Hemispherx attempts to prevent stock sale.

Hemispherx Biopharma, Inc. (AMEX: HEB and HEBWS) (Price: $5.875) was sued by one of its private investors for its actions in preventing the conversion of 1,500 shares of Series E Convertible Preferred Stock (“Convertible Preferred”) into 750,000 shares of its common stock and subsequent sale of those shares. We believe that the complaint and its exhibits, including a letter dated June 16, 1998 from Hemispherx’s Dr. Carter to Mr. Richard Sinese at Kennedy Capital Management, Inc. (“Kennedy”), provide revealing details of Hemispherx’s fraudulent stock promotion.

At the same time that Hemispherx was preventing the conversion and subsequent sale of these shares, Hemispherx was allowing others to exercise their warrants and sell stock. As a result, we believe that Hemispherx’s attempt to prevent the conversion while others were allowed to sell, shows clear and convincing evidence of its attempt to control supply. This control also includes Hemispherx’s request that its shareholders not lend their shares to short sellers and its Belgium stock promotion where investors buy shares through commercial banks that do not lend their shares to short sellers. This activity does not create any shareholder value but provides Hemispherx’s warrant holders with a temporary selling opportunity.

The complaint states that on June 16, 1998, Hemispherx informed Kennedy of its intent to redeem the Convertible Preferred shares. Hemispherx’s right to redeem the Convertible Preferred occurs no earlier than 5 days after giving written notice to the holders. On June 18, 1998, Kennedy surrendered 1500 shares of Convertible Preferred to Hemispherx and issued instructions to exchange these shares into 750,000 shares of Hemispherx common stock. Hemispherx received the certificate and instructions on June 19, 1998, two days before Hemispherx could exercise its right to redeem the shares. Hemispherx has not allowed the conversion. On July 15, 1998 Hemispherx sent a check to Kennedy as payment for the redemption. This check was returned to Hemispherx unendorsed and uncashed. We found no basis to support Hemispherx’s action. The only apparent reason for Hemispherx’s failure to comply with its written agreements is to prevent a stock sale for the benefit of selling warrant holders.

Short selling involves a risk not associated with the purchase of stock including, but not only limited to, unlimited loss and stock borrowing risks. Additional information is available upon request.