SCHEDULE 14A INFORMATION

                  Proxy Statement Pursuant to Section 14(a) of
            the Securities Exchange Act of 1934 (Amendment No.    )

    Filed by the Registrant /X/
    Filed by a party other than the Registrant / /

    Check the appropriate box:
    / /  Preliminary Proxy Statement
    / /  CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
         14a-6(e)(2))
    /X/  Definitive Proxy Statement
    / /  Definitive Additional Materials
    / /  Soliciting Material Pursuant to Section 240.14a-12

                           HEMISPHERX BIOPHARMA, INC.
- --------------------------------------------------------------------------------
                (Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/  No fee required.

/ /  Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
     and 0-11.

    (1) Title of each class of securities to which transaction applies:

        ------------------------------------------------------------------------
    (2) Aggregate number of securities to which transaction applies:

        ------------------------------------------------------------------------
    (3) Per unit price or other underlying value of transaction computed
        pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
        filing fee is calculated and state how it was determined):

        ------------------------------------------------------------------------
    (4) Proposed maximum aggregate value of transaction:

        ------------------------------------------------------------------------
    (5) Total fee paid:

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

/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
    0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
    or the Form or Schedule and the date of its filing.

    (1) Amount Previously Paid:

        ------------------------------------------------------------------------
    (2) Form, Schedule or Registration Statement No.:

        ------------------------------------------------------------------------
    (3) Filing Party:

        ------------------------------------------------------------------------
    (4) Date Filed:

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




                           HEMISPHERX BIOPHARMA, INC.
                               1617 JFK BOULEVARD
                        PHILADELPHIA, PENNSYLVANIABoulevard
                        Philadelphia, Pennsylvania 19103


                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                        TO BE HELD ON AUGUST 24, 2001SEPTEMBER 10, 2003

To the Stockholders of Hemispherx Biopharma, Inc.:

         You are cordially  invited to attend the Annual Meeting of Stockholders
of Hemispherx Biopharma, Inc. ("Hemispherx" or the "Company"), a Delaware corporation, to be held
at the offices of Schnader Harrison Segal & Lewis LLP,
Suite 3600, 1600 Market Street,Embassy Suites, 1776 Benjamin Franklin Parkway, Philadelphia Pennsylvania
19103,  on  Friday,
August 24, 2001,Wednesday,  September 10, 2002,  at 10:00 a.m.  local time,  for the
following purposes:

     1. To elect fourfive members to the Board of Directors of  Hemispherx  to serve
until their respective successors are elected and qualified;

     2. To ratify the selection by Hemispherx of BDO Seidman,  LLP,  independent
public accountants, to audit the financial statements of Hemispherx for the year
ending December 31, 2001;2003; and

     3. To amend  Hemispherx's  certificate  of  incorporation  to increase  the
number of authorized shares of Hemispherx's common stock.

     4. To transact  such other  matters as may properly come before the meeting
or any adjournment thereof.

         Only  stockholders  of record at the close of business on July 6, 200114, 2003
are entitled to notice of and to vote at the meeting.

         A proxy  statement and proxy are enclosed.  If you are unable to attend
the meeting in person you are urged to sign,  date and return the enclosed proxy
promptly in the self  addressed  stamped  envelope  provided.  If you attend the
meeting in person,  you may withdraw  your proxy and vote your  shares.  We have
also  enclosed our amended  annual report on Form 10-K as amended, for the fiscal year ended
December 31, 2000.2002.

                                         By Order of the Board
                                         of Directors

                                         /s/ s\Ransom W. Etheridge, Secretary
----------------------------------

Philadelphia, Pennsylvania
July 17, 200121, 2003





                                 PROXY STATEMENT
                           HEMISPHERX BIOPHARMA, INC.
                               1617 JFK BOULEVARD
                        PHILADELPHIA, PENNSYLVANIABoulevard
                        Philadelphia, Pennsylvania 19103


                                  INTRODUCTION


         This proxy statement is furnished in connection  with the  solicitation
of  proxies  for  use  at the  annual  meeting  of  stockholders  of  Hemispherx
Biopharma,  Inc.  ("Hemispherx"  or the  "Company")  to be  held  on  Friday, August 24, 2001,Wednesday,
September 10, 2003, and at any adjournments. The accompanying proxy is solicited
by the Board of Directors of Hemispherx  and is revocable by the  stockholder by
notifying Hemispherx's corporate secretaryCorporate Secretary at any time before it is voted, or by
voting in person at the annual meeting.  This proxy  statement and  accompanying
proxy will be distributed to  stockholders  beginning on or about July 17, 2001.21, 2003.
The principal executive offices of Hemispherx are located at 1617 JFK Boulevard,
Philadelphia, Pennsylvania 19103, telephone (215) 988-0080.


                      OUTSTANDING SHARES AND VOTING RIGHTS

RECORD DATE; OUTSTANDING SHARES

         Only  stockholders of record at the close of business on July 6, 2001,14, 2003,
the record  date,  are  entitled  to  receive  notice of, and vote at the annual
meeting.  As of July 6,
2001,the record date, the number and class of stock  outstanding  and
entitled to vote at the meeting was 30,922,16635,821,275 shares of common stock, par value
$.001 per  share.  Each  share of common  stock is  entitled  to one vote on all
matters.  No other class of securities  will be entitled to vote at the meeting.
There are no cumulative voting rights.


         The five  nominees  receiving  the highest  number of votes cast by the
holders of common stock represented and voting at the meeting will be elected as
Hemispherx's   directors  and  constitute  the  entire  Boardboard  of  Directorsdirectors  of
Hemispherx.  The  affirmative  vote  of  at  least  a  majority  of  the  shares
represented and voting at the annual meeting at which a quorum is present (which
shares voting  affirmatively also constitute at least a majority of the required
quorum) is necessary for approval of Proposal No. 2. The affirmative  vote of at
least a majority of the issued and  outstanding  shares as of the record date is
necessary for approval of Proposal No.3. A quorum is representation in person or
by proxy at the  annual  meeting  of at least a  majority  of the  outstanding  shares of
common stock of Hemispherx on the record date.

                                       1



REVOCABILITY OF PROXIES

If you attend the  meeting,  you may vote in person,  regardless  of whether you
have submitted a proxy. Any person giving a proxy in the form  accompanying this
proxy  statement  has the power to revoke it at any time before it is voted.  It
may be revoked by filing,  with the  Secretarycorporate  secretary of  Hemispherx  at its
principal  offices,  1617 JFK Boulevard,  Suite 660,  Philadelphia,  PA 19103, a
written  notice of revocation or a duly executed  proxy bearing a later date, or
it may be revoked by attending the meeting and voting in person.

VOTING AND SOLICITATION

     Every  stockholder of record is entitled,  for each share held, to one vote
on each proposal or item that comes before the meeting.  There are no cumulative
voting rights.  By submitting  your proxy,  you authorize  William A. Carter and
Ransom W.  Etheridge  and each of them to represent  you and vote your shares at
the meeting in accordance with your instructions.  Messrs.  Carter and Etheridge
and each of them may also vote your shares to adjourn  the meeting  from time to
time  and  will  be  authorized  to  vote  your  shares  at any  adjournment  or
postponement of the meeting.

     Hemispherx  has borne the cost of  preparing,  assembling  and mailing this
proxy solicitation  material. The total cost estimated to be spent and the total
expenditures  to  date  for,  in  furtherance  of,  or in  connection  with  the
solicitation of stockholders is approximately $30,000.$40,000.  Hemispherx may reimburse
brokerage firms and other persons  representing  beneficial owners of shares for
their expenses in forwarding soliciting materials to beneficial owners.  This
particular solicitation is being made by mail, but proxiesProxies
may also be solicited by certain of Hemispherx's  directors,  officers and employees,
without additional compensation, personally, by telephone or by facsimile.

     We have  hired  the firm of  MacKenzie  Partners,  Inc.  to  assist  in the
solicitation  of  proxies  on behalf of the Board of  Directors.  MacKenzie  has
agreed  to  perform  this   service  for  a  proposed  fee  of  not more than $5,000$5,000.00   plus
out-of-pocket expenses.

ADJOURNED MEETING

     If a quorum is not present at the scheduled timeThe chair of the  meeting the
stockholders who are represented  may  adjourn  the  meeting  until a quorumfrom time to time to
reconvene  at the same or some other  time,  date and place.  Notice need not be
given of any such  adjournment  meeting if the time,  date and place thereof are
announced at the meeting at which the  adjournment is present. Thetaken.  If the time,  date
and place of the adjournment  meeting will beare not announced at the timemeeting which the
adjournment is taken,  then the Secretary of the Corporation  shall give written
notice of the time, date and no other notice willplace of the adjournment  meeting not less than ten
(10)  days  prior  to  the  date  of  the  adjournment  meeting.  Notice  of the
adjournment  meeting also shall be given. Angiven if the meeting is adjourned in a single
adjournment will have no effect onto a date more than 30 days or in successive  adjournments to a date
more than 120 days after the business that may be conducted atoriginal date fixed for the meeting.


TABULATION OF VOTES

     The votes will be tabulated and certified by Hemispherx's transfer agent.

VOTING BY STREET NAME HOLDERS

         If you are the  beneficial  owner of shares held in "street  name" by a
broker,  the broker,  as the record  holder of the  shares,  is required to vote
those  shares  in  accordance  with  your  instructions.  If  you  do  not  give
instructions to the broker, the broker will nevertheless be entitled to vote the
shares with respect to  "discretionary"  items but will not be permitted to vote
the shares with respect to "non-discretionary"  items in accordance with rules of
the American Stock Exchange (in which case, the shares
will be treated as "broker non-votes").


QUORUM; ABSTENTIONS; BROKER NON-VOTES

     The required  quorum for the  transaction of business at the annual meeting
is a  majority  of the  shares of common  stock  outstanding onentitled  to vote at the record dateannual
meeting,  in person or by proxy.  Shares  that are


                                       2
  voted  "FOR,"  "AGAINST"  or
"WITHHELD  FROM" a matter  are  treated  as being  present  at the  meeting  for
purposes of establishing a quorum and are also treated as shares represented and
voting the votes cast at the annual meeting with respect to such matter.

         While  there  is no  definitive  statutory  or case  law  authority  in
Delaware as to the proper  treatment of  abstentions,  Hemispherx  believes that
abstentions should be counted for purposes of determining both: (i) the presence
or absence  of a quorum  for the  transaction  of  business;  and (ii) the total
number of votes cast with  respect to a proposal  (other  than the  election  of
directors). In the absence of controlling precedent to the contrary,  Hemispherx
intends to treat abstentions in this manner. Accordingly,  abstentions will have
the same effect as a vote  against  the  proposal  (other  than the  election of
directors).

         Under current Delaware case law, while broker non-votes (i.e. the votes
of shares held of record by brokers as to which the underlying beneficial owners
have given no voting instructions) should be counted for purposes of determining
the  presence or absence of a quorum for the  transaction  of  business,  broker
non-votes  should not be counted for purposes of determining the number of votes
cast with respect to the  particular  proposal on which the broker has expressly
not voted.  Hemispherx intends to treat broker non-votes in this manner. Thus, a
broker  non-vote  will make a quorum  more  readily  obtainable,  but the broker
non-vote will not otherwise affect the outcome of the voting on a proposal.


DEADLINESDEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

         Proposals of  stockholders  to be considered for inclusion in the Proxy
Statement  and proxy card for the 20022004 Annual  Meeting of  Stockholders  must be
received by the Company's  Secretary,  at Hemispherx  Biopharma,  Inc., 1617 JFK
Boulevard, Philadelphia, PA 19103 no later than March 19, 2002.25, 2004.

         Pursuant to the Company's  Restated and Amended Bylaws all  stockholder
proposals  may be brought  before an annual  meeting of  stockholders  only upon
timely notice thereof in writing having been given to the Secretary of the Company.
To be timely, a stockholder's  notice, for all stockholder  proposals other than
the nomination of candidates  for director,  shall be delivered to the Secretary
at the principal  executive  offices of the Company not less than sixty (60) nor
more than  ninety  (90) days prior to the  anniversary  date of the  immediately
preceding annual meeting of stockholders;  provided,  however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, the  stockholder's  notice in order to be
timely  must be so  received  not later than the close of  business on the tenth
(10th)  day  following  the day on which  such  notice of the date of the annual
meeting was mailed or public  disclosure  of the date of the annual  meeting was
made, whichever first occurs. To be timely, a stockholder's notice, with respect
to a stockholder  proposal for nomination of candidates  for director,  shall be
delivered to the Secretary at the principal executive offices of the Company not
less than ninety (90) nor more than one hundred  twenty  (120) days prior to the
anniversary  date of the immediately  preceding  annual meeting of stockholders;
provided,  however,  that in the event that the  annual  meeting is called for a
date that is not within thirty (30) days before or after such anniversary  date,
the  stockholder's  notice in order to be timely must be so  received  not later
than the close of business on the tenth  (10th) day  following  the day on which
such notice of the date of the annual meeting was mailed or public disclosure of
the date of the annual  meeting  was 3
made,  whichever  first  occurs.  Provided,
however, in the event that the stockholder proposal relates to the nomination of
candidates  for  director and the number of directors to be elected to the Board
of  Directors of the Company at an annual  meeting is increased  and there is no
public  announcement  by the Company  naming all of the nominees for director or
specifying  the size of the  increased  Board of  Directors at least one hundred
days prior to the first  anniversary of the preceding  year's annual meeting,  a
stockholder's  notice shall also be considered  timely, but only with respect to
nominees  for  any new  positions  created  by such  increase,  if it  shall  be
delivered to the Secretary at the principal executive offices of the Company not
later than the close of  business  on the tenth day  following  the day on which
such public announcement is first made by the Company. All stockholder proposals
must contain all of the information  required under the Company's Bylaws, a copy
of which is available upon written  request,  at no charge,  from the Secretary.
The  Company  reserves  the right to  reject,  rule out of order,  or take other
appropriate  action with respect to any proposal that does not comply with these
and other applicable requirements.


                            4
PROPOSALS TO SHAREHOLDERSSTOCKHOLDERS
                                 PROPOSAL NO. 1
                              ELECTION OF DIRECTORS

     Each  nominee to the Boardboard of  Directorsdirectors  will serve  until the next annual
meeting of stockholders, or until his earlier resignation,  removal from office,
death or incapacity.

     Unless  otherwise  specified,  the enclosed proxy will be voted in favor of
the  election  of William A.  Carter,  Richard C.  Piani,  Ransom W.  Etheridge,
and
William M. Mitchell.Mitchell and Iraj-Eqhbal  Kiani.  Information is furnished below with
respect to all nominees.

     Set  forth  below  is the  biographical  information  of the  nominees  and
directors of Hemispherx:

     WILLIAM A. CARTER, M.D., 63,65, 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;
(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 NeoplasticNoeplastic  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'sUniversity  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.

     RICHARD C. PIANI, 73,76, has been a director of Hemispherx since May 1995. Mr.
Piani has beenwas  employed as a principal  delegate for Industry to the City of Science
and Industry,  Paris,  France, a billion dollar scientific and educational  complex,  since 1985.from 1985
through 2000. 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
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.

     5
RANSOM W.  ETHERIDGE,  62,64, 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,  the Wharton School of Business Real Estate  Investment  Analysis
Seminar, and the University of Richmond School of Law.

     WILLIAM M.  MITCHELL,  M.D.,  65,68, has been a director  of Hemispherx since July 1998. Dr.Mr.
Mitchell  is a  Professor  of  Pathology  at  Vanderbilt  University  School  of
Medicine.  Dr.  Mitchell  earned aan 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-EQHBAL  KIANI,  M.B.A.,PH.D.,  58,  was  appointed  to  the  Board  of
Directors  on May 1, 2002.  Dr.  Kiani is a citizen of  England  and  resides in
Newport,  California.  As a native of Iran,  Dr. Kiani  served in various  local
government  positions  including the Governor of Yasoi,  Capital of  Boyerahmad,
Iran.  In 1980,  Dr. Kiani moved to England,  where he  established  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.

THE BOARD OF  DIRECTORS  DEEMS  PROPOSAL  NO. 1 TO BE IN THE BEST  INTERESTS  OF
HEMISPHERXHEMISPHERx  AND ITS  STOCKHOLDERS  AND  RECOMMENDS  A VOTE "FOR" ALL FOURFIVE OF THE
ABOVE-NAMED NOMINEE DIRECTORS OF HEMISPHERX.HEMISPHERx'.

                                        INFORMATION CONCERNING BOARD MEETINGS

      Hemispherx's BoardHemispherx  board of Directorsdirectors met four times the Executive Committee metand executed four  times,Unanimous
Consents,  the  Compensation  Committee met once,  the Audit  Committee met fourfive
times,  and the  Strategic  Planning  Committee  met once during the fiscal year
ended December 31, 2000. The2002.  Four of the incumbent  directors  attended at least 75%100% of the
board meetingsBoard Meetings and meetings of committees on which they served.one incumbent, Iraj Eqhbal Kiani attended two meetings.

                 INFORMATION CONCERNING COMMITTEES OF THE BOARD

     The Boardboard of Directorsdirectors maintains the following committees:


EXECUTIVE COMMITTEEExecutive Committee.

     The Executive  Committee is composed of William A. Carter,  Chairman, Chief Executive
Officer and President, and Ransom W. Etheridge, Secretary and director.Iraj-Eqhbal Kiani. The
Executive  Committee  makes  recommendations  to  management  regarding  general
business matters of Hemispherx.


6


COMPENSATION COMMITTEECompensation Committee.

     The  Compensation  Committee is composed of Ransom W. Etheridge,  Secretary
and director,  and Richard C. Piani,  director. The Compensation Committee makes
recommendations  concerning  salaries  and  compensation  for  employees  of and
consultants to Hemispherx.


AUDIT COMMITTEE

     TheAudit Committee.

     Our Audit  Committee is composed of Ransom W. Etheridge,the Board of Directors  consists of Richard  Piani,
Committee Chairman, William Mitchell, M.D. and RichardIraj-Eqhbal Kiani. Mr. Piani, allDr.
Mitchell  and  Iraj-Eqhbal  Kiani are  Independent  Directors.  We do not have a
financial  expert as defined in Securities and Exchange  Commission rules on the
committee  in the  true  sense  of which 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.  The Company  believes areMr.
Piani,  Dr. Mitchell and  Iraj-Eqhbal  Kiani to be independent of management and
free of any relationship that would interfere with their exercise of independent
judgmentjudgement as members of this  committee.  The  principal  functions of the Audit
Committee are to serve as an independent and objective party to assist the Board
of Directors in  monitoring  the  integrity of the  financial  statements of the
Company,  the compliance by the Company with legal and regulatory  requirements,
and the independence and performance of the Company's auditors.

AUDIT COMMITTEE REPORTAudit Committee Report.

         The Audit  Committee  of the Board of  Directors  iswas composed of three
independent  directors and operates under a written charter prepared and adopted
by the Board of Directors (a copyDirectors.  One of which is attached heretothese members,  Ransom Etheridge, as Exhibit A).a result
of his increased activity with the Company,  no longer deemed  independent.  The
Committee  recommends  to the  Board  of  Directors,  subject  to  shareholders'stockholders'
ratification, the selection of the Company's independent accountants.

         Management  is  responsible  for the  Company's  internal  controls and
financial reporting process. The Company's independent accountants, BDO Seidman,
LLP  ("BDO"),  are  responsible  for  performing  an  independent  audit  of the
Company's   consolidated   financial  statements  in  accordance  with  auditing
standards generally accepted auditing
standards,in the United States of America, and for expressing
an  opinion  on  the  conformity  of  the  financial  statements  to  accounting
principles  generally accepted accounting principles.in the United States of America.  The Committee's
responsibility,  as the representative of the Board of Directors,  is to monitor
and oversee thesethe processes.

         In this context, the Committee met and held discussions with management
and BDO.  Management  represented  to the Committee  that the Company's  audited
financial  statements  were prepared in accordance  with  accounting  principles
generally  accepted  accounting principles,with the United  States of America,  and the  Committee has
reviewed and discussed the audited financial statements with management and BDO.
In addition,  the Committee has  discussed  with BDO the matters  required to be
discussed by Statement on Auditing  Standards  No. 61  COMMUNICATION WITH AUDIT COMMITTEES.Communication  with Audit
Committees.  The Audit  Committee also has received the written  disclosures and
letter  from  BDO  required  by  Independence  Standards  Board  Standard  No. 1
INDEPENDENCE DISCUSSIONS WITH AUDIT
COMMITTEES,Independence  Discussions with Audit Committees,  and has discussed with BDO its
independence from the Company.

         Based on  reviews,  discussions  and other  matters  referred to in the
preceding  paragraph,  the Committee  recommended to the Board of Directors that
the audited  consolidated  financial  statements  be  included in the  Company's
Annual Report Form on Form 10-K for the fiscal year ended December 31, 2000.



                                       7
2002.

                                     This  report  is  submitted  by  the  Audit
Committee of the Company's Board of Directors.

                           Ransom W. EtheridgeRichard C. Piani, Chairman
                               William M. Mitchell
                                Richard C. Piani

STRATEGIC PLANNING COMMITTEEIraj-Eqhbal Kiani

Code of Ethics.

Our Board of  Directors  adopted  a code of  ethics  and  business  conduct  for
officers,  directors and employees  that went into effect on May 19, 2003.  This
code has been presented and reviewed by each officer, director and employee. You
may obtain a copy of this code by visiting our web site at www.hemispherx.net or
by written request to our office at 1617 JFK Boulevard, Suite 660, Philadelphia,
PA 19103.

Strategic Planning Committee.

         The Strategic  Planning  Committee is composed of William A. Carter and
Richard C. Piani. The Strategic Planning Committee makes  recommendations to the
Boardboard of Directorsdirectors of priorities in the  application of  Hemispherx's  financial
assets  and  human   resources  in  the  fields  of  research,   marketing   and
manufacturing.  The Strategic Planning Committee has engaged a number of leading
consultants in healthcare, drug development and pharmaeconomics to assist in the
analysis of various products being developed and/or potential acquisitions being
considered by Hemispherx.



                    INFORMATION CONCERNING EXECUTIVE OFFICERS

The following sets forth biographical  information about Hemispherx's  executive
officers:

        NAME                    AGE                   POSITIONofficers and key personnel:

                  Name              Age       Position

         William A. Carter, M.D.    6365        Chairman, Chief Executive
                                              Officer and President
         Robert E. Peterson         6466        Chief Financial Officer

         David R. Strayer, M.D.     5557        Medical Director,Affairs, Regulatory
                                              Affairs
         Carol A. Smith, Ph.D.      4951        Director of Manufacturing
                                              and Process Development
         Josephine M. Dolhancryk        38       Ransom W. Etheridge        64        Secretary/Treasurer Assistant Secretary
 Harris Freedman                66       Vice President for Strategic Alliances


     For  biographical  information  about  William A.  Carter,  M.D., and Ransom
Etheridge,  please see the discussion under the heading "Proposal No. 1 Election
of Directors" above.

     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 servesserved 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 8
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.DPh.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.


                 JOSEPHINE M. DOLHANCRYK joined the Company in 1990 as Office Manager, was
promoted to Executive Assistant to the Chairman of the Board and Chief Executive
Officer in 1991 and Assistant Secretary, Treasurer and Executive Administrator
in 1995. From 1989 to 1990 Ms. Dolhancryk was President of Medical/Business
Enterprises. Ms. Dolhancryk was employed by Children's Hospital of Philadelphia
from 1984 to 1989, where she also served as research coordinator on a drug study
from 1986 to 1988. Ms. Dolhancryk attended Saint Joseph's University and
Delaware County College.

HARRIS FREEDMAN has served as Vice President for Strategic Alliances since
August 1994 and has been a private venture capitalist and business consultant
for more than the past five years. He is the Secretary of Bridge Ventures, Inc.
and SMACS Holding Corp., both of which are private venture capital companies,
positions he has held for more than five years. His business experience has
encompassed developing significant business contacts and acting as an officer or
director of several companies in the pharmaceutical, health care and
entertainment fields. Mr. Freedman was Vice President of U. S. Alcohol Testing
of America, Inc. from August 1990 to February 1991. Additionally, he was Vice
President of East Coast Marketing for Music Source U.S.A., Inc. from October
1992 to January 1994. Mr. Freedman attended New York University from 1951 to
1954.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         We have employment  agreements  with certain of our executive  officers
and have  granted  such officers and directors of the Companystock  options and  warrants to purchase  common stock of the Company, asto our
officers and  directors.  These  employment  agreements and grants are discussed
under the headings  "Compensation  of  Executive  Officers  and  Directors"  and
"Security Ownership of Certain Beneficial Owners and Management" below.

         Ransom W.  Etheridge,  a  directorDirector  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 C.  Piani,  a Director  of the
Company, lives in Paris, France and assists the Company's European subsidiary in
their dealings with medical  institutions  and the European  Medical  Evaluation
Authority.  William M.  Mitchell,  M.D., a Director of the  Company,  works with
David R. Strayer,  M.D. (our Medical  Director) in  establishing  clinical trial
protocols  as well as performs other  scientific  work for the Company from time to time.
For these  services,  these  Directors were paid an aggregate of $125,690.00$170,150 in the
year 2000.2002. No individual Director was paid in excess of $60,000.

         9
William A. Carter, Chief Executive Officer of the Company,  received an
aggregate  of  $12,486 in short term  advances  in 2002 which were  repaid as of
December  31,  2002.  All advances  bear  interest at 6% per annum.  The Company
loaned  $60,000 to Ransom W.  Etheridge,  a Director of the Company in November,
2002 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 were approved by the Board of Directors.

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

There are no material  proceedings to which any officer,  director or affiliate,
or any  associate  thereof is a party  adverse to the  Company or has a material
interest adverse to the Company.

                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Section  16(a) of the Exchange Act requires  Hemispherx's  officers and
directors,  and persons who own more than ten percent of a  registered  class of
Hemispherx's 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
Hemispherx,  Hemispherx believes that, during the fiscal year ended December 31,
2000,2002,  its officers,  directors and ten percent  stockholders  complied with all
applicable Section 16(a) filing requirements on a timely basis.

                COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORSDIRECRTORS

         The  summary   compensation   table  below  sets  forth  the  aggregate
compensation  paid or accrued by Hemispherx  for the fiscal years ended December
31, 2002, 2001 and 2000 1999
and 1998 to (i)(I) the Chief Executive Officer and (ii) Hemispherx's
four most highly paid executive officers other than the CEO who were serving as executive
officersexecutives at the end of the
last  completed  fiscal year and whose total  annual  salary and bonus  exceeded
$100,000 (collectively, the "Named Executives").

SUMMARY COMPENSATION TABLE
RESTRICTED NAME AND OTHER ANNUAL STOCK OPTION ALL OTHER PRINCIPAL POSITION YEAR SALARY COMPENSATION AWARDS AWARDS COMPENSATION - ------------------ ---- ------ ------------ ------ ------ ------------ ($) ($)(1) (2) Name and Principal Position Year Salary ($) Restricted Stock Warrants & All Other Awards Option Awards Compensation (1) - ------------------------------------------ -------- ---------------- --------------------- ------------------ ------------------ William A. Carter 2000 539,620 (3)2002 (5)$468,830 - - - $22,917(2)1,000,000 $25,747 Chairman of the 1999 531,810 (3) - - 100,000 (5) 17,672 Board and CEO 1998 438,780 (4)2001 (5) 456,608 - (3) 386,650 22,917 2000 (5) 539,620 - 830,000 (6) 19,183100,000 22,917 Robert E. Peterson (7)2002 $151,055 - (2) 200,000 - Chief Financial Officer 2001 146,880 - (4) 40,000 - 2000 145,944 - - - - Chief Financial 1999 138,930 - - - - Officer 1998 132,000 - - 100,000 (8) - David R. Strayer, M.D. 2000 172,3172002 $178,594 - - -(2) 50,000 - Medical Director 1999 166,2312001 174,591 - (7) 10,000 - 2000 (7)172,317 - - - 1998 193,544 (10) - - 50,000 (9) - Harris Freedman (14) 2000 108,000 - - - - Vice President 1999 132,000 - - 25,000 (11) - 1998 132,000 - - 80,000 (12) - Carol A. Smith, Ph.D. 20002002 $128,346 - (4) 20,000 - Director of Manufacturing 2001 124,800 - - - 2000 124,000 - Director of 1999 120,000 - - 5,000 (13) - Manufacturing 1998 80,231 - - -(7) 10,000 -
- ---------------------- 10 (1) Hemispherx makes available certain non-monetary benefits to its officers with a view to attracting and retaining qualified personnel and facilitating job performance. Hemispherx considers such benefits to be ordinary and incidental business costs and expenses. The aggregate value of such benefits, which cannot be precisely ascertained but which is less than 10% of the cash compensation of each of the above-named executive officers, is not included in the table. (2) Consists of insurance premiums paid by Hemispherx with respect to term life and disability insurance for the benefit of the named executive officer. (2) Represents warrants to purchase shares of our common stock at $2.00 per share. (3) 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. (4) Consists 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. (5) Includes a bonus of $90,397 paid in 1999 and 2000. (4) IncludesAlso 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 each of 1998, 19992000, and 2000. (5)2001 and $82,095 in 2002. (6) Represents warrants to purchase common stock exercisable at $6.25 per share. (6) Represents warrants to purchase common(7) Consists of a stock and includes: (i) 360,000 warrantsoption grant of 10,000 shares exercisable at $4.00 per share; (ii) 170,000 warrants exercisable at $5.00 per share; and (iii) 300,000 warrants exercisable at $6.00$4.03 per share. (7) Mr. Peterson is paid on a fee basis. (8) Represents warrants to purchase 100,000 shares of common stock at $5.00 per share. (9) Represents warrants to purchase 50,000 shares of common stock at $4.00 per share. (10) Includes $98,926 previously paid by Hahnemann Medical University.University where Dr. Strayer served as a professor until 1998. This compensation was continued by the Company in 1998, 19992000, 2001 and 2000. (11) Represents warrants to purchase 25,0002002. (9) Consists of stock option grant of 10,000 shares of common stockexercisable at $10.00$4.03 per share. (12) Represents warrants to purchase 80,000 shares of common stock at $4.00 per share. (13) Represents warrants to purchase 5,000 shares of common stock at $4.00 per share. (14) Mr. Freedman is paid on a fee basis. 11 The following table sets forth certain information regarding the stock options and warrants held as of December 31, 2000 by the individuals
The following table sets forth certain information regarding the stock options and warrants granted during 2002 to the executive officers named in the above Summary Compensation Table. ================================================================ ================================= ================================ POTENTIAL REALIZABLE VALUE AT ASSUMED RATES OF STOCK PRICE APPRECIATION FOR OPTION AND WARRANTS TERM - ------------ --------------------- ----------------------------- --------------- ----------------- -------------- ----------------- PERCENTAGE OF TOTAL OPTIONS NAME NUMBER OF SECURITIES AND WARRANTS GRANTED TO EXERCISE PRICE EXPIRATION DATE UNDERLYING OPTIONS AND EXPLOYEES IN FISCAL YEAR PER SHARE (3) WARRANTS GRANTED (1) 2001(2) AT 5% (4) AT 10% (4) - ------------ --------------------- ----------------------------- --------------- ----------------- -------------- ----------------- Carter, W.A. 1,000,000 61.6% $2.00 8/13/07 $1,879,500 $ 1,969,000 - ------------ --------------------- ----------------------------- --------------- ----------------- -------------- ----------------- Peterson, R. 200,000 12.3% $2.00 8/13/07 $ 375,900 $ 393,800 - ------------ --------------------- ----------------------------- --------------- ----------------- -------------- ----------------- Smith, C. 20,000 1.2% $2.00 8/13/07 $ 37,590 $ 39,380 - ------------ --------------------- ----------------------------- --------------- ----------------- -------------- ----------------- Strayer, D. 50,000 3.1% $2.00 8/13/07 $ 93,975 $ 98,450 ============ ===================== ============================= =============== ================= ============== ================= * Amounts indicate warrants granted.
(1) Options vest over a three-year period. Warrants vest immediately. (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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
Shares Securities Underlying Value of Unexercised Acquired on Value Unexercised Option In-the-Money Options In-the-Money-Options Name Exercise Realized at Fiscal Year End (#) at Fiscal Year End ($) (1) - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- (#) ($) Exercisable Unexercisable Exercisable Unexercisable - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- William A. Carter - - 2,618,7283,552,044 (2) 300,000753,334 (3) 3,565,405 0$209,200 $97,500 Robert E. Peterson - - 177,574314,240 (4) 0 60,355 0 Harris Freedman - - 895,160103,334 (5) 0 1,631,450 06,300 6,300 David R. Strayer - - 70,000101,666 (6) 0 62,500 028,334 (7) 3,250 3,250 Carol A. Smith - - 11,791 (7) 0 11,811 028,457 (8) 13,334 (9) 1,300 1,300
- ------------------- (1) Computation based on $4.75,$2.13, the December 29, 200031, 2002 closing bid price for the common stock on the American Stock Exchange. (2) RepresentsConsists of (i) 1,400,000 currently250,000 warrants exercisable at $2.00 per share expiring on August 13, 2007, (ii) 188,325 warrants issued under Rule 701 of the Securities Act to purchase common stock at $3.50 per share; (ii) 73,728 stock options to purchase common stock at $2.71 per share; (iii) warrants to purchase 465,000 shares of common stock at $1.75 per share; and (iv) warrants to purchase 680,000 shares of common stock at a weighted average of $4.82 per share. (3) Represents warrants to purchase 300,000 shares of common stockexercisable at $6.00 per share. (4) Represents (i) 27,574 stock optionsshare expiring on February 22, 2006, (iii) 188,325 warrants exercisable at an average price of $3.92$9.00 per share; (ii) 50,000 warrants to purchase common stock at $3.50 per share; and (iii)share expiring on February 22, 2006, (iv) 100,000 warrants to purchase common stock at $5.00 per share. (5) Represents (i) 400,000 warrants issued under Rule 701 of the Securities Act exercisable at $3.50 per share; (ii) 95,160 warrants to purchase common stock at $3.50 per share; (iii) 325,000 warrants to purchase common stock at $1.75 per share; (iv) 50,000 warrants to purchase common stock at $4.00$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 to purchase common stock at $10.00$8.00 per share. (6) Representsshare expiring September 17, 2004 and 6,666 stock option exercisable at $8.00 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 is the principal beneficiary. These securities consist of (i) 15,000340,000 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 at $6.00 per share expiring on January 1, 2005, (iv) 20,000 warrants exercisable at $4.00 per share expiring on January 1, 2008, (v) 465,000 warrants exercisable at $1.75 expiring on June 3, 2005, (vi) 1, 400,000 warrants 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) Consists 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) Consists 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;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) Consists 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) Consists of (i) 25,000 warrants exercisable at $2.00 per share expiring on August 13, 2007, (ii) 50,000 warrants to purchase common stockexercisable at $4.00 per share andexpiring on February 28, 2008, (iii) 6,666 stock options to purchase 5,000 shares of commonexercisable at $4.08 expiring on January 3, 2011 and (iv) 20,000 stock options exercisable at $3.50 per share.share expiring on January 22, 2007. (7) Consists 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) Consists of (i) 10,000 warrants exercisable at $2.00 per share expiring on August 13, 2007, (ii) 5,000 warrants to purchase common stockexercisable 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. 12 EMPLOYMENT AGREEMENTSshare expiring on January 22, 2007. (9) Consists 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 Boardboard of Directors.directors. Dr. Carter willdoes 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. 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. TheThis agreement is automatically renewed for successive one year periods unless written noticewas extended to May 8, 2008 by the Board of refusal to renew is given by one party to the other at least 90 days prior to the expiration of the renewal period.Directors in August, 2002. Hemispherx entered into an amended and restated engagementemployment 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, 20022003 at an annual base salaryfee of $146,880.00$155,988 per year, subject to annual cost of living increases.increase. 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. Mr. Peterson also received 30,000200,000 warrants to purchase shares of common stock with an exercise price of $5.00 per share. Hemispherx entered into an amended and restated employment agreement with Harris Freedman providing for Mr. Freedman's employment as Vice President for Strategic Alliances on August 1, 2000. The agreement provides for Mr. Freedman to be employed for a one year term for a fee of $10,000 each month that Mr. Freedman's services are used and provides for termination of the agreement upon certain circumstances including termination by Hemispherx or Mr. Freedman on 14 days' written notice. COMPENSATION OF DIRECTORS An extensive and$2.00 in depth study of board compensation for companies in the U.S. was conducted and upon review it was determined that the Company's compensation for the members of it's Board2002. Compensation of Directors was significantly below average. The existing compensation package had been in place since 1990. In order to bringDuring the compensation for board members within the average range of compensation based upon the study, the Company increased board compensation consisting ofyear ended December 31, 2002, each non-employee Director received an annual retainer to $35,000.00 plus $1,000.00 perof $35,000 for serving on the Board of Directors. In addition, each non-employee Director received $1,000 for each meeting attended. Committee chairmenThe Chairman of each committee received an additional retainer of $5,000 per year and committee members receive an additional retainer of $5,000.00 per year and committee members each receive an additional retainer of $3,000.00$3,000 per year. All non-employee directors received some compensation in 20002002 for special project work performed on behalf of Hemispherx. See "Certain Relationships and Related Transactions" above. All directors have been granted options to purchase common stock under Hemispherx's 1990 Stock Option Plan 13 and/and\or warrantsWarrants 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 PLANStock 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 Boardboard of Directors,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. To date, noThis plan terminated as of July 7, 2003. No options have beenwere granted under the 1993 Plan. 1992 STOCK OPTION PLANStock 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 Compensation Committee of the Boardboard of Directors,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. To date, noThis plan expired as of December 3, 2002. No options have beenwere granted under the 1992 Plan. 1990 STOCK OPTION PLAN Hemispherx'sStock Option Plan Hemispherx 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 Planplan is administered by the Compensation Committee of the Boardboard of Directors,directors, which has complete discretion to select eligible individuals to receive and to establish the terms of option grants. The number of shares of commonCommon stock available for grant under the 1990 Plan is subject to adjustment for changes in capitalization. As of December 31, 2000,2002, options to acquire an aggregate of 242,231245,782 shares of the common stock were available for grants under the 1990 Plan. 14 401(k) PLANplan. 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)employees 401(K) Plan and Trust Agreement. All full time employees of Hemispherx are eligible to participate in the 401(k)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)commissions per annum. Participants' contributions to the 401(k)401(K) plan may be matched by Hemispherx at a rate determined annually by the Boardboard of Directors.directors. Each participant immediately vests in his or her deferred salary contributions, while Hemispherx contributions will vest over one year. In 20002002 Hemispherx provided matching contributions to each employee for up to 6% of annual pay for a total contribution of $47,590$38,000 for all employees. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONCompensation Committee Interlocks and Insider Participation During the fiscal year ended December 31, 2000,2002, the members of Hemispherx's Compensation Committee were Ransom W. Etheridge and Richard C. Piani. Mr. Etheridge serves as the Company's Secretary and is an attorney in private practice and has rendered legal services to Hemispherx for which he received a fee. Mr. Piani lives in Paris, France and assists the Company's European subsidiary in their dealings with medical institutions and the European Medical Evaluation Authority for which he received a fee in 2001. The fees for certain consulting work performedpaid to Mr. Etheridge and Mr. Piani in Europe on behalf2002 were less than $60,000 each. Notwithstanding anything to the contrary, the following report of the Company. NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE, THE REPORT OF THE AUDIT COMMITTEE ON PAGECompensation Committee, the report of the Audit Committee on page 7, AND THE PERFORMANCE GRAPH ON PAGE 18 SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OFand the performance graph on page 20 shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OFor under the Securities Exchange Act of 1934, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS. COMPENSATION COMMITTEE REPORT ON COMPENSATIONexcept to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. Compensation Committee Report on Compensation The Compensation Committee makes recommendations concerning salaries and compensation for employees of and consultantsconsultant to Hemispherx. In general, the Compensation Committee seeks to link the compensation paid to each executive officer to the 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. The Company's policy is that executive compensation should be directly and materially related to the short-term and long-term operating performance and objectives of the Company. As such, the Compensation Committee has determined that compensation of executive officers should include a mixture of short and long range compensation elements which are intended to attract, motivate and retain competent executive personnel, increase executive ownership interests in the Company and improve operating performance of the Company. 15 There are three elements in Hemispherx's executive compensation program, all determined by individual and corporate performance: o Base salary o Annual incentive o Long-term incentive BASE SALARY.Base Salary In establishing base salary levels for individual executives, the Compensation Committee will consider factors such as the executive's scope of responsibility, current and future potential performance, and overall competitive positioning relative to comparable positions at other companies. The objective of the Company is to structure salaries that are competitive with those of similarly situated companies. The Summary Compensation Table shows amounts earned during 20002002 by our executive officers. The base salary compensation for each of Dr. William A. Carter and Robert E. Peterson and Harris Freedman is set by the terms of the employment or engagement agreement entered into with each such executive officer.Executive Officer. Hemispherx established the base salary for its Chief Executive Officer, Dr. William A. Carter under an employment agreement dated December 3,31, 1998 which provided(as amended on August 14, 2002) for a base salary of $369,397 in 2000 and has a term running through$361,586 until May 8, 2004.2008. Hemispherx also extended its engagement agreement with Robert E. Peterson, Chief Financial Officer, which providedprovides for a base salaryfee of $145,944 in 2000 and has a term running through$155,988 until December 31, 2002.2003. Dr. CarterCarter's and Mr. Peterson's agreements provide for annual cost of living increases. Harris Freedman, our Vice PresidentDr. Carter's compensation 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 company and totaled $79,826 in each of Strategic Alliances, also entered into an engagement agreement in August 2000 which provides for a base salary of $10,000 each month that Mr. Freedman's services are used. ANNUAL INCENTIVES.and 2001. In 2002, this compensation was $82,095. Annual Incentives Annual incentive bonus awards are granted from time to time to executives in recognition of their contributionscontribution to the Company's business and operations, as measured against competitors of the Companycompany and the Company's internal budgets and operating plans. Under the terms of their respective agreements with the Company, our Chief Executive Officer and President, Dr. William A. Carter, and our Chief Financial Officer, Robert E. Peterson, are entitled tomay receive an annual incentive bonus as determined by the Compensation Committee based on such executive officer's 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 provisions of his employment agreement. LONG-TERM INCENTIVES.Long-Term Incentives The Company grants long-term incentive awards periodically to align a significant portion of the executive compensation program with shareholderstockholder interests over the long-term through encouraging and facilitating executive stock ownership. Executives are eligible to participate in the Company's incentive stock option plans. In 2000connection with extending Dr. Carter's employment agreement in 2002, the Compensation Committee 16 did not approve orapproved a grant any options,of 1,000,000 warrants or other long-term incentive awards to any executive officers or directors. CHIEF EXECUTIVE OFFICER COMPENSATION.our Chief Executive Officer and President, Dr. William Carter. These warrants are exercisable at $2.00 per share. All warrants expire on August 13, 2008 unless previously exercised. Also, our Chief Financial Officer, Robert E. Peterson was granted 200,000 warrants to purchase common stock at $2.00 per share which expires August 13, 2008 unless previously exercised. Chief Executive Officer Compensation The Summary Compensation Table shows that during the year 20002002 the Company's Chief Executive Officer and President, Dr. William A. Carter earned $369,397$376,782 in base compensation pursuant to the terms of his employment agreement. In addition, Dr. Carter was paid a bonus of $90,397 in accordance with the terms of his employment agreement. Dr. Carter's compensation in 20002002 also includes funds previously paid by Hahnemann University where he served as a Professor until 1998. In 2000,2002, Dr. Carter also received an aggregate of $65,000$12,486 in short term advances bearing interest at 6% per annum, of which the outstanding balance waswere repaid as of March 2, 2001.by December 31, 2002. The Compensation Committee believes that Dr. Carter's total compensation is consistent with the median compensation for CEO's in comparable companies. Factors reviewed by the Compensation Committee's assessment of the Company's and the CEO's performance include individual performance, growth in revenue and expense management and implementation of the Company's business strategy. COMPLIANCE WITH INTERNAL REVENUE CODE SECTIONCompliance With Internal Revenue Code Section 162(m). One of the factors the Compensation Committee considers in connection with compensation matters is the anticipated tax treatment to Hemispherx and to the executives of the compensation arrangements. The deductibility of certain types of compensation depends upon the timing of an executive's vesting in, or exercise of, previously granted rights. Moreover, interpretation of, and changes in, the tax laws and other factors beyond the Compensation Committee's control also affect the deductibility of compensation. Accordingly, the Compensation Committee will not necessarily limit executive compensation to that deductible under Section 162(m) of the Code. The Compensation Committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent consistent with its other compensation objectives. This report is submitted by the Compensation Committee of the Company's Board of Directors. Ransom W. Etheridge Richard C. Piani 17William M. Mitchell COMPARATIVE STOCK PERFORMANCE GRAPH The following graph compares the cumulative total shareholderstockholder return for the Company's common stock since December 31, 19951997 to the cumulative total returns of (i)(I) the Standard & Poor's&Poor's Smallcap 600 Index and (ii) a peer group index for the same period, assuming an investment of $100 in each of the Company's common stock, the Standard & Poor's Smallcap 600 Index and the peer group index. [In the printed proxy statement a graph appears depicting the following plot points][GRAPH OF TOTAL SHAREHOLDER RETURNS] ASSUMES $100 INVESTED ON JAN. 1, 1996 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING DEC. 31, 2000
Indexed Returns Years Ending Base Company Name/Index Period Dec 96 Dec 97 Dec 98 Dec 99 Dec 00 - ------------------------------------------------------------------------------------------------------ Hemispherx Biopharma, Inc. 100 102.73 185.47 313.92 453.80 216.91 Peer Group 100 143.26 166.24 177.49 196.38 304.57 S&P Smallcap 600 Index 100 121.12 152.11 150.12 168.74 187.35
2001 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:Companies - ------------------------------------------------------------------------------- GILEAD SCIENCES INC.INC ISIS PHARMACEUTICALS INC. 18 INC SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of June 13, 2001,July 10, 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 officers and directors as a group. As of June 13, 2001,July 10, 2003, there were no persons, individually or as a group, known to Hemispherx to be deemed the beneficial owners of five percent or more of the issued and outstanding common stock.
OFFICERS, DIRECTORS AND SHARES % OF SHARES PRINCIPAL STOCKHOLDERS BENEFICIALLY OWNED BENEFICIALLY OWNED (1) - ------------------------------------------------------------------------------------------------- William A. Carter, M.D. 4,082,143 (2) 12.1 Robert E. Peterson 208,254 (3) * Ransom Etheridge 112,316 (4) * Harris Freedman 1,054,160 (5) 3.4 Richard C. Piani 101,355 (6) * William Mitchell, M.D. 62,000 (7) * David R. Strayer, M.D. 82,746 (8) * Josephine Dolhancryk 82,924 (9) * Carol Smith, Ph.D. 11,791 (10)OFFICERS, DIRECTORS SHARES BENEFICIALLY OWNED %OF SHARE BENEFICIALLY OWNED(1) AND PRINCIPAL STOCKHOLDERS - ---------------------- ------------------------- ------------------------------ William A. Carter, M.D. (2) 4,202,107 (9.2%) Robert E. Peterson (3) 314,074 * Ransom W. Etheridge (4) 214,316 * Richard C. Piani (5) 196,747 * William M. Mitchell,M.D.(6) 175,640 * David R. Strayer, M.D. (7) 87,246 * Carol A. Smith (8) 28,457 * Iraj-Eqhbal Kiani (9) 12,000 * All directors and executive officers as 5,797,689 17.1 a group (9 persons)
5,230,587 (13.3%) - ---------------------------------------------- * 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 June 13, 2001.July 10, 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 2001,2004, (ii) Rule 701 warrantsWarrants to purchase 1,400,000 shares of common stock at a price of $3.50 per share, originally expiring on September 30, 2002;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;2003 was extended to January 1, 2008; (v) 170,000 common stock warrants exercisable at $5.00 per share and expiring on January 2, 2003;2005; (vi) 25,000 warrants to purchase common stock at $6.50 per share and expiring on September 17, 2004;2003; (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, (v)2004; (ix) 20,000 warrants to purchase common stock 19 at $4.00 per share originally expiring January 1, 2003 (vi)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 (vii)(xii) 300,000 common stock warrants granted in 1998 that are exercisable at $6.00 per share and expireexpiring on January 1, 2006 (xiii) options to purchase 6,666 shares of common stock at $4.03 per share and (viii) 975,090expiring on January 3, 2011 (xiv) 250,000 warrants exercisable $2.00 per share on August 13, 2007 and 650,060 shares of common stock. Does not include 188,325 common stock warrants granted in 2001 that have not vested. (3) Includes (i) 27,75427,574 options to purchase common stock at an average exercise price of $3.92 per share, expiring on July 17, 2003;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;2006 (iii) warrants to purchase 100,000 shares of common stock at $5.00 per share, expiring on April 14, 2006;2006 (iv) 30,000 warrants to purchase common stock at $5.00 per share, expiring on February 28, 2009 (v) options to purchase 6,000 shares at $4.03 per share that expires 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 (i) 20,000 warrants to purchase common stock at $4.00 per share, originally expiring on January 1, 2003; (ii) 31,800 Class A Warrants2003 and was extended to purchase common stock at $4.00 per share, expiring on November 2, 2001; (iii)January 1, 2008; 25,000 warrants to purchase common stock at $6.50 per share andshare; 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 (iv) 10,51644,316 shares of common stock. (5) Includes (i) 62,000 shares of common stock held by Bridge Ventures, Inc., of which Mr. Freedman is an officer; (ii) 57,000 shares of common stock held by SMACS Holding Corp., of which Mr. Freedman is an officer; (iii) 40,000 shares of common stock, (iv) warrants to purchase 325,000 shares of common stock which are exercisable at $1.75 per share and expire on June 30, 2005, issued in connection with the 1995 Standby Financing Agreement owned of record by Bridge Ventures, Inc.; (v) 400,000 warrants issued under Rule 701 of the Securities Act to purchase common stock of Hemispherx at an exercise price of $3.50 and expiring on September 30, 2002; (vi) 95,160 warrants to purchase common stock exercisable at $3.50 per share, expiring on October 15, 2002; (vii) 50,000 warrants to purchase common stock at $4.00 per share, expiring on January 1, 2004; and (viii) 25,000 warrants to purchase common stock at $10.00 per share, expiring on January 1, 2003. (6) Includes (i) options to purchase 4,608 shares of common stock at an exercise price of $4.34, expiring on December 11, 2002; (ii) 20,000 warrants to purchase common stock at $4.00 per share, (iii) warrants to purchase 25,000 shares of common stock at $6.50 per share (ii) warrants to purchase 25,000 shares of common stock at $6.50 per share (iii) 25,000 warrants to purchase at $8.00 per share, all expiring on September 17, 2004; (iv) 100,000 warrants exercisable at $2.00 per share expiring on August 13, 2007, (v) 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) 5,000 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; (iv)(iii) 25,000 warrants to purchase common stock at $8.00 per share all expiring on September 17, 2004; (v) 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) 5,000 shares of common stock owned by Mrs. Piani. (7) Includes(iv) 100,000 warrants to purchase 12,000 shares of common stockexercisable at $6.00$2.00 per share expiring on August 25, 200113, 2007 and warrants to purchase 25,00013, 640 shares at $6.50 per share and 25,000 warrants to purchaseof common stock at $8.00 per share all expiring on September 17, 2004. (8)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 (iii) 12,746expiring on January 3, 2011 and; (iv) 14,746 shares of common stock. (9) Includes (i) options to purchase 461 shares of common stock at an exercise price of $3.80, expiring on February 13, 2002; (ii) options to purchase 359 shares of common stock $3.80 per share, expiring on May 5, 2002; (iii) 50,000 warrants to purchase common stock at an exercise price of $3.50 per share, expiring on March 1, 2006; (iv) 5,000 warrants to purchase common stock at $4.00 per share, expiring on June 7, 2003; (v) 7,104 options to purchase common stock at $3.50 per share expiring January 22, 2007; and (vi) 20,000 shares of common stock. (10)(8) Consists of 5,000 warrants to purchase common stock at $4.00 per share expiring June 7, 2003 and2008; 6,791 stock options exercisable at $3.50 expiring January 22, 2007. 20 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 s of 12,000 warrants exercisable at $3.86 per share expiring on April 30, 2005. PROPOSAL NO. 2 RATIFICATION OF SELECTION OF AUDITORS The firm of KPMG LLP audited the consolidated balance sheets of Hemispherx and its subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1999. KPMG LLP informed the Company on May 3, 2000 that the client-auditor relationship was ceased. On May 3, 2000, with the prior approval of the Board of Directors, upon the Company informed KPMG that the client-auditor relationship with the Company had ceased and on May 10, 2000 filed a Form 8-K with the SEC, which Form 8-K is hereby incorporated by reference and a copy of which is available, at no charge, from the Secretary. The reports of KPMG LLP on our financial statements for the years ended December 31, 1998 and December 31, 1999 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the years ended December 31, 1998 and 1999 and, prior to the disengagement of KPMG LLP, we had no disagreements with KPMG LLP on matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of KPMG LLP would have caused them to make reference thereto in their report on the consolidated financial statements for such years. On June 5, 2000, pursuant to a voterecommendation of the Board of Directors,Audit Committee, has appointed the firm of BDO Seidman, LLP was selected to audit the financial statementsas independent auditors of Hemispherx for the fiscal year ending December 31, 2000, which was ratified2003 subject to ratification by the stockholders ofstockholders. BDO Seidman, LLP has served as Hemispherx's independent auditors since June, 2000. At the Company at its 2000 Annual Stockholder's Meeting of Stockholders. Uponon August 14, 2002 and pursuant to the recommendation of itsthe Audit Committee of the Board of Directors, has appointedstockholders ratified the appointment of the firm of BDO Seidman, LLP, as independent accountants, to audit the financial statements of Hemispherxthe Company for the year endingend December 31, 2001. Accordingly, the Board of Directors will offer the following resolution at the Annual Meeting. RESOLVED, that the appointment by the Board of Directors of BDO Seidman, LLP, independent public accountants, to2002. All audit the financial statements of Hemispherx for the year ending December 31, 2001 be, and hereby is, ratified and approved. All auditprofessional services provided by BDO Seidman, LLP are approved by the Audit Committee. During 2000,The total fees billed by BDO Seidman, LLP performed certain non-audit serviceswere $104,885 in 2001 and $178,429 in 2002. The fees for the Company. A summarywork in 2001 and 2002 are summarized below in terms of the audit work and non-audit fees paid toother work. BDO Seidman, LLP did not perform any tax work for the company in 2000 is as follows: 21 AUDIT FEES2001 or 2002. Audit Fees - The aggregate fees billed by BDO Seidman, LLP for professional services rendered for the audit and the reviews of the Company's financial statements for the year ending December 31, 2000 was2001 and 2002 were approximately $151,265. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES - The Company did not retain BDO Seidman, LLP for professional services relating to financial information system design$96,707 in 2001 and implementation fees. ALL OTHER FEES$131,284 in 2002. These fees included review of the Company's quarterly filings with the SEC. Other Fees - The aggregate fees billed to the Company by BDO Seidman, LLP for all other services, such as financingsfees was $8,178 in 2001 and taxes, was approximately $5,600.$47,145 in 2002. These fees basically reflect BDO Seidman, LLP's work on reviewing Form S-3 registration statements and acquisition due diligence. The Audit Committee has considered whether the provision bydetermined that BDO Seidman, LLPLLP's rendering of thethese non-audit services discussed above under "All Other Fees" is compatible with maintaining BDO Seidman LLP's independence and has concluded that providing such services is compatible with that firm's independence from the Company and its management.auditors independence. The Board of Directors considers BDO Seidman, LLP to be well qualified to serve as the independent public accountants of the Company. If, however, the shareholdersstockholders do not ratify the appointment of BDO Seidman, LLP, the Board of Directors may, but is not required to, reconsider the appointment. It is anticipated that a representative of BDO Seidman, LLP will be present at the Annual Meeting and will be available to respond to appropriate questions. It is not anticipated that such representative will make a prepared statement at the meeting; however, the representative shall have the opportunity to do so. The affirmative vote of at least a majority of the shares represented and voting at the Annual Meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) is necessary for approval of Proposal No. 2. Under Delaware law, there are no rights of appraisal or dissenter's rights, which arise as a result of a vote to ratify the selection of auditors. THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF HEMISPHERX AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF. PROPOSAL NO. 3 APPROVAL OF THE COMPANY'S PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION The Board of Directors is proposing the approval and adoption of an amendment to the Company's Certificate of Incorporation, which increases the number of common shares authorized for issuance. The complete text of the proposed Amendment to the Certificate of Incorporation is attached as Appendix A to this Proxy Statement. The Company's Articles currently authorize the issuance of 50,000,000 common shares, $.001 par value, and 5,000,000 Preferred Shares, $.001 par value per share. In May, 2003, the Board of Directors adopted a resolution proposing that the Articles be amended to increase the authorized number of common shares to 100,000,000 subject to stockholder approval of the Amendment to the Articles. The Board of Directors has determined that adoption of the Amendment is in the best interest of the Company and unanimously recommends approval by the stockholders. As of July 14, 2003, the Company had 35,821,275 common shares outstanding and 13,294,527 common shares reserved for future issuance under the Company's existing stock option plans and outstanding options, warrant and convertible debentures, leaving 884,198 common shares available for future grants. The Board of Directors believes that the proposed increase in authorized common shares will benefit the Company by providing flexibility to issue common shares for a variety of business and financial objectives in the future without the necessity of delaying such activities for further stockholder approval, except as may be required in particular cases by the Company's charter documents, applicable law or the rules of any stock exchange or national securities association trading system on which the Company's securities may be listed or quoted. In addition, the Company's Board of Directors could issue large blocks of Company Common Stock to fend off unwanted tender offers or hostile takeovers without further stockholder approval. 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 gross proceeds of $4,650,000. 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. Pursuant to the terms and conditions of the Senior Convertible Debentures, we have pledged all of our assets including the assets acquired from Interferon Sciences, Inc. 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 Debenture 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. As of July 14, 2003, the debenture holders have converted $1,790,222 of debt into 1,126,179 shares of common stock and exercised all of the 743,288 warrants, which produced $1,248,724 in additional operating funds for the Company. On July 10, 2003, we issued a second set of 6% Senior Convertible Debentures in the aggregate principal amount of $5,426,000 and 507,103 warrants to the same investors. These Debentures are due on July 31, 2005 unless converted prior to that date. The terms of the Debentures are similar to those issued to the investors in March, 2003. To assure that there are adequate shares available to be reserved for issuance pursuant to conversion of the Debentures, as payment of interest on the Debentures and upon exercise of the Warrants related thereto, Dr. William A. Carter, the Company's Chairman, President and Chief Executive Officer, has agreed to waive his right to exercise an aggregate of 3,006,650 Company options and warrants (collectively, hereinafter referred to as "Options") held by him unless and until the Company's authorized shares are increased by the stockholders as presented in Proposal No. 3. For this waiver of rights and for the possible diminution in value of these Options that could result in the event that this proposal is not approved, we plan to compensate Dr. Carter. An independent valuation firm will be engaged to assist the independent directors in determining the monetary value of this waiver and the possible loss, if any. For a more complete description of this transaction, please refer to the Form 8-K and Exhibits filed with the SEC on July 14, 2003. Other than reserving shares issuable upon exercise of certain options and warrants, which shares were needed for the recent Debenture offering, the Company has no specific plans with regard to its use of the authorized but unissued/unreserved shares; however, it anticipates that it will (i) attempt to raise capital through the sale of its common stock or securities convertible into or exercisable for Common Stock: and/or (ii) acquire additional assets. The Board of Directors has no specific plans, understandings, agreements or commitments to issue additional common shares for capital raising transactions or acquisitions. Failure to obtain stockholders approval of this proposal will not impact the Company's existing agreements to issue common shares. The Board believes that the Company will be adversely impaired of this proposal is not approved. Recommendation and Required Vote The affirmative vote of at least a majority of the issued and outstanding shares as of the record date is necessary for approval of Proposal No. 3. Under Delaware law, there are no rights of appraisal or dissenter's rights, which arise as a result of a vote to amend the Certificate of Incorporation. THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS OF HEMISPHERX AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF. GENERAL Unless contrary instructions are indicated on the proxy, all shares of common stock represented by valid proxies received pursuant to this solicitation (and not revoked before they are voted) will be voted FOR the election of all directors nominated and FOR Proposal No. 2.2 and 3. The Board of Directors knows of no business other than that set forth above to be transacted at the meeting, but if other matters requiring a vote of the stockholders arise, the persons designated as proxies will vote the shares of common stock represented by the proxies in accordance with their judgment on such matters. If a stockholder specifies a different choice on the proxy, his or her shares of common stock will be voted in accordance with the specification so made. 22 IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO FILL IN, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE PREPAID ENVELOPE PROVIDED, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. By Order of the Board of Directors, /s/ RANSOM W. ETHERIDGE ----------------------------------- Ransom W. Etheridge, Secretary Philadelphia, Pennsylvania July 17, 2001 2321, 2003 EXHIBIT AAPPENDIX "A" CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF HEMISPHERX BIOPHARMA, INC. AUDIT COMMITTEE CHARTER The Audit Committee is appointedUnder Section 242 of the Corporation Law of the State of Delaware William A. Carter, the President of HEMISPHERX BIOPHARMA, INC. (the "Company"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board to assistof Directors of said corporation, by written consent filed with the minutes of the Board, in monitoring (1)adopted the integrityfollowing resolutions proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation: "Article `FOURTH' of the financial statementsCertificate of Incorporation, which sets forth the capitalization of the Company, (2)is amended and, as amended, reads as follows: `FOURTH. The total number of shares of all classes of capital stock which the compliance by the Company with legal and regulatory requirements and (3) the independence and performanceCorporation shall have authority to issue is 105,000,000 of which 100,000,000 shares shall be Commons Stock of the Company's internalpar value of $0.001 and external auditors. The members5,000,000 shares shall be Preferred Stock of the Audit Committee shall meet the independencepar value of $0.01, with such designations, rights and experience requirements of the NASDAQ/AMEX. The members of the Audit Committee shallpreferences as may be appointed by the Board on the recommendation of the Executive Committee. The Audit Committee shall have the authoritydetermined from time to retain special legal, accounting or other consultants to advise the Committee. The Audit Committee may request any officer or employee of the Company or the Company's outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. The Audit Committee shall make regular reports to the Board. The Audit Committee shall: 1. Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. 2. Review the annual audited financial statements with management, including major issues regarding accounting and auditing principles and practices as well as the adequacy of internal controls that could significantly affect the Company's financial statements. 3. Review an analysis prepared by management and the independent auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statement. 4. Review with management and the independent auditor the Company's quarterly financial statements prior to the filing of its Form 10-Q. 5. Meet periodically with management to review the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures. 6. Review major changes to the Company's auditing and accounting principles and practices as suggested by the independent auditor, internal auditors or management. 7. Recommend to the Board the appointment of the independent auditor, which firm is ultimately accountable to the Audit Committee and the Board. 8. Approve the fees to be paid to the independent auditor. 9. Receive periodic reports from the independent auditor regarding the auditor's independence consistent with Independence Standards Board Standard 1, discuss such reports with the auditor, and if so determined by the Audit Committee, take or recommend that the full Board take appropriate action to oversee the independence of the auditor. 10. Evaluate together with the Board the performance of the independent auditor and, if so determined by the Audit Committee, recommended that the Board replace the independent auditor. 11. Review the significant reports to management prepared by the internal auditing department and management's responses. 12. Meet with the independent auditor prior to the audit to review the planning and staffing of the audit. 13. Obtain from the independent auditor assurance that Section 10A of the Securities Exchange Act of 1934 has not been implicated. 14. Obtain reports from management and the independent auditor that the Company's subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Company's Code of Conduct. 15. Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit. 16. Review with the independent auditor any problems or difficulties the auditor may have encountered and any management letter provided by the auditor and the Company's response to that letter. Such review should include: a. Any difficulties encountered in the court of the audit work, including any restrictions on the scope of activities or access to required information. b. Any changes required in the planned scope of the internal audit. c. The internal audit department responsibilities, budget and staffing. 17. Prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company's annual proxy statement. 18. Advise the Board with respect to the Company's policies and procedures regarding compliance with applicable laws and regulations and with the Company's Code of Conduct. 19. Review with the Company's General Counsel legal matters that may have a material impact on the financial statements, the Company's compliance policies and any material reports or inquiries received from regulators or governmental agencies. 20. Meet at least annually with the chief financial officer, the independent auditor, and other involved parties in separate executive sessions. While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of Audit Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Company's Code of Conduct. *This Charter was adoptedtime by the Board of Directors on June 12, 2000. A-2Directors.'" SECOND: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned, being the President hereinbefore named, has executed, signed and acknowledged this amendment to the Certificate of Incorporation this ___ day of September, A.D. 2003. William A. Carter, President HEMISPHERX BIOPHARMA, INC. ANNUAL MEETING OF STOCKHOLDERS FRIDAY, AUGUST 24, 2001SEPTEMBER 10, 2003 THIS PROXY IS SOLICTED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints William A. Carter and Ransom W. Etheridge and each of them, with full power of substitution, as proxies to represent the undersigned at the Annual Meeting of Stockholders to be held at the offices of Schnader Harrison Segal & Lewis LLP, Suite 3600, 1600 Market Street,Embassy Suites, 1776 Benjamin Franklin Parkway, Philadelphia, Pennsylvania Friday, August 24, 2001,19103, on Wednesday, September 10, 2003, at 10:00 a.m. local time and at any adjournment thereof, and to vote all of the shares of common stock of Hemispherx Biopharma, Inc. the undersigned would be entitled to vote if personally present, upon the following matters: Please mark boxesbox in blue or black ink. 1. Proposal No. 1--ElectionNo.1-Election of Directors. Nominees: William A. Carter, Richard C. Piani, Ransom W. Etheridge, and William M. Mitchell.Mitchell, and Iraj-Eqhbal Kiani. / / For All Nomineesall nominees (except as marked to the contrary below) / / Authority WithheldAuthorityWithheld as to Allall Nominees (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUALINIVDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME) William A. Carter Richard C. Piani Ransom W. Etheridge William M. Mitchell Iraj-Eqhbal Kiani 2. Proposal No. 2--Ratification2-Ratification of the selection of BDO Seidman, LLP, as the independent auditors of Hemispherx Biopharma, Inc. for the year ending December 31, 2001.2003. / /For / For/Against / /Abstain 3. Proposal No. 3 - Amend the Company's Certificate of Incorporation to increase the authorized shares of common stock from 50,000,000 to 100,000,000. / Against/For / /Against / Abstain 3./Abstain In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. THE BOARD RECOMMENDS A VOTE "FOR" ITEMS NOS. 1, 2 AND 2.3. IF NO CONTRARY INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE ELECTION OF WILLIAM A. CARTER, RICHARD C. PIANI, RANSOM W. ETHERIDGE, WILLIAM A. MITCHELL AND WILLIAM M. MITCHELLIRAJ-EQHBAL KIANI AS DIRECTORS, FOR PROPOSALPROPOSALS NO. 2 AND 3 AND IN THE DISCRETION OF THE PROXIES ON ALL OTHER MATTERS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING. 1469: Please date, sign as name appears at left, and return promptly. If the stock is registered in the name of two or more persons, each should sign. When signing as Corporate Officer, Partner, Executor, Administrator, Trustee, or Guardian, please give full title. Please note any change in your address alongside the address as it appears in the Proxy. Dated: __________________________________ _____________________________---------------------------- ---------------------------- Signature _____________________________---------------------------- (Print Name) SIGN, DATE AND RETURN PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE