HEB a report
containing a summary of calls and activity on the 1-800
hotline. Such report shall include the number of calls
received, the number of callers by type of caller (e.g., Patient,
physician, nurse, relative, Medicaid/Medicare personnel,
indemnity insurer, etc), the purpose of the calls and such
other information which HEB may reasonably request.


Cost to HEB is 5% of monthly total COGS as outlined in section 3.2 (b).






                        APPENDIX IV

            Information Services and Requirements


Within fifteen (15) days after the end of each calendar month,
Olsten shall deliver to HEB a report containing the following information
with respect to Patients serviced by Olsten Health
Services:


1.	Study identification number of the Patient.

2.	Exact date each Olsten Health Services Patient-using Product
        started on the Product.

3.	Current dosing for each Olsten Patient using Product.

4.	Insurance coverage type of the Patient.


*Coverage Types: Medicare payers, Medicaid payers, private payers, third
party payers, no insurance coverage, Patient Assistance Patients.


Cost to HEB 5% of monthly total COGS as outlined in section 3.2(C)