U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
     -----------------------------------------------------------------------


                                    FORM 10-K

            ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

        July 31, 1999                                           0-11088
For the fiscal year ended                                Commission file number

                              ALFACELL CORPORATION
             (Exact name of registrant as specified in its charter)

           Delaware                                              22-2369085
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

             225 Belleville Avenue, Bloomfield, New Jersey         07003
               (Address of principal executive offices)         (Zip Code)

Registrant's telephone number, including area code:           (973) 748-8082
Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of Class)

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of  registrant's  knowledge,  in definitive  proxy or any amendment to this
Form 10-K. [ ]

     The aggregate  market value of the Common Stock, par value $.001 per share,
held by non-affiliates based upon the average of the high and low sale prices as
reported by the OTC  Bulletin  Board on November 8, 1999 was  $7,922,302.  As of
November 8, 1999 there were 17,326,594  shares of Common Stock,  par value $.001
per share, outstanding.

     The Index to Exhibits appears on page 26.

                       Documents Incorporated by Reference

                                      None

<PAGE>



                                Table of Contents

PART I                                                                     Page
                                                                           -----
         Item  1.  Business                                                    1

         Item  2.  Properties                                                 12

         Item  3.  Legal Proceedings                                          12

         Item  4.  Submission of Matters to a Vote of Security Holders        12

PART II

         Item  5.  Market for Common Equity and Related Stockholder Matters   12

         Item  6.  Selected Financial Data                                    13

         Item  7.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                        14

         Item  7A. Quantitative and Qualitative Disclosure About Market Risk  18

         Item  8.  Financial Statements and Supplementary Data                18

         Item  9.  Changes in and Disagreements with Accountants
                    on Accounting and Financial Disclosure                    18

PART III

         Item 10.  Directors and Executive Officers of the Registrant         18

         Item 11.  Executive Compensation                                     20

         Item 12.  Security Ownership of Certain Beneficial Owners
                   and Management                                             24

         Item 13.  Certain Relationships and Related Transactions             25

PART IV

         Item 14.  Exhibits, Financial Statement Schedules, and
                   Reports on Form 8-K                                        26


The  following  trademark  appear  in this  Annual  Report:  ONCONASE(R)  is the
registered  trademark of Alfacell  Corporation,  exclusively for the anti-cancer
indications.

                                       (i)

<PAGE>


                                     Part I

Item 1.  BUSINESS.

Overview

Alfacell  Corporation  ("Alfacell"  or  the  "Company")  is a  biopharmaceutical
company  organized  in  1981  and is  primarily  engaged  in the  discovery  and
development  of a new class of anti-cancer  drugs from  amphibian  ribonucleases
("RNases").  RNases degrade ribonucleic acids ("RNA") causing an interruption in
protein  synthesis  resulting  in  inhibition  of cell growth and  induction  of
apoptosis (programmed cell death). The Company's first product under development
is ONCONASE(R)  (ranpirnase) which targets solid tumors, most of which are known
to become resistant to other chemotherapeutic drugs.

ONCONASE(R) (ranpirnase*) is a novel amphibian RNase that has been isolated from
the eggs of the leopard frog (Rana  pipiens).  RNases are enzymes that  catalyze
the cleavage of  phosphodiester  bonds of RNAs. RNases mediate several important
biological functions in nature including regulation of angiogenesis,  anti-viral
and  anti-  parasitic   defenses,   interstrain   competition  in  bacteria  and
restrictive  pollination  in plants.  In  addition  to taking  advantage  of the
natural  biological  functions of RNases,  amphibian  ribonucleases  may be more
therapeutically  effective in humans than mammalian RNases as they do not appear
to be inhibited by endogenous mammalian RNase inhibitors.  Therefore, developing
amphibian  ribonucleases into therapeutics,  and thereby taking advantage of the
natural role of RNases, may result in a new class of compounds for proliferative
diseases such as cancer and AIDS. The Company  retains all commercial  rights to
compounds resulting from this program.

ONCONASE has been used to treat patients with advanced stages of solid tumors on
a weekly  basis.  Based  upon  Phase II and Phase III  clinical  data,  the most
significant  clinical  results  to date  with  ONCONASE  have been  observed  in
unresectable  malignant  mesothelioma.  Pilot  clinical  trials  have  also been
conducted  in non-  small  cell lung  cancer,  metastatic  breast and renal cell
cancer.

ONCONASE,  Alfacell's flagship product, is a novel ribonuclease unique among the
superfamily of pancreatic  ribonucleases.  Ranpirnase is structurally homologous
to several human  RNases,  such as pancreatic  RNase and  angiogenin,  which may
account for its relatively  low  immunogenicity  and a favorable  safety profile
which has been  observed  in over 700  patients  treated to date.  Side  effects
associated  with  ONCONASE  have  been  modest,  are  primarily  renal  and  are
reversible upon reduction of dose, or temporary or permanent  discontinuation of
treatment.  Patients  treated  with  ONCONASE  have  shown  little  evidence  of
myelosuppression (bone marrow suppression), alopecia (hair loss) or other severe
toxicities frequently observed after treatment with most other  chemotherapeutic
drugs.

Based on years of preclinical and clinical testing, it is believed that ONCONASE
and related compounds may have utility:

     o    as a single agent;

     o    in combination with other anticancer agents;

     o    as the payload in a targeted conjugate or fusion protein; and

     o    in a delivery system such as standard or "stealth" liposomes.

*Ranpirnase is the active component of the finished product ONCONASE(R)

                                        1

<PAGE>



In June 1997, a Phase III clinical trial was initiated  comparing  ONCONASE as a
single  agent  to   doxorubicin   in  patients   with   unresectable   malignant
mesothelioma.  Unresectable  malignant  mesothelioma is a cancer often linked to
asbestos  exposure  and  afflicts  approximately   2,500-3,500   newly-diagnosed
patients in the U.S. each year.  Epidemiologists  have  predicted  that over the
next 35 years over 250,000 people will die from malignant mesothelioma in Europe
alone.  This disease is found in the lining of the lungs and the abdomen.  There
is currently no standard Food and Drug Administration  ("FDA") approved drug for
this  disease.  In April  1999,  the  enrollment  for this trial was  completed.
Subsequently,  the  trial  was  amended  to  allow  for  the  comparison  of the
combination  of  ONCONASE  and  doxorubicin   versus  doxorubicin  as  a  single
therapeutic agent. In July 1998, the Company discontinued two Phase III clinical
trials testing ONCONASE in combination with tamoxifen in pancreatic cancer. This
drug  combination  did not  demonstrate  a  statistically  significant  survival
benefit in this indication.

In March  1999,  a Phase I/II study was  initiated  to  evaluate  the safety and
efficacy of the  combination  regimen of ONCONASE and  13-cis-retinoic  acid and
alpha-interferon under an Investigator IND at MD Anderson Cancer Center, Houston
Texas. No meaningful data from this study are yet available.

Alfacell has established two major scientific  collaborations  with the National
Institutes of Health (the "NIH"): i) in 1989, a collaboration  with the National
Institute of Neurological  Disorders and Stroke (the "NINDS") and ii) in 1992, a
collaboration with the National Cancer Institute (the "NCI"). Research primarily
focuses on ONCONASE mechanism of action studies,  in vivo synergisms of ONCONASE
with other anti-cancer agents and other routes of administration.

Alfacell has produced a modified recombinant version of ranpirnase which enables
other  moieties  to be attached  to it.  This has  resulted  in a potential  new
product  line.  Ranpirnase  conjugate  produced  by the  NINDS  which  is  being
developed for the treatment of patients with primary brain tumors.  The NINDS is
also in  preclinical  testing of  ONCONASE  as a single  agent in primary  brain
tumors.  The NCI  collaboration  has also  produced a potential  new product,  a
conjugate  of  ranpirnase  with a  monoclonal  antibody  which has  demonstrated
preclinical activity in Non-Hodgkin's  lymphoma.  Further preclinical testing by
the NINDS and NCI is ongoing (in vivo) in preparation  for  commencing  clinical
trials for these two indications.

Alfacell has also discovered a series of  biologically  active  proteins.  These
proteins  appear to be involved in the  regulation  of both early  embryonic and
malignant cell growth. However, significant additional research and funding will
be required in order to develop them into therapeutics.

The Company  believes  that  ranpirnase  may also be developed as an  anti-viral
agent.  The NIH has performed an independent in vitro screen of ONCONASE against
the HIV virus type 1 ("HIV"). The results showed ONCONASE to inhibit replication
of HIV by up to 99.9% after a four day incubation period at  concentrations  not
toxic to uninfected H9 leukemic  cells.  In addition,  in vitro  findings by NIH
scientists revealed that ONCONASE  significantly  inhibited production of HIV in
several persistently infected human cell lines,  preferentially  degrading viral
RNA and cellular transfer RNA while not affecting normal cellular  ribosomal RNA
and messenger  RNAs. In addition,  the NIH - Division of AIDS found  ONCONASE to
have in vitro anti- viral activity. Subject to the availability of the resources
required  to do so, the Company  plans to conduct  further  research  concerning
anti-viral  activity.  There can be no assurance that  ranpirnase  will show any
level of anti-HIV activity in humans.

Information contained herein contains "forward-looking  statements" which can be
identified  by the  use  of  forward-looking  terminology  such  as  "believes,"
"expects,"  "may," "will," "should," or "anticipates" or the negative thereof or
other  variations  thereon  or  comparable  terminology,  or by  discussions  of
strategy.  No  assurance  can be given  that the future  results  covered by the
forward-looking statements will be achieved. The

                                        2

<PAGE>



matters  set forth in  Exhibit  99.1  hereto  constitute  cautionary  statements
identifying  important factors with respect to such forward-looking  statements,
including  certain risks and  uncertainties,  that could cause actual results to
vary  materially  from the  future  results  indicated  in such  forward-looking
statements.  Other  factors could also cause actual  results to vary  materially
from the future results indicated in such forward-looking statements.

ONCONASE(R) (Ranpirnase) Profile

Originally,  the Company developed a biological extract from early stage leopard
frog embryos and eggs which demonstrated  potent anti-tumor  activity.  In 1987,
the Company  isolated a specific  protein,  P-30 Protein (herein  referred to as
ranpirnase).  In October 1998,  the United States  Adopted Names Council  (USAN)
adopted   ranpirnase   as  the  United  States   adopted  name  for   Alfacell's
antineoplastic  P30 protein  (trademarked  ONCONASE(R))  intended for use in the
treatment of solid tumors.  Ranpirnase is the active ingredient (drug substance)
of the finished registered trademarked product ONCONASE. Based upon the complete
amino  acid  sequence  analysis  (comparison  of  the  amino  acid  sequence  of
ranpirnase  with  that of over  10,000  protein  sequences  registered  with the
National  Biomedical  Research  Foundation  Protein   Identification   Resource,
Georgetown University,  Washington, DC), it has been established that ranpirnase
has a novel structure. It has also been determined that, thus far, ranpirnase is
the smallest protein  belonging to the superfamily of pancreatic  ribonucleases.
The Company retains all commercial rights to ONCONASE.

Chemistry

ONCONASE  (ranpirnase)  is a single  peptide chain  containing  104 amino acids.
Ranpirnase  has  a  molecular  mass  of  approximately  12,000  daltons  and  an
isoelectric point of approximately 9.5.

Formulation

Each vial of the finished product  ONCONASE(R) for Injection contains 1 mg + 15%
of  lyophilized  ONCONASE and 40 mg + 15% of mannitol.  Storage  below -15o C is
recommended. Stability testing is on-going to support refrigerated storage.

Postulated Mechanism of Action

Anti-Tumor Activity

Although the  mechanism of action of ONCONASE has not been fully  elucidated,  a
series of studies have been  performed  and the results  imply that ONCONASE has
several mechanisms of actions.  The enzymatic activity of ONCONASE appears to be
essential for its broad spectrum of biological activities. In the 9L glioma cell
system,  ONCONASE is able to induce a chain of events that lead to inhibition of
tumor cell proliferation and tumor cell destruction. ONCONASE:

                      binds to tumor cell surface receptors
                                        |
                becomes internalized by energy-dependent process
                                        |
                               reaches the cytosol
                                        |
       degrades various species of intracellular RNA (preferentially tRNA)
                                        |
                           inhibits protein synthesis
                                        |


                                        3

<PAGE>



        inhibits cell growth and proliferation (primarily blocking the G1
                            phase of the cell cycle)
                                        |
 may induce tumor cell differentiation and/or programmed cell death (apoptosis)

The  inhibitory  effects of ONCONASE in the G1 phase of the cell cycle appear to
be due to its  inhibition of the  expression of cyclin D3 and an increase in the
expression of several  inhibitors of  cyclin-dependent  kinases ("CDKs") such as
p16INK4A,  p21WAF1,  p27KIP1  and  hypophosphorylated  form of pRb  protein,  as
demonstrated  in the human  U937  lymphoma  cell  line.  Inhibiting  cell  cycle
progression  in the G1 phase  prevents  cells from  entering  the  proliferative
DNA-synthetic phase (S-phase) of the cell cycle. Thus, the cell cycle regulatory
effects of ONCONASE include both  down-regulatory and up-regulatory  mechanisms.
This  pattern  of  activity  may  partly  explain  why tumor  cells  with  their
de-regulated  cell  cycle  control  may be more  susceptible  to  ONCONASE  than
normally   regulated   somatic  cells.   The  parallel   ONCONASE-induced   cell
differentiation  and  apoptosis  observed  in this model may  reflect a shift in
growth  signal   transduction   pathways  from   primarily   anti-apoptotic   to
differentiation-inducing and pro-apoptotic.

Preclinical research

In Vitro Anti-Cancer Activity

ONCONASE has  demonstrated a broad spectrum of anti-tumor  activity in vitro and
was  determined  to be active in the NCI Cancer  Screen.  Scientists  at Harvard
Medical School  demonstrated  that ONCONASE has anti-  angiogenic  activity.  It
antagonizes the  pro-angiogenic  activity of human angiogenin in the endothelial
cells.

Several  synergistic  interactions  between  ONCONASE  and other drugs have been
established. The in vitro results are shown in the table below:


                               SYNERGISMS IN VITRO
--------------------------------------------------------------------------------
            Regimen                                Cell Line
--------------------------------------------------------------------------------
                                           ASPC-1 Pancreatic
ONCONASE + Tamoxifen                       DU-145 Prostatic
                                           OVCAR-3 Ovarian
                                           ACHN Renal Cell Carcinoma
--------------------------------------------------------------------------------
ONCONASE + Phenothiazine                   A-549 Non-Small Cell Lung Carcinoma
--------------------------------------------------------------------------------
                                           ASPC-1 Pancreatic
ONCONASE + Lovastatin                      A-549 Non-Small Cell Lung
                                           OVCAR -3 Ovarian
                                           HT-520 NSCLC
--------------------------------------------------------------------------------
ONCONASE + Cisplatin                       OVCAR-3 Ovarian
--------------------------------------------------------------------------------
ONCONASE + All-trans-retinoic acid         9L Glioma
--------------------------------------------------------------------------------
ONCONASE + Vincristine                     HT-29   mdr-1   Colorectal
                                           MCF-7  AdrRes   Breast
--------------------------------------------------------------------------------
ONCONASE + Doxorubicin                     HT-29   mdr-1   Colorectal
                                           MDA.MB-231 Res. Breast
--------------------------------------------------------------------------------
ONCONASE + Taxol                           MDA.MB-231 Res. Breast
--------------------------------------------------------------------------------

                                        4

<PAGE>



In Vivo Anti-Cancer Activity

There are in vivo data for the synergistic use of ONCONASE with:

     o    vincristine,

     o    doxorubicin, and

     o    tamoxifen.

These synergisms suggest a potential for the therapeutic  utility of ONCONASE in
patients  with  chemotherapy-  resistant  tumors.  NCI  reported  the ability of
ONCONASE to overcome  multiple drug resistance (MDR), both in vitro and in vivo.
Previously,  it was shown  that  ONCONASE  could  overcome  other  forms of drug
resistance.

ONCONASE as a Radiosensitizing and Anti-Angiogenic Agent

Collaborative research at the University of Medicine and Dentistry of New Jersey
at  Camden  and  University  of  Pennsylvannia  Medical  Center,  Department  of
Radiation Oncology, revealed:

     o    radiosensitizing potential of ONCONASE,

     o    potential co-antiangiogenic activity of ONCONASE, and

     o    diminution  of  tumor  interstitial  fluid  pressure  by  systemically
          administered ONCONASE.

Further in vivo studies are planned.

Clinical Development

Alfacell's  regulatory  strategy  for  gaining  initial  marketing  approval  of
ONCONASE is to  demonstrate  its safety and efficacy in  unresectable  malignant
mesothelioma.  If successful,  the Company would then seek to initiate trials in
other solid tumor indications where:

     o    median survivals are typically less than a year,

     o    there are  smaller  patient  populations  and thus,  smaller  clinical
          trials would be required, and

     o    there are few or no approved treatments.

Clinical Trials

ONCONASE has been tested as a single  agent in patients  with a variety of solid
tumors and in  combination  with  tamoxifen  in  prostate  cancer  and  advanced
pancreatic and renal cell carcinoma  patients.  In vitro results showed ONCONASE
to be synergistic  with  tamoxifen in inhibiting  tumor cell growth in the tumor
cell lines originating from these types of cancers.

Reported  toxicities in Phase I and II clinical  trials,  were primarily  renal,
dose-related and reversible.  There has been little evidence of myelosuppression
(bone  marrow  suppression),  alopecia  (hair loss) or other  severe  toxicities
frequently observed after treatment with most other chemotherapeutic  drugs. Due
to its limited  funding,  the Company has had to be very  selective in designing
its Phase III  regulatory  strategy  for gaining FDA  approval.  Therefore,  the
selection  criteria  focused on those tumor types,  which in addition to showing
evidence of  preclinical  and clinical  efficacy,  that:  i) have small  patient
populations,  resulting in the number of patients required for Phase III studies
to be small; ii) have a median survival time of 6-12 months from diagnosis,  and
iii) are life-threatening with limited competition.


                                        5

<PAGE>



In June 1997,  Alfacell  initiated a Phase III clinical  trial for  unresectable
malignant  mesothelioma  comparing  ONCONASE to  doxorubicin.  No  standard  FDA
approved  therapy  exists  to treat  this  deadly  cancer,  and  most  advanced,
unresectable  malignant  mesothelioma patients die of progressive disease within
6-12 months of  diagnosis.  The Company is in the process of analyzing the Phase
III data from this clinical trial in preparation  for a pre-NDA meeting with the
FDA.

The table below indicates the status of the various clinical programs:

--------------------------------------------------------------------------------
                  Form                             Clinical Status
--------------------------------------------------------------------------------
As a single agent                        ONCONASE  is  currently  in a Phase III
                                         clinical     trial    for     malignant
                                         mesothelioma   (originating   from  the
                                         lining of the lungs and  abdomen).  The
                                         trial  is  a   randomized,   controlled
                                         study. Patient accrual was completed in
                                         April 1999.

                                         Phase II  clinical  trial  results  for
                                         this indication have been  encouraging;
                                         however, there can be no assurance that
                                         previous clinical trial results will be
                                         reflective of future  clinical  results
                                         or will be  sufficient  to  obtain  FDA
                                         approval.

                                         ONCONASE has been tested in Phase I-III
                                         clinical  trials  in  approximately  35
                                         cancer   centers   across   the   U.S.,
                                         including   major   centers   such   as
                                         Columbia-Presbyterian,   University  of
                                         Chicago, M.D. Anderson and Cedars-Sinai
                                         Cancer Centers.

                                         ONCONASE is in preclinical  testing for
                                         primary  brain  tumors at the  National
                                         Institute of Neurological Disorders and
                                         Strokes ("NINDS").
--------------------------------------------------------------------------------
In combination  with other anti-
cancer agents                            Phase  I/II  clinical  studies  testing
                                         ONCONASE in combination  with tamoxifen
                                         in  prostate   cancer  and  renal  cell
                                         carcinoma have been completed.

                                         Phase I/II trial  testing  ONCONASE  in
                                         combination with  13-cis-retinoic  acid
                                         and   alpha-interferon   in  metastatic
                                         renal cell  carcinoma  is ongoing at MD
                                         Anderson Cancer Center.

                                         ONCONASE    in     combination     with
                                         doxorubicin     in    patients     with
                                         unresectable  malignant mesothelioma is
                                         being evaluated.

                                         In July 1998, Alfacell discontinued two
                                         Phase  III  clinical   trials   testing
                                         ONCONASE in combination  with tamoxifen
                                         in pancreatic  cancer based on the lack
                                         of   a    demonstrated    statistically
                                         significant survival benefit.

                                         Although further clinical trials may be
                                         warranted    in   other    indications,
                                         Alfacell lacks the financial  resources
                                         for further studies at this time.

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

As the payload in a targeted
conjugate                                A  collaboration  with  the  NINDS  has
                                         produced a ranpirnase  which  conjugate
                                         is  currently   being   evaluated   for
                                         clinical   testing  at  the  NINDS  for
                                         primary brain tumors.

                                         A   collaboration   with  the  National
                                         Cancer   Institute   has   produced   a
                                         conjugate   of    ranpirnase    and   a
                                         monoclonal   antibody  which  has  been
                                         deemed active in vivo for Non-Hodgkin's
                                         Lymphoma.   The   conjugate   is  being
                                         evaluated   by  the  NCI  for  clinical
                                         trials starting next year.
--------------------------------------------------------------------------------



                                       6
<PAGE>

Research and Development Programs

Research  and  development  expenses  for the fiscal  years ended July 31, 1999,
1998,  and 1997  were  $2,402,000,  $5,265,000,  and  $3,863,000,  respectively.
Alfacell's research and development  programs focus primarily on the development
of therapeutics from amphibian ribonucleases.  These proteins have been shown to
be involved in the regulation of cell proliferation, maturation, differentiation
and apoptosis.  Therefore,  they may be ideal  candidates for the development of
therapeutics,  in  treatments  for  cancer and other  life-threatening  diseases
(including HIV infections),  that require  anti-proliferative  and pro-apoptotic
properties.

The following table outlines the various programs in the Company's  research and
development   portfolio.   Alfacell   is   pursuing   some  of  these   programs
independently, while others are being undertaken in collaboration with the NIH.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                          Program                                                  Indication
------------------------------------------------------------------------------------------------------------
<S>                                                          <C>
Cancer:
      ONCONASE(R) (ranpirnase)                               Unresectable malignant mesothelioma
                                                             Primary Brain Tumors (1)
      AC-RD-3002 (2)                                         Non-Hodgkin's Lymphoma ("NHL")
      AC-RD-3003 (1)                                         Primary Brain Tumors
      Other Novel Amphibian Ribonuclease Variants            Solid Tumors
      Proteasome Inhibitors                                  Solid Tumors and NHL

------------------------------------------------------------------------------------------------------------
Viral Disease:
      ONCONASE(R) (ranpirnase)                                 HIV Infection

------------------------------------------------------------------------------------------------------------
Anti-inflammatory Diseases:
      Ranpirnase Variant-Conjugate                           Anti-inflammatory and autoimmune diseases
------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  In collaboration  with the NIH - NINDS

(2)  In collaboration with the NIH - NCI

Ranpirnase Conjugates and Fusion Proteins:  AC-RD-3002 and AC-RD-3003

In  addition  to use in its  native  form,  ranpirnase  is being  conjugated  to
targeting  molecules to ensure its  specificity.  Several  conjugates  are being
developed  by  the  NIH in  collaboration  with  Alfacell  scientists  and  have
demonstrated significant activity. In addition, several genes of ranpirnase, its
variants  and  other  amphibian   ribonucleases   are  being  synthesized  using
"state-of-the-art"  recombinant  technologies.  The Company intends to focus its
efforts on  developing  novel  therapeutics  from these  genes that  selectively
target specific  tumors.  Production of these  engineered genes and products may
also lead to their use in gene therapy applications.

AC-RD-3002  is comprised of  ranpirnase  conjugated  to an anti-CD22  monoclonal
antibody  for  the  treatment  of  Non-Hodgkin's   Lymphoma.   The  Company,  in
collaboration  with the NCI,  is  developing  this  product.  AC-RD-  3002 is in
preclinical testing at the NCI in preparation for commencing clinical trials.

AC-RD-3003  is a  recombinant  variant of  ranpirnase  conjugated  to a specific
protein.  The  receptors  for this  particular  protein  tend to be expressed at
higher  concentrations in proliferating cells, such as tumor cells. Studies have
shown that AC-RD-3003 targets malignant glial cells on primary brain tumors. The
Company,  in  collaboration  with the NINDS,  is  developing  this  product.  In
preclinical studies performed by the NINDS, ONCONASE as a single agent has shown
activity in primary brain tumors.


                                       7
<PAGE>

Proteasome Inhibitors

Cyclins  and CDKs are two  major  groups of  protein  regulators  of cell  cycle
progression.  Cancer can be defined as the uncontrolled growth and proliferation
of cells often  associated with a de-regulated  pattern of expression of cyclins
and  other  regulatory  proteins,  and the  deficient  elimination  of  cells by
apoptosis.  In vitro  studies of ONCONASE have shown its ability to perturb cell
cycle  progression  by  decreasing  expression  of cyclin  D3 and by  increasing
expression of several inhibitors of CDKs.

Cell growth and  viability  are  dependent  on the  function of the  proteasome.
Proteasomal  activity is necessary for cell growth by  regulating  the entry and
exit to and from the mitotic cycle  through  timely  degradation  of cyclins and
other  regulatory   proteins.   Proteasome   inhibitors  interfere  with  normal
proteasome  function,  resulting in interruption  of cell cycle  progression and
induction of apoptosis.  Given that ONCONASE and proteasome inhibitors both have
been shown in vitro to  modulate  fundamental  mechanisms  governing  tumor cell
growth,  proliferation  and  death,  Alfacell  is testing  these two  classes of
compounds  in  combination  with  ranpirnase  and  has  discovered   synergistic
anti-tumor  effects.  The  Company  believes  that a new  class of anti-  cancer
compounds can be developed combining ranpirnase and its variants with proteasome
inhibitors.  The Company  retains all commercial  rights to compounds  resulting
from this program.

HIV Infection

The drugs currently approved in the United States for treatment of HIV infection
consist primarily of reverse  transcriptase  inhibitors and protease inhibitors.
There is an extremely  high rate of resistance  developing to several  currently
available anti-viral drugs,  primarily due to the exponentially  increasing rate
of mutations of HIV that occur during  infection.  Experimental  data shows that
anti-HIV  effects  of  ONCONASE,  are quite  selective,  independent  of the HIV
envelope and therefore  likely to inhibit  replication  of the  different  HIV-1
subtypes.  In vitro studies  performed by independent  scientific  collaborators
(including the NIH - Division of AIDS) have demonstrated that ONCONASE:

o    acts  directly by degrading  viral  genomic RNA during the  pre-integration
     complex  phase and  indirectly  by  degrading  the tRNALys3  isoform  which
     functions as a primer for viral reverse transcriptase;

o    degrades viral RNA of HIV-1  intracellularly,  with a dramatic reduction in
     the levels of viral transcripts which is sustained for 2-4 days;

o    inhibits replication of HIV-1 in a dose-dependent manner by up to 99.9%, as
     measured  by the p24 antigen  capture  assay,  in acutely and  persistently
     infected  cells,  at  concentrations  that are only minimally  cytotoxic to
     uninfected H9 cells;

o    has highly significant anti-HIV activity in the monocyte/macrophage system.

Ranpirnase, as an enzyme highly specialized in the degradation of RNA molecules,
might be an  anti-HIV  agent  that  could be  effective,  irrespective  of viral
mutations that render other antiviral  agents  ineffective.  Ranpirnase could be
particularly useful in targeting the  monocyte/macrophage  cellular reservoir of
HIV, and may  significantly  contribute to the control of HIV replication in its
post-integrational  phase of the virus life-cycle  (e.g., when RT inhibitors are
ineffective) and prevent the emergence of resistant  strains of HIV. The Company
retains all commercial rights to compounds resulting from this program. However,
the Company does not currently  possess the funds  necessary to conduct  further
research for this indication.



                                       8
<PAGE>

Ranpirnase Variant Conjugates

Alfacell has developed a variant of ranpirnase and conjugated it to a variety of
clinically  important  proteins.  These  conjugates are designed to specifically
target relevant  molecules in the body and inactivate  them.  These new products
may  have  therapeutic   applications  in  the  treatment  of  anti-inflammatory
diseases,  e.g. arthiritis and other autoimmune diseases.  However, there can be
no assurance that these products will be successfully developed.

Raw Materials

The major  active  ingredient  derived  from  leopard  frog eggs is the protein,
ranpirnase.  Although  Alfacell  currently  acquires its natural source material
from a single supplier, management believes that it is abundantly available from
other  sources.  The Company has  sufficient  egg  inventory  on hand to produce
enough ONCONASE to complete the current  clinical trials and supply ONCONASE for
up  to  two  years  after  commercialization.   In  addition,  the  Company  has
successfully  completed the cloning of the natural source product  (ranpirnase).
However, there can be no assurance that using the recombinant technology will be
more cost effective over the natural source.

Manufacturing

The  Company  has  signed an  agreement  with  Scientific  Protein  Laboratories
("SPL"),  a subsidiary of a division of American Home Products Corp., which will
perform  the  intermediary   manufacturing   process  which  entails   purifying
ranpirnase.  Subsequently, the intermediate product is sent to a contract filler
for  the  final   manufacturing   step  and  vial  filling.   Other  than  these
arrangements, no specific arrangements have been made for the manufacture of the
Company's product. Compliance with Current Good Manufacturing Practices ("cGMP")
is a requirement for product  manufactured  for use in Phase III clinical trials
and  for  commercial  sale.  Both  SPL,  and the  contract  filler  to whom  the
intermediate  product is sent for the final manufacturing step and vial filling,
manufacture in accordance  with cGMP. For the  foreseeable  future,  the Company
intends  to  rely  on  these  manufacturers,  or  substitute  manufacturers,  if
necessary,  to  manufacture  its  product.  There can be no  assurance  that the
Company  would  be able to find  substitute  manufacturers,  if  necessary.  The
Company is dependent upon its contract manufacturers to comply with cGMPs and to
meet  production  requirements.  There can be no  assurance  that the  Company's
contract  manufacturers  will  comply  with cGMPs or timely  deliver  sufficient
quantities of the Company's products.

Marketing

Neither the Company nor any of its  officers  or  employees  has  pharmaceutical
marketing  experience.  If the  Company  were to  market  its  products  itself,
significant  additional  expenditures and management resources would be required
to  develop  an  internal  sales  force and there can be no  assurance  that the
Company  would  be  successful  in  penetrating  the  markets  for any  products
developed or that internal marketing capabilities would be developed at all. The
Company  intends,  in some  instances,  to enter into  development and marketing
agreements with third parties.  The Company expects that under such arrangements
it would act as a co-  marketing  partner  or would  grant  exclusive  marketing
rights to its corporate partners in return for up-front fees, milestone payments
and royalties on sales. Under these agreements,  the Company's marketing partner
may have the  responsibility  for a significant  portion of  development  of the
product and regulatory  approval.  In the event that the marketing partner fails
to develop a marketable product or fails to market a product  successfully,  the
Company's business may be adversely affected.




                                       9
<PAGE>


Government Regulation

The manufacturing and marketing of pharmaceutical  products in the United States
requires the approval of the FDA under the Federal Food,  Drug and Cosmetic Act.
Similar approvals by comparable regulatory agencies are required in most foreign
countries.  The FDA has established  mandatory  procedures and safety  standards
which apply to the clinical testing, manufacture and marketing of pharmaceutical
products.  Obtaining FDA approval for a new  therapeutic may take many years and
involve substantial  expenditures.  Pharmaceutical  manufacturing facilities are
also regulated by state, local and other authorities.

As an initial step in the FDA regulatory  approval process,  preclinical studies
are  conducted  in animal  models to assess the drug's  efficacy and to identify
potential safety problems. The results of these studies are submitted to the FDA
as a part of the Investigational New Drug Application ("IND"), which is filed to
obtain  approval to begin human clinical  testing.  The human  clinical  testing
program  typically  involves  up to three  phases.  Data from  human  trials are
submitted  to the FDA in a New Drug  Application  ("NDA") or  Biologics  License
Application  ("BLA").  Preparing  an  NDA  or  BLA  involves  considerable  data
collection, verification and analysis.

The Company has not received FDA or other  marketing  approval for any products.
Difficulties  or  unanticipated  costs may be  encountered by the Company in its
effort to secure necessary governmental approvals, which could delay or preclude
the Company from  marketing its products.  There can be no assurance that any of
the Company's products will be approved by the FDA or any foreign country.

With respect to patented products,  delays imposed by the governmental  approval
process may  materially  reduce the period during which the Company may have the
exclusive right to exploit them. See --"Patents."

Patents and Trademarks

The Company  believes it is important to develop new  technology  and to improve
its existing technology. When appropriate, the Company files patent applications
to protect inventions in which it has an ownership interest.

The Company owns six U.S. Patents:

     a)   U.S.   Patent  No.   4,888,172   issued  in  1989,   which   covers  a
          pharmaceutical  produced from  fertilized frog eggs (Rana pipiens) and
          the methodology for producing it.

     b)   U.S. Patent No.  5,559,212 issued in 1996, which covers the amino acid
          sequence of ONCONASE.

     c)   U.S.  Patents Nos.  5,529,775  and  5,540,925  issued in 1996 and U.S.
          Patent No.  5,595,734  issued in 1997,  which  cover  combinations  of
          ONCONASE with certain other pharmaceuticals.

     d)   U.S.  Patent No.  5,728,805  issued in 1998  which  covers a family of
          variants of ONCONASE.

The Company owns three  European  patents,  which have been validated in certain
European  countries.  These European patents cover ONCONASE,  process technology
for  making   ONCONASE,   and   combinations  of  ONCONASE  with  certain  other
chemotherapeutics.  The Company also owns other patent  applications,  which are
pending in the United States, Europe, and Japan. Additionally,  the Company owns
one  Japanese  patent and an  undivided  interest in two  applications  that are
pending in the United  States.  Each of these  applications  relate to a Subject
Invention  (as that term is defined in CRADAs to which the  Company  and the NIH
are parties).



                                       10
<PAGE>

Patents  covering  biotechnological  inventions have an uncertain scope, and the
Company is subject to this  uncertainty.  The Company's patent  applications may
not issue as  patents.  Moreover,  the  Company's  patents  may not  provide the
Company with competitive  advantages and may not withstand challenges by others.
Likewise,  patents  owned by others  may  adversely  affect  the  ability of the
Company to do business.  Furthermore,  others may independently  develop similar
products,  may duplicate the Company's  products,  and may design around patents
owned by the Company.

The Company also relies on proprietary  know-how and on trade secrets to develop
and maintain its competitive  position.  Others may  independently  develop such
know-how or trade  secrets or may  otherwise  obtain  access  thereto.  Although
Company employees and consultants  having access to proprietary  information are
required  to  sign  agreements  which  require  them to  keep  such  information
confidential, such agreements may be breached or held to be unenforceable.

Competition

There are several companies,  universities,  research teams and scientists, both
private  and  government-  sponsored,  which  engage  in  research  similar,  or
potentially similar, to that performed by the Company. Many of such entities and
associations  have far greater financial  resources,  larger research staffs and
more extensive  physical  facilities  than the Company.  These  competitors  may
succeed in their  research and  development of products which are more effective
than any developed by the Company and may be more successful than the Company in
their  production  and  marketing  of such  products.  The Company is not aware,
however, of any product currently being marketed which has the same mechanism of
action as the Company's  proposed anti- tumor agent,  ONCONASE.  A search by the
Company of scientific  literature  reveals no published  information which would
indicate  that others are currently  employing its methods or producing  such an
anti-tumor agent.  There are several  chemotherapeutic  agents currently used to
treat the forms of cancer which ONCONASE is being used to treat. There can be no
assurance  that  ONCONASE will prove to be as safe and as effective as currently
used drugs or that new treatments will not be developed which are more effective
than ONCONASE.

Employees

As of November 8, 1999,  Alfacell employed fifteen persons,  of whom twelve were
engaged  in  research  and  development  activities  and three  were  engaged in
administration and management.  The Company has four employees who hold Ph.D. or
M.D.  degrees.  All of the Company's  employees  are covered by  confidentiality
agreements.  Alfacell  considers  relations  with its employees to be very good.
None  of  the  Company's  employees  are  covered  by  a  collective  bargaining
agreement.

Environmental Matters

The Company's operations are subject to comprehensive regulation with respect to
environmental,  safety and similar  matters by the United  States  Environmental
Protection  Agency  ("EPA") and  similar  state and local  agencies.  Failure to
comply with  applicable  laws,  regulations and permits can result in injunctive
actions,  damages and civil and criminal  penalties.  If the Company  expands or
changes its  existing  operations  or  proposes  any new  operations,  it may be
required to obtain additional or amended permits or authorizations.  The Company
spends time,  effort and funds in operating its facilities to ensure  compliance
with  environmental  and  other  regulatory   requirements.   Such  efforts  and
expenditures  are common  throughout  the  biotechnology  industry and generally
should  have  no  material   adverse  effect  on  the  Company.   The  principal
environmental regulatory requirements and matters known to the Company requiring
or  potentially  requiring  capital  expenditures  by the  Company do not appear
likely,  individually or in the aggregate,  to have a material adverse effect on
the Company's financial condition. The Company believes that it is in compliance
with all current laws and regulations.



                                       11
<PAGE>


Item 2.  PROPERTIES.

The Company owns no real property.  The Company leases a total of  approximately
17,000 square feet in an industrial and office  building  located in Bloomfield,
New Jersey.  The Company leases its facility  under a five year operating  lease
which is due to expire  December 31, 2001. The annual rental  obligation,  which
commenced January 1, 1997 is $96,775 and is subject to escalation  amounts.  The
Company  believes  that  the  facility  is  sufficient  for  its  needs  in  the
foreseeable future.

Item 3.  LEGAL PROCEEDINGS.

None.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

                                     Part II

Item 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's  Common Stock is traded on the OTC Bulletin Board  ("OTCBB") under
the symbol "ACEL". At the close of business April 27, 1999, it was delisted from
The Nasdaq SmallCap Market  ("Nasdaq") for failing to meet the minimum bid price
requirements  set forth in the NASD  Marketplace  Rules. As of November 8, 1999,
there were  approximately  1,323  stockholders of record of the Company's Common
Stock.

The  following  table  sets  forth the range of high and low sale  prices of the
Common  Stock for the two fiscal  years ended July 31, 1999 and 1998.  The price
for the periods commencing April 28, 1999 were obtained from OTCBB and the price
for the periods prior to such date were  obtained from Nasdaq.  These prices are
believed  to  be  representative  of  inter-dealer  quotations,  without  retail
mark-up,  mark-down or  commission,  and may not  necessarily  represent  actual
transactions.

                                                     High          Low
                                                     ----          ---
Year Ended July 31, 1999:
      First Quarter                                1 - 1/25        13/32
      Second Quarter                                    1/2         7/32
      Third Quarter                                     7/8        13/64
      Fourth Quarter                                    9/16        3/16

Year Ended July 31, 1998:
      First Quarter                                4 -   5/8     3
      Second Quarter                               3 - 25/32     2 - 1/4
      Third Quarter                                4 -   1/2     2 - 1/4
      Fourth Quarter                               4 -   5/8         3/8

The Company has paid no dividends on its Common  Stock since its  inception  and
does not plan to pay  dividends on its Common Stock in the  foreseeable  future.
Any  earnings  which the  Company  may  realize  will be retained to finance the
growth of the Company.



                                       12
<PAGE>

Item 6.  SELECTED FINANCIAL DATA.

Set forth  below is the  selected  financial  data for the  Company for the five
fiscal years ended July 31, 1999.


<TABLE>
<CAPTION>
Year Ended                                                July 31,
                       -------------------------------------------------------------------------------
                           1999             1998             1997             1996             1995
                       -----------      -----------      -----------      -----------      -----------
<S>                    <C>              <C>              <C>              <C>              <C>
Revenue                $   168,372      $   311,822      $   442,572      $   184,250      $    20,992
Net Loss               $(3,156,636)     $(6,387,506)     $(5,018,867)     $(2,942,152)     $(1,993,123)
Net Loss Per Basic
and Diluted Share      $      (.18)     $      (.40)     $      (.34)     $      (.25)     $      (.21)
Dividends                     None             None             None             None             None

<CAPTION>

At Year End:                                              July 31,
                       -------------------------------------------------------------------------------
                           1999             1998             1997             1996             1995
                       -----------      -----------      -----------      -----------      -----------
<S>                    <C>              <C>              <C>              <C>              <C>
Total Assets           $ 1,728,648      $ 5,516,678      $ 8,034,954      $ 8,487,711      $ 1,616,170
Long-term
Obligations                   None      $     6,727      $    15,902      $ 1,398,760      $     7,129
Total Equity
(Deficiency)           $   757,200      $ 3,691,838      $ 5,566,091      $ 6,650,266      $  (832,566)
</TABLE>


                                       13

<PAGE>



Item 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS.

Overview

Alfacell  has  focused the  majority of its  resources  since  inception  on the
research  and  development  of  ONCONASE.  After it obtained  the results of its
preliminary  analysis  of the Phase III  clinical  trial  results  for  advanced
pancreatic   cancer,  the  Company  closed  the  pancreatic  cancer  trials  and
redirected  its  resources  towards  the  completion  of the  ongoing  Phase III
clinical trial for unresectable  malignant  mesothelioma.  The Company is in the
process of analyzing the Phase III data of its clinical  trial for  unresectable
malignant  mesothelioma  in preparation  for a Pre-NDA meeting with the FDA. The
Company is also exploring  various  strategic  alternatives for its business and
its research and development operations.

The Company is currently  funding  research and development of its products from
cash reserves.  The  termination  of the Phase III clinical  trials for advanced
pancreatic cancer has had a significant and detrimental  impact on the Company's
Common  Stock  price and its  ability  to raise  additional  capital  for future
operations.  The  Company  may not  have,  or be able to  obtain  the  financial
resources  necessary to complete the Phase III clinical  trial for  unresectable
malignant mesothelioma or to file an NDA for ONCONASE for this indication if the
results  from  such  clinical   trial  were  to  support  such  a  filing.   See
"Management's Discussion and Analysis - Liquidity and Capital Resources."

Results of Operations

Fiscal Years Ended July 31, 1999, 1998 and 1997

Revenues

The  Company  is a  development  stage  company  as  defined  in  the  Financial
Accounting  Standards Board's Statement of Financial Accounting Standards No. 7.
As such,  the Company is devoting  substantially  all of its present  efforts to
establishing  a new business and  developing  new drug  products.  The Company's
planned principal operations of marketing and/or licensing of new drugs have not
commenced and,  accordingly,  no significant revenue has been derived therefrom.
The Company  focuses  most of its  productive  and  financial  resources  on the
development  of ONCONASE and as such has not had any sales in fiscal 1999,  1998
and 1997.  Investment  income for fiscal 1999 was $168,000  compared to $312,000
for fiscal 1998, a decrease of $144,000. This decrease was due to lower balances
of cash and cash  equivalents.  Investment  income for fiscal 1998 was  $312,000
compared to $443,000 for fiscal 1997, a decrease of $131,000.  This decrease was
due to lower balances of cash and cash equivalents.

Research and Development

Research  and  development  expense for fiscal 1999 was  $2,402,000  compared to
$5,265,000  for fiscal 1998, a decrease of  $2,863,000 or 54%. This decrease was
primarily due to a 96% decrease in costs related to the  manufacture of clinical
supplies of ONCONASE,  a 47%  decrease in costs in support of on-going  clinical
trials, an 82% decrease in expenses for preparation of an NDA for ONCONASE and a
4% decrease in  personnel  costs.  These  decreases  were  primarily  due to the
completion  of the  patient  enrollment  of the  Phase  III  clinical  trial for
malignant  mesothelioma  in April 1999 and the closing of the Phase III clinical
trials for pancreatic cancer in July 1998.



                                       14
<PAGE>

Research  and  development  expense for fiscal 1998 was  $5,265,000  compared to
$3,863,000  for fiscal 1997, an increase of $1,402,000 or 36%. This increase was
primarily due to a 74% increase in costs in support of on-going clinical trials,
including the Phase III clinical trials for pancreatic  cancer which were closed
in July 1998 and the Phase II and III clinical trials for unresectable malignant
mesothelioma,  a 42% increase in costs  related to the  manufacture  of clinical
supplies of ONCONASE and an 86% increase in expenses in  preparation  for an NDA
for ONCONASE, offset by a 5% decrease in personnel costs.

General and Administrative

General and  administrative  expense for fiscal  1999 was  $921,000  compared to
$1,413,000  for fiscal  1998, a decrease of $492,000 or 35%.  This  decrease was
primarily   due  to  a  94%  decrease  in  legal  costs,   a  25%  reduction  in
administrative  personnel costs and a 56% decrease in public relations expenses,
offset by an $84,000 increase in consulting fees.

General and  administrative  expense for fiscal 1998 was $1,413,000  compared to
$1,476,000  for fiscal  1997,  a decrease  of $63,000 or 4%. This  decrease  was
primarily due to a 28% decrease in personnel  costs and a 28% decrease in public
relations activities, offset by a 26% increase in legal costs and a 72% increase
in insurance expense.

Interest

Interest  expense for fiscal 1999 was $2,000 compared to $22,000 in fiscal 1998,
a decrease of $20,000 or 91%. The decrease was  primarily  due to the payment of
the entire  principal  amount of the Company's  $1.4 million term loan agreement
with its bank during the fiscal year ended July 31, 1998.

Interest  expense  for fiscal  1998 was  $22,000  compared to $123,000 in fiscal
1997,  a decrease of $101,000 or 82%.  The  decrease  was  primarily  due to the
payment of the entire  principal amount of the Company's term loan on October 3,
1997.

Net Loss

The Company has incurred net losses  during each year since its  inception.  The
net loss for fiscal 1999 was $3,157,000 as compared to $6,388,000 in fiscal 1998
and $5,019,000 in fiscal 1997.  The cumulative  loss from the date of inception,
August 24,  1981,  to July 31,  1999  amounted to  $54,954,000.  Such losses are
attributable to the fact that the Company is still in the development  stage and
accordingly  has not derived  sufficient  revenues from operations to offset the
development stage expenses.

Liquidity and Capital Resources

During fiscal 1999, the Company had a net decrease in cash and cash  equivalents
of $3,716,000.  This decrease primarily resulted from net cash used in operating
activities of $3,704,000 and a reduction of long-term debt of $9,000. Total cash
resources as of July 31, 1999 were $1,383,000 compared to $5,099,000 at July 31,
1998.

The Company's current  liabilities as of July 31, 1999 were $971,000 compared to
$1,818,000  at July 31,  1998,  a decrease of $847,000 or 47%.  The decrease was
primarily  due to a $530,000  decrease in the Company's  accounts  payable and a
$314,000 decrease in accrued expenses,  both primarily due to decreases in costs
associated  with the purchase of raw materials and the  manufacture of ONCONASE,
decreased  legal fees and a decrease  in costs in support of  on-going  clinical
trials,  due to the  completion  of the  patient  enrollment  of the  Phase  III
clinical  trial for  malignant  mesothelioma  and the  closing  of the Phase III
clinical trials for pancreatic cancer.


                                       15
<PAGE>

Until the Company's operations generate significant revenues, cash reserves will
continue to fund  operations.  To date, a  significant  portion of the Company's
financing has been through private placements of common stock and warrants,  the
issuance of common stock for stock options exercised and services rendered, debt
financing and financing provided by the Company's Chief Executive  Officer.  The
Company  believes that its cash and cash equivalents as of July 31, 1999 will be
sufficient to meet its  anticipated  cash needs through January 2000. The report
of the Company's  independent  auditors on the Company's  financial  statements,
included elsewhere herein,  includes an explanatory  paragraph which states that
the Company's  recurring losses and limited liquid  resources raise  substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

The  Company's  continued  operations  will  depend  on  its  ability  to  raise
additional  funds  through  various  potential  sources  such as equity and debt
financing,  collaborative  agreements,  strategic  alliances,  sale of tax  loss
carryforwards  and research and  development  tax credits and revenues  from the
commercial  sale of  ONCONASE,  however  there  can be no  assurance  that  such
additional funds will become  available.  The Company is currently in discussion
with several potential  strategic alliance partners for further  development and
marketing of ONCONASE  and the other  potential  new  products in the  Company's
pipeline,  however  there  can be no  assurance  that  any such  alliances  will
materialize.  The ability of the Company to raise additional capital through the
sale of its  securities  will primarily be dependent on the outcome of the Phase
III clinical trial for unresectable malignant mesothelioma. However, the ability
to raise  funding at that time maybe  dependent  upon  other  factors  including
without limitation,  market conditions,  and there can be no assurance that such
funds will be  available.  The Company is in the process of analyzing  the Phase
III data of its  clinical  trial  for  unresectable  malignant  mesothelioma  in
preparation for a Pre-NDA meeting with the FDA.

New Jersey has enacted legislation permitting certain New Jersey corporations to
sell tax loss  carryforwards and research and development  credits (the "NOLs").
The Company has state NOLs  available for sale. In October 1999, the Company was
notified  by the state that it has  qualified  to sell their  NOLs.  The Company
expects to receive net  proceeds  of  approximately  $675,000  by January  2000.
However, there can be no assurance that the Company will be able to find a buyer
for its NOLs or that such funds will be available in a timely manner.

The  Company's  Common  Stock  was  delisted  from The  Nasdaq  SmallCap  Market
effective  at the close of  business  April  27,  1999 for  failing  to meet the
minimum bid price  requirements set forth in the NASD  Marketplace  Rules. As of
April 28, 1999, the Company's  Common Stock was traded on the OTC Bulletin Board
under the symbol  "ACEL".  Delisting of the Company's  Common Stock from Nasdaq,
could have a material  adverse  effect on the Company  including  its ability to
raise  additional  capital,  stockholder  liquidity  and price of the  Company's
Common Stock.

The market price of the Company's common stock is volatile, and the price of the
stock could be  dramatically  affected one way or another  depending on numerous
factors. The market price of the Company's common stock could also be materially
affected  by the  results  of the Phase  III  clinical  trial  for  unresectable
malignant mesothelioma.

Year 2000

The Company has  completed  its review of its business  systems,  including  its
computer  systems and computer  controlled  equipment,  and is in the process of
querying  its  suppliers  and vendors as to their  progress in  identifying  and
addressing  problems that their systems may face in correctly  interpreting  and
processing date information as the Year 2000 approaches and is reached. Based on
this review, the Company has implemented


                                       16
<PAGE>

a plan to achieve Year 2000 compliance.  While there may be other areas that may
affect the Company's operations upon commercialization of the Company's products
under development,  the Company has identified three major areas where Year 2000
compliance is critical for the normal  functioning  of the  Company's  business:
Business and Accounting  Computer Systems,  Clinical Data Management Systems and
Product Manufacturing Systems.

Business and Accounting Computer Systems

The Company utilizes standard, widely-available software packages to perform its
word processing, spreadsheet and accounting duties. Inquiries have revealed that
software upgrades are available to ensure Year 2000 compliance.  The Company had
completed the upgrade of its Business and  Accounting  Computer  Systems.  While
there  is no  assurance  at this  time  that  such  upgrades  will be Year  2000
compliant,  the  Company  does not  believe  that  non-compliance  would  have a
material  effect on the Company's  business.  Since the risks of non- compliance
are minimal,  the Company does not plan to create a  contingency  plan for these
systems at this time.

Clinical Data Management Systems

The Company utilizes the services of an outside vendor to handle all of its data
management  needs with regard to collection  and reporting of its clinical trial
data. This vendor has completed the testing of its computer system for Year 2000
compliance.  While it appears that the computer  systems utilized to process the
Company's clinical trial data are Year 2000 compliant, non-compliance could have
a material  adverse  impact on the  Company's  ability to process  the data in a
timely manner for  submission to the FDA, if necessary.  Since the likelihood of
non-compliance  is minimal,  the Company  does not plan to create a  contingency
plan for these systems at this time.

Product Manufacturing Systems

The Company utilizes the services of outside  suppliers to manufacture  ONCONASE
and perform many of the  FDA-required  related  testing of such  product.  These
suppliers  reported that they are in the process of  completing  their Year 2000
programs  and  expect to be ready  before  year 2000.  However,  there can be no
assurance that these suppliers' remediation efforts will effectively address all
of their Year 2000 problems.  Due to regulatory  restrictions,  the Company does
not believe it would be feasible to locate and retain the  services of alternate
suppliers  at this time.  However,  if during the first half of 2000,  it became
apparent  that a  supplier  would not be able to  support  commercialization  of
ONCONASE,  if approved by the FDA,  the Company will then undergo the expense of
transferring  its  manufacturing  processes  to alternate  suppliers.  While the
Company  believes that alternate  suppliers are available for the manufacture of
ONCONASE, there can be no assurance that the Company can complete the transition
to a new supplier in a timely manner.

Year 2000 Summary

The Company has determined that Year 2000 compliance  should not have a material
adverse  effect on the Company,  including  the Company's  financial  condition,
results of  operations or cash flow.  The Company  estimates the cost to address
its Year 2000 issues to be  approximately  $30,000.  The total cost  estimate is
based on management's current assessment and is subject to change.

The Company may  encounter  problems  with  vendors  and  suppliers  which could
adversely  affect the Company's  financial  condition,  results of operations or
cash flow. The Company cannot  accurately  predict the occurrence and or outcome
of any  such  problems,  nor can the  cost of such  problems  be  estimated.  In
addition,  there  can be no  assurance  that the  failure  to  ensure  Year 2000
compliance by a third party would not have a material effect on the Company.



                                       17
<PAGE>

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The  response  to this Item is  submitted  as a separate  section of this report
commencing on Page F-1.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE.

On  December  1, 1993,  certain  shareholders  of Armus  Harrison & Co.  ("AHC")
terminated their  association with AHC (the "AHC  termination"),  and AHC ceased
performing  accounting  and  auditing  services,  except for limited  accounting
services to be performed on behalf of the Company.  In June 1996,  AHC dissolved
and ceased all operations.  The report of KPMG LLP with respect to the financial
statements of the Company from inception to July 31, 1999 is based on the report
of AHC for the period from  inception  to July 31,  1992,  although  AHC has not
consented to the use of such report  herein and will not be available to perform
any  subsequent  review  procedures  with respect to such  report.  Accordingly,
investors will be barred from  asserting  claims against AHC under Section 11 of
the  Securities  Act on the basis of the use of such report in any  registration
statement of the Company into which such report is incorporated by reference. In
addition,  in the event any persons seek to assert a claim against AHC for false
or misleading financial statements and disclosures in documents previously filed
by the  Company,  such claim will be adversely  affected  and  possibly  barred.
Furthermore,  as a result  of the lack of a  consent  from AHC to the use of its
audit report herein,  or to its  incorporation  by reference into a registration
statement,  the officers and  directors of the Company will be unable to rely on
the  authority  of AHC as experts in auditing  and  accounting  in the event any
claim is brought  against such persons  under Section 11 of the  Securities  Act
based on alleged  false and  misleading  Financial  Statements  and  disclosures
attributable  to  AHC.  The  discussion  regarding  certain  effects  of the AHC
termination  is not meant and should not be construed in any way as legal advice
to any party and any potential purchaser should consult with his, her or its own
counsel  with  respect  to the  effect  of the AHC  termination  on a  potential
investment in the Common Stock of the Company or otherwise.

                                    Part III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

<TABLE>
<CAPTION>
Name                                    Age     Director Since        Position with the Company
----                                    ---     --------------        -------------------------
<S>                                     <C>          <C>          <C>
Kuslima Shogen                          54           1981         Chief Executive Officer, Acting Chief
                                                                  Financial Officer,Chairman of the Board

Stanislaw M. Mikulski, M.D.             55           1986         Executive Vice President, Medical Director
                                                                  and Director

Stephen K. Carter, M.D.(1)              61           1997         Director and Chairman of the Scientific
                                                                  Advisory Board

Donald R. Conklin (1)(2)                63           1997         Director

Martin F. Stadler (1)(2)                57           1997         Director
</TABLE>


                                       18
<PAGE>

(1)  Member of Compensation Committee

(2)  Member of Audit Committee

Business Experience of Directors and Executive Officers

Kuslima  Shogen  has  served as the  Company's  Chief  Executive  Officer  since
September  1986, as Chairman of the Board since August 1996, as a Director since
the  inception of the Company and as Acting Chief  Financial  Officer since June
23,  1999.  She also  served  as the  Company's  Chief  Financial  Officer  from
September  1986  through  July 1994 and as its  President  from  September  1986
through July 1996. Ms. Shogen formed the Company in 1981 to pursue research that
she had initiated  while a biology  student in the University  Honors Program at
Fairleigh Dickenson  University.  Prior to founding Alfacell,  from 1976 to 1981
she was founder and president of a biomedical research  consortium  specializing
in Good Laboratory  Practices and animal toxicology.  During that time, she also
served as a consultant for the Lever  Brothers  Research  Group.  Ms. Shogen has
received  numerous awards for  achievements  in biology,  including the Sigma Xi
first prize from the  Scientific  Research  Society of North America in 1974 and
first prize for the most  outstanding  research  paper in biology at the Eastern
College Science  Conferences  competitions in 1972, 1973, and 1974. She earned a
B.S.  degree  in 1974  and an M.S.  degree  in 1976 in  biology  from  Fairleigh
Dickenson  University  ("FDU"),  and also completed  graduate studies in 1978 in
embryology. She is a Phi Beta Kappa graduate. In April 1998, Ms. Shogen received
the Pinnacle  Award from FDU, the highest  honor the  University  bestows on its
graduates.

Stanislaw M. Mikulski,  M.D., F.A.C.P.  has served the Company as Executive Vice
President and Medical Director since 1987 and as a Director since 1986. Prior to
his affiliation with Alfacell,  Dr. Mikulski was Special  Assistant to the Chief
of the Investigational  Drug Branch of the National Cancer Institute ("NCI") and
the  Coordinator for  Immunotherapy  Trials in Cancer for the Division of Cancer
Treatment.  Prior to joining the Company,  he  maintained a private  practice in
medical  oncology for over eight years.  He is a diplomate of the American Board
of Internal  Medicine  and Medical  Oncology as well as a fellow of the American
College of Physicians and a member of the American Society of Clinical Oncology.
Dr.  Mikulski is  currently a clinical  assistant  Professor  of Medicine at the
University of Medicine and Dentistry of New Jersey. He received his M.D. in 1967
from  the  Medical  School  of  Warsaw,   Poland  and   subsequently   performed
post-doctoral  studies in human tumor immunology at the University of California
in Los Angeles.

Stephen K. Carter,  M.D. joined the Board of Directors in May 1997 and serves as
Chairman  of  the  Company's  Scientific  Advisory  Board.  In  addition  to his
positions with Alfacell,  Dr. Carter also serves as a senior clinical consultant
to Sugen,  Inc. From 1995 through  1997,  he served as Senior Vice  President of
Research and Development for Boehringer-Ingelheim Pharmaceuticals.  Before this,
Dr.  Carter  spent over 13 years with  Bristol-Myers  Squibb,  an  international
leader in the development of innovative anti-cancer and anti-viral therapies. He
held a variety of senior executive  research and development  positions while at
Bristol-Myers,  including  serving  for five years as Senior Vice  President  of
worldwide  clinical  research and  development  of its  Pharmaceutical  Research
Institute.  From  1976  to  1982,  he  established  and  directed  the  Northern
California Cancer Program. Prior to this, he held a number of positions during a
nine-year  tenure at the NCI,  including the position of Deputy  Director at the
National Institutes of Health. He has also been a member of the faculties of the
medical  schools of Stanford  University,  the  University  of California at San
Francisco and New York University.  Dr. Carter has published  extensively on the
development of anti-cancer drugs, was the co-founding editor of journals devoted
to cancer therapeutics or immunology,  and has served on the editorial boards of
a number of additional journals dedicated to cancer treatment. He is a member of
the American Society of Clinical Oncology,  the American  Association for Cancer
Research, and the Society of Surgical Oncology, as well as several other medical
societies. Dr. Carter earned his B.A. from Columbia University and his M.D. from
New York Medical College. He currently serves on the Board of Directors of Allos
Therapeutics.


                                       19
<PAGE>


Donald R.  Conklin  joined  the  Board of  Directors  in May 1997.  Prior to his
retirement in May 1997, Mr. Conklin was a senior executive with Schering-Plough,
a major  worldwide  pharmaceutical  firm.  During  his more  than 35 years  with
Schering-Plough,  he held a variety of key management positions within the firm.
From 1986 to 1994, he served as President of Schering-Plough Pharmaceuticals and
Executive  Vice-President of Schering-Plough  Corporation.  In this position, he
was responsible for worldwide pharmaceutical operations, including the launch of
INTRON  A(R)  (interferon  alfa-2b).  Prior to this,  Mr.  Conklin had served as
President  of  Schering  USA and  had  held a  variety  of  executive  marketing
positions in the United States, Europe, and Latin America. Immediately preceding
his retirement,  he was Chairman of Schering-Plough  Health Care Products and an
Executive Vice President of  Schering-Plough  Corporation.  Mr. Conklin received
his B.A. with highest  honors from Williams  College and his M.B.A.  degree from
the Rutgers  University School of Business.  He currently serves on the Board of
Directors of Vertex Pharmaceuticals, Inc. and BioTransplant, Inc.

Martin F. Stadler  joined the Board of Directors in November 1997. At the end of
1996,  Mr.  Stadler  retired  from  Hoffmann  La-Roche,  Inc.  after 32 years of
pharmaceutical, chemical and diagnostic experience. Mr. Stadler served as senior
vice president and chief financial officer, and was a member of the Hoffmann La-
Roche,  Inc.  Board of Directors  from 1985 through 1996.  His  responsibilities
included finance,  information technology,  human resources, quality control and
technical  services.  Prior to 1985, Mr.  Stadler  served as vice-  president of
strategic  planning  and business  development.  Mr.  Stadler  received his B.S.
degree  from  Rutgers  University  and  his  M.B.A.  from  Fairleigh   Dickenson
University.  In April 1999, he received the Pinnacle Award from FDU, the highest
honor the University  bestows on its  graduates.  Mr. Stadler is a member of the
Finance Council of the American Management  Association,  a trustee of Fairleigh
Dickenson   University   and  a  member  of  the   Advisory   Board  for  Horton
International.

Section 16(a) Beneficial Ownership Reporting Compliance

Ownership of and  transactions in the Company's stock by executive  officers and
directors of the Company and owners of 10% or more of the Company's  outstanding
Common  Stock  are  required  to be  reported  to the  Securities  and  Exchange
Commission  pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended (the  "Exchange  Act").  During the fiscal year ended July 31, 1999, all
reports  required to be filed pursuant to Section 16(a) of the Exchange Act were
filed in a timely manner, except that one Form 5 reporting changes in beneficial
ownership  for the  fiscal  year  ended  July 31,  1998 was filed by each of Mr.
Conklin and Mr. Stadler four months late and by Dr. Carter five months late.

Item 11.  EXECUTIVE COMPENSATION.

Directors' Compensation

Directors receive no cash compensation in consideration for their serving on the
Board of Directors.

In November 1993 and January 1994, the Board of Directors and the  stockholders,
respectively,  approved the  Company's  1993 Stock Option Plan (the "1993 Plan")
which, among other things,  provides for automatic grants of options ("Automatic
Grants") under a formula (the "Formula") to non-employee directors ("Independent
Directors") on an annual basis.

The Formula  provides that (i) on each December 31st each  Independent  Director
receives  automatically  an option to purchase  15,000  shares of the  Company's
Common Stock (the  "Regular  Grant");  and (ii) on the date of each  Independent
Director's  initial  election  to the Board of  Directors,  such  newly  elected
Independent  Director   automatically   receives  an  option  to  purchase  such
Independent  Director's  pro rata share of the Regular  Grant  which  equals the
product of 1,250  multiplied  by the  number of whole  months  remaining  in the
calendar


                                       20
<PAGE>

year (the "Pro Rata Grant"). Each option granted pursuant to a Regular Grant and
a Pro Rata Grant vests and becomes  exercisable  on December 30th  following the
date of  grant.  Notwithstanding  the  foregoing,  an  option  will  not  become
exercisable  as to any  shares  unless  such  Independent  Director  has  served
continuously  on the Board  during  the year  preceding  the date on which  such
options  are  scheduled  to vest and become  exercisable,  or from the date such
Independent  Director  joined the Board until the date on which such options are
scheduled  to  vest  and  become  exercisable;  provided,  however,  that  if an
Independent Director does not fulfill such continuous service requirement due to
such  Independent  Director's  death  or  disability  all  options  held by such
Independent  Director  nonetheless  vest and  become  exercisable  as  described
herein.  An option granted  pursuant to the Formula  remains  exercisable  for a
period of five years after the date the option first  becomes  exercisable.  The
per share  exercise  price of an option granted under the Formula is required to
be equal  to the fair  market  value of a share of  Common  Stock on the date of
grant.

During the fiscal year ended July 31, 1999, the following  Independent Directors
were  granted the options  listed below  pursuant to the Formula  under the 1993
Plan.  The exercise  prices of the options are equal to the fair market value of
the Common Stock on the date of grant.


Name                       Number of Options     Exercise Price       Expiration
----                       -----------------     --------------       ----------
Stephen K. Carter                15,000              $ 0.29            12/30/04
Donald R. Conklin                15,000              $ 0.29            12/30/04
Martin F. Stadler                15,000              $ 0.29            12/30/04

Compensation Committee Interlocks and Insider Participation

During  the  fiscal  year  ended  July 31,  1999,  the  members  of the Board of
Directors  who served on the  Compensation  Committee  of the Board of Directors
were Stephen K. Carter, Donald R. Conklin and Martin F. Stadler.

Summary Compensation Table

The following  table  provides a summary of cash and non-cash  compensation  for
each of the last three fiscal years ended July 31, 1999, 1998 and 1997 earned by
the Chief  Executive  Officer and the only two other  executive  officers of the
Company during the last fiscal year (the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                                                                 Long Term
                                                Annual Compensation                             Compensation
                          ----------------------------------------------------------------     ---------------
                                                                                                 Securities
                                                                            Other Annual         Underlying            All Other
      Name and                                                              Compensation          Options/           Compensation
 Principal Position         Year        Salary($)         Bonus($)             ($)(1)              SARs(#)                ($)
---------------------     --------     ------------     -------------     ----------------     ---------------     -----------------
<S>                         <C>          <C>                <C>                <C>                       <C>             <C>
Kuslima Shogen              1999         $150,000           - 0 -              - 0 -                     - 0 -           - 0 -
Chief Executive             1998          150,000           - 0 -              - 0 -                     - 0 -           - 0 -
Officer and                 1997          150,000           - 0 -              - 0 -                     - 0 -           - 0 -
Chairman of the
Board of Directors
</TABLE>


                                       21
<PAGE>


<TABLE>
<CAPTION>
                                                                                                   Long Term
                                                Annual Compensation                               Compensation
                          ----------------------------------------------------------------     ---------------
                                                                                                 Securities
                                                                            Other Annual          Underlying           All Other
      Name and                                                              Compensation          Options/           Compensation
 Principal Position         Year        Salary($)         Bonus($)             ($)(1)              SARs(#)                ($)
---------------------     --------     ------------     -------------     ----------------     ---------------     -----------------
<S>                         <C>          <C>                <C>                <C>                  <C>                  <C>
Gail E. Fraser(2)           1999         $130,000           - 0 -              - 0 -                115,000(3)           - 0 -
Vice President,             1998          130,000           - 0 -              - 0 -                     - 0 -           - 0 -
Finance and Chief           1997          130,000           - 0 -              - 0 -                     - 0 -           - 0 -
Financial Officer
Stanislaw M.                1999         $130,000           - 0 -              - 0 -                 50,000(4)           - 0 -
Mikulski                    1998          130,000           - 0 -              - 0 -                     - 0 -           - 0 -
Executive Vice              1997          130,000           - 0 -              - 0 -                     - 0 -           - 0 -
President and
Medical Director
</TABLE>

(1)  Excludes  perquisites and other personal benefits which in the aggregate do
     not exceed 10% of the Named  Executive  Officers'  total annual  salary and
     bonus.

(2)  Ms. Fraser  resigned as the  Company's  Vice  President,  Finance and Chief
     Financial Officer effective as of June 23, 1999.

(3)  These options were granted under the 1993 Plan on December 1, 1998,  vested
     immediately,  have an exercise  price of $0.43 per share and will expire on
     December 30, 2000 pursuant to a separation agreement between Ms. Fraser and
     the Company. See "Employment and Termination Agreements".  The price of the
     options was based on the fair market value of the Company's Common Stock on
     the date of grant.

(4)  These options were granted under the 1993 Plan on December 1, 1998,  vested
     immediately,  have an exercise  price of $0.43 per share and will expire on
     December  1, 2003.  The price of the  options  was based on the fair market
     value of the Company's Common Stock on the date of grant.

Option Grants in Last Fiscal Year

The following table contains  information  concerning the grant of stock options
to the Named Executive Officers during the fiscal year ended July 31, 1999:



                                       22
<PAGE>

<TABLE>
<CAPTION>
                                  Individual Grants
                                                                                            Potential Realizable Value at
                                                                                            Assumed Annual Rates of Stock
                                                                                            Price Appreciation for Option
                                                                                                      Term (1)
--------------------------------------------------------------------------------------  -------------------------------------
                         Number of
                        Securities         % of Total
                        Underlying      Options Granted      Exercise
                          Options       to Employees in       or Base     Expiration
        Name            Granted (#)       Fiscal Year          Price         Date
                                                             ($/Share)                     0%($)       5%($)        10%($)
-----------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                  <C>               <C>         <C>                        <C>           <C>
Kuslima Shogen              --                 --               --            --            --           --            --
Stanislaw M.             50,000 (2)          14.49%            $0.43       12/01/03         --        $1,075        $2,150
Mikulski
Gail E. Fraser          115,000 (3)          33.33%            $0.43       12/30/00         --        $2,473        $4,945
=============================================================================================================================
</TABLE>

(1)  The amounts set forth in the three  columns  represent  hypothetical  gains
     that might be  achieved  by the  optionees  if the  respective  options are
     exercised at the end of their terms. These gains are based on assumed rates
     of stock price  appreciation of 0%, 5% and 10%. The 0% appreciation  column
     is included  because the  exercise  price of the options  equals the market
     price of the underlying  Common Stock on the date the options were granted,
     and thus the options  will have no value unless the  Company's  stock price
     increases above the exercise price.

(2)  These options were granted under the 1993 Plan on December 1, 1998.

(3)  These  options  were granted  under the 1993 Plan on December 1, 1998.  Ms.
     Fraser  resigned  as  the  Company's  Vice  President,  Finance  and  Chief
     Financial Officer effective as of June 23, 1999.

Option Exercises and Fiscal Year-End Values

The  following  table  sets  forth the  information  with  respect  to the Named
Executive  Officers  concerning  the exercise of options  during the fiscal year
ended July 31, 1999 and unexercised options held as of July 31, 1999.

<TABLE>
<CAPTION>
                                                             Number of Securities              Value of Unexercised
                                                            Underlying Unexercised              In-The-Money Options
                                                          Options at Fiscal Year-End          at Fiscal Year-End($)(2)
                                                                      (#)
-----------------------------------------------------
                            Shares          Value
        Name              Acquired on      Realized
                         Exercise (#)       ($)(1)      Exercisable     Unexercisable     Exercisable     Unexercisable
------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                 <C>        <C>             <C>              <C>              <C>
Kuslima Shogen               None                None       1,631,208       - 0 -            - 0 -            - 0 -
Stanislaw M.                 None                None         445,740       - 0 -            - 0 -            - 0 -
Mikulski
Gail E. Fraser               None                None         465,000       - 0 -            - 0 -            - 0 -
========================================================================================================================
</TABLE>



                                       23
<PAGE>


(1)  Based  upon the fair  market  value of the  purchased  shares on the option
     exercise date less the exercise price paid for the shares.

(2)  The fair market  value of the Common Stock at the fiscal year end was based
     on the  average  of the high and low trade  prices  ($0.51)  for the Common
     Stock  obtained from the OTC Bulletin  Board on the last trading day of the
     fiscal year July 31, 1999.

Employment and Termination Agreements

On August 31, 1999 the Company  entered into a separation  agreement and general
release with Ms. Gail E. Fraser  pursuant to which (i) Ms. Fraser  confirmed her
resignation as vice president,  finance,  chief financial officer,  director and
employee of the Company  effective as of June 23, 1999 ("Date of  Resignation"),
(ii) the  Company  agreed to pay Ms.  Fraser her  regular  salary for the period
commencing on the Date of Resignation  through July 31, 1999,  (iii) the Company
and Ms. Fraser agreed that an aggregate of 395,000 options granted to Ms. Fraser
under the 1993 Plan, all of which had vested as of the Date of Resignation  will
remain vested and exercisable until December 30, 2000 and an aggregate of 70,000
options  granted  under  the  1993  Plan  which  had not  vested  on the Date of
Resignation  will be deemed vested as of the Date of Resignation and will remain
exercisable  until December 30, 2000,  (iv) the Company agreed to pay for health
insurance for Ms. Fraser and her dependents  until July 1999, (v) Ms. Fraser and
the Company  released each other from all claims and, (vi) Ms. Fraser agreed not
to compete with the Company until December 30, 2000.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information concerning stock ownership of
each person who is the beneficial owner of five percent or more of the Company's
outstanding  Common  Stock,  each of the  current  directors,  each of the Named
Executive  Officers and all directors  and  executive  officers as a group as of
October 31,  1999.  Except as otherwise  noted,  each person has sole voting and
investment power with respect to the shares shown as beneficially owned.

<TABLE>
<CAPTION>
                                                                                             Percentage of Common
Directors, Officers or 5% Stockholders (1)                        Number of Shares (2)      Stock Outstanding (3)
------------------------------------------                        --------------------      ---------------------
<S>                                                                      <C>       <C>              <C>
Kuslima Shogen                                                           2,703,585 (4)              14.4%

Stanislaw M. Mikulski                                                      782,623 (5)               4.4%

Gail E. Fraser                                                             481,500 (6)               2.7%

Stephen K. Carter                                                           68,750 (7)                 *

Donald R. Conklin                                                          134,250 (8)                 *

Martin F. Stadler                                                          126,250 (9)                 *

All executive officers and directors as a group
(six persons)                                                            4,296,958 (10)             21.6%
</TABLE>

*    Less than one percent.

(1)  The address of all  officers and  directors  listed above is in the care of
     the Company.



                                       24
<PAGE>

(2)  All shares  listed are Common  Stock.  Except as discussed  below,  none of
     these  shares are  subject to rights to acquire  beneficial  ownership,  as
     specified in Rule  13d-3(d)(1)  under the Exchange Act, and the  beneficial
     owner has sole voting and investment power,  subject to community  property
     laws where applicable.

(3)  The percentage of stock  outstanding for each  stockholder is calculated by
     dividing (i) the number of shares of Common Stock deemed to be beneficially
     held by such  stockholder as of October 31, 1999 by (ii) the sum of (A) the
     number of shares of Common  Stock  outstanding  as of October 31, 1999 plus
     (B) the number of shares issuable upon exercise of options or warrants held
     by such stockholder  which were exercisable as of October 31, 1999 or which
     will become exercisable within 60 days after October 31, 1999.

(4)  Includes  1,454,965 shares underlying  options which were exercisable as of
     October  31,  1999 or which will  become  exercisable  within 60 days after
     October 31, 1999.

(5)  Includes  421,373 shares  underlying  options which were  exercisable as of
     October  31,  1999 or which will  become  exercisable  within 60 days after
     October 31, 1999.

(6)  Includes  465,000 shares  underlying  options which were  exercisable as of
     October  31,  1999 or which will  become  exercisable  within 60 days after
     October  31,  1999  owned by Ms.  Fraser  and  16,500  shares  owned by her
     husband.  Ms. Fraser disclaims  beneficial ownership as to the shares owned
     by her  husband.  Ms.  Fraser  resigned as the  Company's  Vice  President,
     Finance,  Chief  Financial  Officer and  Director  effective as of June 23,
     1999.

(7)  Includes  68,750 shares  underlying  options which were  exercisable  as of
     October  31,  1999 or which will  become  exercisable  within 60 days after
     October 31, 1999.

(8)  Includes  68,750 shares  underlying  options which were  exercisable  as of
     October  31,  1999 or which will  become  exercisable  within 60 days after
     October 31, 1999.

(9)  Includes  51,250 shares  underlying  options which were  exercisable  as of
     October  31,  1999 or which will  become  exercisable  within 60 days after
     October  31,  1999  and  25,000  shares  underlying   warrants  which  were
     exercisable as of October 31, 1999 or which will become  exercisable within
     60 days after October 31, 1999.

(10) Includes all shares owned  beneficially  by the directors and the executive
     officers named in the table.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On July 23, 1991,  the board of directors  authorized the Company to pay Kuslima
Shogen an amount  equal to 15% of any gross  royalties  which may be paid to the
Company from any  license(s)  with respect to the Company's  principal  product,
ONCONASE, or any other products derived from amphibian source extract,  produced
either as a natural,  synthesized,  and/or genetically engineered drug for which
the Company  owns or is co-owner of the patent,  or acquires  such rights in the
future,  for a period  not to exceed  the life of the  patents.  If the  Company
manufactures  and  markets  the drugs by itself,  then the  Company  will pay an
amount equal to 5% of gross sales from any products  sold during the life of the
patents.


                                       25
<PAGE>

In August 1998, Ms. Shogen and Dr. Mikulski settled,  and the court approved the
settlement, of a claim brought against them in the United States District Court,
District of New Jersey at Newark,  New Jersey,  by a  shareholder  under Section
16(b) of the  Securities  Exchange Act of 1934 for profits  alleged to have been
realized by Ms. Shogen and Dr. Mikulski in transactions  involving the Company's
securities  in 1988  and  1989.  Claims  under  Section  16(b)  are for  profits
calculated  under such statute to have been  realized for sales and purchases of
the  Company's  securities  made  within a six  month  period.  In this case the
purchases  which  formed the basis for this claim  were  issuances  of shares of
stock to Ms.  Shogen  and Dr.  Mikulski  under  employment  agreements  with the
Company  based  upon  the  Company's  achievement  of  certain  milestones.   No
allegations of fraud were made. Ms. Shogen agreed to pay the Company  $91,971.00
and Dr. Mikulski agreed to pay the Company  $72,903.00.  Such payments are to be
made  in a form  acceptable  to the  Company  whether  in  cash,  shares  of the
Company's common stock or options to purchase the Company's  common stock,  with
25% of such  payments  having been made in August 1998 and the remainder of such
amounts  payable in three equal  installments in August 1999, 2000 and 2001. The
initial  payments were made by the  cancellation  of options to purchase  44,999
shares of common stock owned by Ms.  Shogen and the  cancellation  of options to
purchase 35,669 shares of common stock owned by Dr. Mikulski.  The obligation to
make the  remaining  payments is secured by the pledge to the Company of options
to purchase  154,908 and 122,136  shares of common  stock by Ms.  Shogen and Dr.
Mikulski,  respectively.  In August 1999, Ms. Shogen paid the balance in full by
the  cancellation of options to purchase  134,995 shares owned by Ms. Shogen and
Dr.  Mikulski  paid an  installment  equal to  one-third  of the  balance by the
cancellation of options to purchase 35,367 shares owned by Dr. Mikulski.

In December 1998, the Company issued 115,000 and 50,000 stock options to Gail E.
Fraser and Stanislaw M. Mikulski,  respectively, with an exercise price of $0.43
per share,  the fair market value of the  Company's  Common Stock on the date of
grant.  These options which vested  immediately was approved by the Compensation
Committee.  Ms. Fraser resigned as the Company's Vice President,  Finance, Chief
Financial Officer and director effective as of June 23, 1999.

                                     Part IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) and (2)      The response to these  portions of Item 14 is submitted as a
                    separate section of this report commencing on page F-1.

(a)(3) and (4)      Exhibits (numbered in accordance with Item 601 of Regulation
                    S-K).


<TABLE>
<CAPTION>
                                                                                                    Exhibit No.
                                                                                                        or
  Exhibit                                                                                          Incorporation
    No.                                           Item Title                                       by Reference
----------                                        ----------                                       ------------
<S>       <C>                                                                                           <C>
3.1       Certificate of Incorporation                                                                   *
3.2       By-Laws                                                                                        *
3.3       Amendment to Certificate of Incorporation                                                      #
3.4       Amendment to Certificate of Incorporation                                                     +++
4.1       Form of Convertible Debenture                                                                  **
10.1      Form of Stock and Warrant Purchase Agreements used in private placements
             completed in April 1996 and June 1996                                                       ##
10.2      Lease Agreement - 225 Belleville Avenue, Bloomfield, New Jersey                               ###
</TABLE>


                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                                                                    Exhibit No.
                                                                                                        or
  Exhibit                                                                                          Incorporation
    No.                                           Item Title                                       by Reference
----------                                        ----------                                       ------------
<S>       <C>                                                                                           <C>
10.3      Form of Stock Purchase Agreement and Certificate used in connection with
             various private placements                                                                  ***
10.4      Form of Stock and Warrant Purchase Agreement and Warrant Agreement
             used in Private  Placement  completed on March 21, 1994                                     ***
10.5      1993 Stock Option Plan and Form of Option Agreement                                           *****
10.6      Debt Conversion Agreement dated March 30, 1994 with Kuslima Shogen                            ****
10.7      Accrued Salary Conversion Agreement dated March 30, 1994 with Kuslima
              Shogen                                                                                    ****
10.8      Accrued Salary Conversion Agreement dated March 30, 1994 with Stanislaw
             Mikulski                                                                                   ****
10.9      Option Agreement dated March 30, 1994 with Kuslima Shogen                                     ****
10.10     Amendment No. 1 dated June 20, 1994 to Option Agreement dated March
             30, 1994 with Kuslima Shogen                                                               ****
10.11     Form of Amendment No. 1 dated June 20, 1994 to Option Agreement dated
             March 30, 1994 with Kuslima Shogen                                                         *****
10.12     Form of Amendment No. 1 dated June 20, 1994 to Option Agreement dated
             March 30, 1994 with Stanislaw Mikulski                                                     *****
10.13     Form of Stock and Warrant Purchase Agreement and Warrant Agreement
             used in Private Placement completed on September 13, 1994                                    +
10.14     Form of Subscription Agreements and Warrant Agreement used in Private
          Placements closed in October 1994 and September 1995                                            #
10.15     1997 Stock Option Plan                                                                         ###
10.16     Separation Agreement with Michael C. Lowe dated October 9, 1997                                 ++
10.17     Form of Subscription Agreement and Warrant Agreement used in Private
          Placement completed on February 20, 1998                                                       +++
10.18     Form of Warrant Agreement issued to the Placement Agent in connection
          with the Private Placement completed on February 20, 1998                                      +++
10.19     Placement Agent Agreement dated December 15, 1997                                              +++
10.20     Separation Agreement with Gail Fraser dated August 31, 1999                                    ####
21.1         Subsidiaries of Registrant                                                                   **
23.1         Consent of KPMG LLP                                                                         ####
27.1         Financial Data Schedule                                                                     ####
99.1         Factors to Consider in Connection with Forward-Looking Statements                           ####
</TABLE>

*    Previously filed as exhibit to the Company's Registration Statement on Form
     S-18 (File No. 2-79975-NY) and incorporated herein by reference thereto.

**   Previously  filed as exhibits to the  Company's  Annual Report on Form 10-K
     for the year  ended  July 31,  1993 and  incorporated  herein by  reference
     thereto.

***  Previously  filed as exhibits  to the  Company's  Quarterly  Report on Form
     10-QSB for the quarter  ended January 31, 1994 and  incorporated  herein by
     reference thereto.


                                       27

<PAGE>



**** Previously  filed as exhibits  to the  Company's  Quarterly  Report on Form
     10-QSB for the  quarter  ended April 30,  1994 and  incorporated  herein by
     reference thereto.

*****Previously filed as exhibits to the Company's  Registration  Statement Form
     SB-2 (File No. 33-76950) and incorporated herein by reference thereto.

+    Previously  filed as exhibits to the  Company's  Registration  Statement on
     Form SB-2 (File No. 33-83072) and incorporated herein by reference thereto.

++   Previously filed as exhibits to the Company's Quarterly Report on Form 10-Q
     for the quarter ended October 31, 1997 and incorporated herein by reference
     thereto.

+++  Previously filed as exhibits to the Company's Quarterly Report on Form 10-Q
     for the quarter ended January 31, 1998 and incorporated herein by reference
     thereto.

#    Previously  filed as exhibits to the Company's Annual Report on Form 10-KSB
     for the year  ended  July 31,  1995 and  incorporated  herein by  reference
     thereto.

##   Previously  filed as exhibits to the  Company's  Registration  statement on
     Form SB-2  (File No.  333-  11575)  and  incorporated  herein by  reference
     thereto.

###  Previously  filed as exhibits  to the  Company's  Quarterly  Report on Form
     10-QSB for the  quarter  ended April 30,  1997 and  incorporated  herein by
     reference thereto.

#### Filed herewith.

(b)  Reports on Form 8-K.

     On July 13,  1999,  the Company  filed a report on Form 8-K which  reported
     under Item 5 thereof, the resignation of its Vice President, Finance, Chief
     Financial Officer and Director.



                                       28
<PAGE>

                                    Signature

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


                                           ALFACELL CORPORATION


Dated: November 15, 1999                   By:  /s/ KUSLIMA SHOGEN
                                                --------------------------------
                                                Kuslima Shogen, Chief Executive
                                                Officer, Acting
                                                Chief Financial Officer and
                                                Chairman of the Board


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


Dated: November 15, 1999                        /s/ KUSLIMA SHOGEN
                                                --------------------------------
                                                Kuslima Shogen, Chief Executive
                                                Officer, Acting
                                                Chief Financial Officer
                                                (Principal Executive Officer,
                                                Principal Accounting Officer)
                                                and Chairman of the Board


Dated: November 15, 1999                        /s/ STANISLAW M. MIKULSKI
                                                --------------------------------
                                                Stanislaw M. Mikulski, M.D.,
                                                Executive Vice
                                                President and Director


Dated: November 15, 1999                        /s/ STEPHEN K. CARTER
                                                --------------------------------
                                                Stephen K. Carter, M.D.,
                                                Director


Dated: November 15, 1999                        /s/ DONALD R. CONKLIN
                                                --------------------------------
                                                Donald R. Conklin, Director


Dated: November 15, 1999                        /s/ MARTIN F. STADLER
                                                --------------------------------
                                                Martin F. Stadler, Director



                                       29
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)



                                      Index

                                                                            Page

Independent Auditors' Report of KPMG LLP.....................................F-2
Independent Auditors' Report of Armus, Harrison & Co. .......................F-3


      Financial Statements:
           Balance Sheets - July 31, 1999 and 1998...........................F-5
           Statements of Operations - Years ended July 31, 1999, 1998
             and 1997 and the Period from August 24, 1981 (Date of
             Inception) to July 31, 1999.....................................F-6
           Statement of Stockholders' Equity (Deficiency) - Period from
            August 24, 1981 (Date of Inception) to July 31, 1999.............F-7
           Statements of Cash Flows - Years ended July 31, 1999, 1998
            and 1997 and the Period from August 24, 1981 (Date of
            Inception) to July 31, 1999.................................... F-11
           Notes to Financial Statements - Years ended July 31, 1999,
            1998 and 1997 and the Period from August 24, 1981
            (Date of Inception) to July 31, 1999............................F-14




                                       F-1

<PAGE>



                          Independent Auditors' Report


The Stockholders and Board of Directors
Alfacell Corporation:


We have  audited the  accompanying  balance  sheets of Alfacell  Corporation  (a
development  stage  company)  as of July 31,  1999  and  1998,  and the  related
statements of operations,  stockholders' equity (deficiency), and cash flows for
each of the years in the  three-year  period  ended July 31, 1999 and the period
from August 24,  1981 (date of  inception)  to July 31,  1999.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.  The financial  statements of Alfacell  Corporation  (a  development
stage  company) for the period from August 24, 1981 (date of  inception) to July
31, 1992 were audited by other  auditors  whose  report dated  December 9, 1992,
except  as to note 18  which is July 19,  1993 and note 3 which is  October  28,
1993,  expressed an unqualified  opinion on those statements with an explanatory
paragraph regarding the Company's ability to continue as a going concern.

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

In our  opinion,  based on our audits  and,  for the  effect on the period  from
August 24,  1981 (date of  inception)  to July 31,  1999 of the  amounts for the
period from August 24, 1981 (date of  inception) to July 31, 1992, on the report
of other auditors, the financial statements referred to above present fairly, in
all  material  respects,  the  financial  position  of Alfacell  Corporation  (a
development  stage company) as of July 31, 1999 and 1998, and the results of its
operations  and its cash  flows for each of the years in the  three-year  period
ended July 31, 1999 and the period from August 24, 1981 (date of  inception)  to
July 31, 1999 in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and has limited liquid resources which raise substantial doubt about its ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 2. The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.


                                                              /s/ KPMG LLP
                                                              KPMG LLP


Short Hills, New Jersey
November 2, 1999

                                       F-2

<PAGE>



On  December  1, 1993,  certain  shareholders  of Armus  Harrison & Co.  ("AHC")
terminated their  association with AHC (the "AHC  termination"),  and AHC ceased
performing  accounting  and  auditing  services,  except for limited  accounting
services to be performed on behalf of the Company.  In June 1996,  AHC dissolved
and  ceased all  operations.  The  report of AHC with  respect to the  financial
statements  of the Company from  inception to July 31, 1992 is included  herein,
although AHC has not  consented to the use of such report herein and will not be
available  to perform any  subsequent  review  procedures  with  respect to such
report. Accordingly,  investors will be barred from asserting claims against AHC
under  Section 11 of the  Securities  Act of 1933,  as amended (the  "Securities
Act") on the basis of the use of such report in any  registration  statement  of
the Company into which such report is incorporated by reference. In addition, in
the event any persons seek to assert a claim against AHC for false or misleading
financial  statements  and  disclosures  in  documents  previously  filed by the
Company, such claim will be adversely affected and possibly barred. Furthermore,
as a result  of the lack of a consent  from AHC to the use of its  audit  report
herein, or, to its incorporation by reference into a registration statement, the
officers and directors of the company will be unable to rely on the authority of
AHC as  experts in  auditing  and  accounting  in the event any claim is brought
against such persons  under  Section 11 of the  Securities  Act based on alleged
false and misleading financial  statements and disclosures  attributable to AHC.
The discussion regarding certain effects of the AHC termination is not meant and
should  not be  construed  in any  way as  legal  advice  to any  party  and any
potential purchaser should consult with his, her or its own counsel with respect
to the effect of the AHC  termination  on a potential  investment  in the Common
Stock of the Company or otherwise.



                         REPORT OF INDEPENDENT AUDITORS


Board of Directors
Alfacell Corporation
Bloomfield, New Jersey

We have audited the balance sheets of Alfacell  Corporation (a Development Stage
Company) as of July 31, 1992 and 1991, as restated,  and the related  statements
of  operations,  stockholders'  deficiency,  and cash flows for the three  years
ended July 31, 1992, as restated,  and for the period from inception  August 24,
1981 to July 31, 1992, as restated. In connection with our audit of the 1992 and
1991  financial  statements,  we have  also  audited  the  1992,  1991  and 1990
financial  statement  schedules  as  listed  in the  accompanying  index.  These
financial statements and financial statement schedules are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion the financial  statements referred to above present fairly in all
material respects, the financial position of Alfacell Corporation as of July 31,
1992 and 1991,  as  restated,  and for the three years ended July 31,  1992,  as
restated, and for the period from inception August 24, 1981 to July 31, 1992, as
restated,  and the results of operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.



                                       F-3

<PAGE>



The  accompanying  financial  statements  have been  prepared on a going concern
basis which  contemplates  the  realization  of assets and the  satisfaction  of
liabilities  in the normal  course of  business.  As shown in the  statement  of
operations,  the Company has incurred  substantial losses in each year since its
inception.  In  addition,  the Company is a  development  stage  company and its
principal  operation for production of income has not  commenced.  The Company's
working  capital has been reduced  considerably by operating  losses,  and has a
deficit net worth.  These factors,  among others,  as discussed in Note 2 of the
Notes to Financial  Statements,  indicates the uncertainties about the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments  relating to the  recoverability  and classification of recorded
asset  amounts and the amount of  classification  of  liabilities  that might be
necessary should the Company be unable to continue its existence.



                                                       -------------------------
                                                       Armus, Harrison & Co.

Mountainside, New Jersey
December 9, 1992
Except as to Note 18 which
  is July 19, 1993 and Note 3
  which is October 28, 1993


                                       F-4

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                                 Balance Sheets

                             July 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                              1999              1998
                                                                          ------------      ------------
<S>                                                                       <C>               <C>
                                     ASSETS

Current assets:
         Cash and cash equivalents                                        $  1,383,133      $  5,099,453
         Other assets                                                          146,708           117,187
                                                                          ------------      ------------
                  Total current assets                                       1,529,841         5,216,640
Property and equipment, net of accumulated depreciation and
  amortization of $944,830 in 1999 and $843,599 in 1998                        198,807           300,038
                                                                          ------------      ------------

                  Total assets                                            $  1,728,648      $  5,516,678
                                                                          ============      ============

                       LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
         Current portion of long-term debt                                $      6,727      $      9,175
         Accounts payable                                                      186,071           716,040
         Accrued expenses                                                      778,650         1,092,898
                                                                          ------------      ------------
                  Total current liabilities                                    971,448         1,818,113

Long-term debt, less current portion                                              --               6,727
                                                                          ------------      ------------
                  Total liabilities                                            971,448         1,824,840
                                                                          ------------      ------------


Commitments and contingencies
Stockholders' equity:
         Preferred stock, $.001 par value.  Authorized and unissued,
            1,000,000 shares at July 31, 1999 and 1998                            --                --
         Common stock $.001 par value.  Authorized 40,000,000 shares;
            issued and outstanding 17,286,594 shares and 17,239,893
            shares at July 31, 1999 and 1998, respectively                      17,286            17,240
         Capital in excess of par value                                     55,694,195        55,472,243
            Deficit accumulated during development stage                   (54,954,281)      (51,797,645)
                                                                          ------------      ------------
                                                                               757,200         3,691,838
                  Total stockholders' equity
                  Total liabilities and stockholders' equity              $  1,728,648      $  5,516,678
                                                                          ============      ============
</TABLE>

See accompanying notes to financial statements.


                                       F-5

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)



                            Statements of Operations

                    Years ended July 31, 1999, 1998 and 1997,
                       and the Period from August 24, 1981
                      (Date of Inception) to July 31, 1999

<TABLE>
<CAPTION>
                                         August 24,
                                            1981
                                          (date of
                                         inception)
                                             to
                                          July 31,
                                            1999              1999              1998              1997
                                        ------------      ------------      ------------      ------------
<S>                                     <C>                 <C>               <C>               <C>
Revenues:
         Sales                          $    553,489              --                --                --
         Investment income                 1,308,020           168,372           311,822           442,572
         Other income                         60,103              --                --                --
                                        ------------      ------------      ------------      ------------
                                           1,921,612           168,372           311,822           442,572
                                        ------------      ------------      ------------      ------------

Costs and expenses:
         Cost of sales                       336,495              --                --                --
         Research and development         34,088,629         2,401,945         5,264,578         3,862,716
         General and administrative       19,515,060           920,686         1,412,968         1,475,624
         Interest:
           Related parties                 1,033,960              --                --                --
           Others                          1,901,749             2,377            21,782           123,099
                                        ------------      ------------      ------------      ------------
                                          56,875,893         3,325,008         6,699,328         5,461,439
                                        ------------      ------------      ------------      ------------

                    Net loss            $(54,954,281)       (3,156,636)       (6,387,506)       (5,018,867)
                                        ============      ============      ============      ============

         Loss per basic and diluted
            common share                                  $      (0.18)            (0.40)            (0.34)
                                                          ============      ============      ============

Weighted average number of shares
   outstanding                                              17,271,000        15,926,000        14,597,000
                                                          ============      ============      ============
</TABLE>

See accompanying notes to financial statements.




                                       F-6

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)





            Statement of Stockholders' Equity (Deficiency), Continued

                 Statement of Stockholders' Equity (Deficiency)

                           Period from August 24, 1981
                      (Date of Inception) to July 31, 1999



<TABLE>
<CAPTION>
                                                                                      Common Stock
                                                                                ----------------------------      Capital in
                                                                                 Number of                        excess of par
                                                                                  Shares            Amount           value
                                                                                -----------      -----------      -----------
<S>                                                                             <C>              <C>              <C>
Issuance of shares to officers and stockholders for equipment, research and
         development, and expense reimbursement                                     712,500      $       713      $   212,987
Issuance of shares for organizational legal services                                 50,000               50            4,950
Sale of shares for cash, net                                                         82,143               82          108,418
Adjustment for 3 for 2 stock split declared September 8, 1982                       422,321              422             (422)
Net loss                                                                               --               --               --
                                                                                -----------      -----------      -----------
Balance at July 31, 1982                                                          1,266,964            1,267          325,933

Issuance of shares for equipment                                                     15,000               15           13,985
Sale of shares to private investors                                                  44,196               44           41,206
Sale of shares in public offering, net                                              660,000              660        1,307,786
Issuance of shares under stock grant program                                         20,000               20          109,980
Exercise of warrants, net                                                             1,165                1            3,494
Net loss                                                                               --               --               --
                                                                                -----------      -----------      -----------
Balance at July 31, 1983                                                          2,007,325            2,007        1,802,384

Exercise of warrants, net                                                           287,566              287          933,696
Issuance of shares under stock grant program                                         19,750               20          101,199
Issuance of shares under stock bonus plan for directors and consultants             130,250              131          385,786
Net loss                                                                               --               --               --
                                                                                -----------      -----------      -----------
Balance at July 31, 1984                                                          2,444,891            2,445        3,223,065

Issuance of shares under stock grant program                                         48,332               48          478,057
Issuance of shares under stock bonus plan for directors and consultants              99,163               99          879,379
Shares canceled                                                                     (42,500)             (42)        (105,783)
Exercise of warrants, net                                                           334,957              335        1,971,012
Net loss                                                                               --               --               --
                                                                                -----------      -----------      -----------
Balance at July 31, 1985                                                          2,884,843            2,885        6,445,730

Issuance of shares under stock grant program                                         11,250               12          107,020
Issuance of shares under stock bonus plan for directors and consultants              15,394               15          215,385
Exercise of warrants, net                                                            21,565               21           80,977
Net loss                                                                               --               --               --
                                                                                -----------      -----------      -----------
Balance at July 31, 1986 (carried forward)                                        2,933,052            2,933        6,849,112

<CAPTION>
                                                                                                  Deficit
                                                                                                accumulated
                                                                                  Common          during
                                                                                stock to be     development      Subscription
                                                                                  issued           stage         Receivable
                                                                                -----------     -----------      -----------
<S>                                                                             <C>             <C>              <C>
Issuance of shares to officers and stockholders for equipment, research and
         development, and expense reimbursement                                 $      --       $      --        $      --
Issuance of shares for organizational legal services                                   --              --               --
Sale of shares for cash, net                                                           --              --               --
Adjustment for 3 for 2 stock split declared September 8, 1982                          --              --               --
Net loss                                                                               --          (121,486)            --
                                                                                -----------     -----------      -----------
Balance at July 31, 1982                                                               --          (121,486)            --

Issuance of shares for equipment                                                       --              --               --
Sale of shares to private investors                                                    --              --               --
Sale of shares in public offering, net                                                 --              --               --
Issuance of shares under stock grant program                                           --              --               --
Exercise of warrants, net                                                              --              --               --
Net loss                                                                               --          (558,694)            --
                                                                                -----------     -----------      -----------
Balance at July 31, 1983                                                               --          (680,180)            --

Exercise of warrants, net                                                              --              --               --
Issuance of shares under stock grant program                                           --              --               --
Issuance of shares under stock bonus plan for directors and consultants                --              --               --
Net loss                                                                               --        (1,421,083)            --
                                                                                -----------     -----------      -----------
Balance at July 31, 1984                                                               --        (2,101,263)            --

Issuance of shares under stock grant program                                           --              --               --
Issuance of shares under stock bonus plan for directors and consultants                --              --               --
Shares canceled                                                                        --              --               --
Exercise of warrants, net                                                              --              --               --
Net loss                                                                               --        (2,958,846)            --
                                                                                -----------     -----------      -----------
Balance at July 31, 1985                                                               --        (5,060,109)            --

Issuance of shares under stock grant program                                           --              --               --
Issuance of shares under stock bonus plan for directors and consultants                --              --               --
Exercise of warrants, net                                                              --              --               --
Net loss                                                                               --        (2,138,605)            --
                                                                                -----------     -----------      -----------
Balance at July 31, 1986 (carried forward)                                             --        (7,198,714)            --

<CAPTION>
                                                                                 Deferred
                                                                                  compen-
                                                                                  sation,       Total stock-
                                                                                 restricted   holders' equity
                                                                                   stock        (deficiency)
                                                                                -----------     -----------
<S>                                                                             <C>             <C>
Issuance of shares to officers and stockholders for equipment, research and
         development, and expense reimbursement                                 $      --       $   213,700
Issuance of shares for organizational legal services                                   --             5,000
Sale of shares for cash, net                                                           --           108,500
Adjustment for 3 for 2 stock split declared September 8, 1982                          --              --
Net loss                                                                               --          (121,486)
                                                                                -----------     -----------
Balance at July 31, 1982                                                               --           205,714

Issuance of shares for equipment                                                       --            14,000
Sale of shares to private investors                                                    --            41,250
Sale of shares in public offering, net                                                 --         1,308,446
Issuance of shares under stock grant program                                           --           110,000
Exercise of warrants, net                                                              --             3,495
Net loss                                                                               --          (558,694)
                                                                                -----------     -----------
Balance at July 31, 1983                                                               --         1,124,211

Exercise of warrants, net                                                              --           933,983
Issuance of shares under stock grant program                                           --           101,219
Issuance of shares under stock bonus plan for directors and consultants                --           385,917
Net loss                                                                               --        (1,421,083)
                                                                                -----------     -----------
Balance at July 31, 1984                                                               --         1,124,247

Issuance of shares under stock grant program                                           --           478,105
Issuance of shares under stock bonus plan for directors and consultants                --           879,478
Shares canceled                                                                        --          (105,825)
Exercise of warrants, net                                                              --         1,971,347
Net loss                                                                               --        (2,958,846)
                                                                                -----------     -----------
Balance at July 31, 1985                                                               --         1,388,506

Issuance of shares under stock grant program                                           --           107,032
Issuance of shares under stock bonus plan for directors and consultants                --           215,400
Exercise of warrants, net                                                              --            80,998
Net loss                                                                               --        (2,138,605)
                                                                                -----------     -----------
Balance at July 31, 1986 (carried forward)                                             --          (346,669)
</TABLE>


                                      F-7
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)





            Statement of Stockholders' Equity (Deficiency), Continued

                                                                     (Continued)

<TABLE>
<CAPTION>
                                                                                    Common Stock
                                                                            ----------------------------       Capital in
                                                                              Number of                       excess of par
                                                                               Shares           Amount           value
                                                                            ------------     ------------     ------------
<S>                                                                           <C>            <C>              <C>
Balance at July 31, 1986 (brought forward)                                     2,933,052     $      2,933     $  6,849,112

Exercise of warrants at $10.00 per share                                          14,745               15          147,435
Issuance of shares under stock bonus plan for directors and consultants            5,000                5           74,995
Issuance of shares for services                                                  250,000              250          499,750
Sale of shares to private investors, net                                           5,000                5           24,995
Net loss                                                                            --               --               --
                                                                            ------------     ------------     ------------
Balance at July 31, 1987                                                       3,207,797            3,208        7,596,287

Issuance of shares for legal and consulting services                             206,429              207          724,280
Issuance of shares under employment incentive program                            700,000              700        2,449,300
Issuance of shares under stock grant program                                      19,000               19           66,481
Exercise of options at $3.00 per share                                           170,000              170          509,830
Issuance of shares for litigation settlement                                      12,500               12           31,125
Exercise of warrants at $7.06 per share                                           63,925               64          451,341
Sale of shares to private investors                                               61,073               61          178,072
Amortization of deferred compensation, restricted stock                             --               --               --
Net loss                                                                            --               --               --
                                                                            ------------     ------------     ------------
Balance at July 31, 1988                                                       4,440,724            4,441       12,006,716

Sale of shares for litigation settlement                                         135,000              135        1,074,703
Conversion of debentures at $3.00 per share                                      133,333              133          399,867
Sale of shares to private investors                                              105,840              106          419,894
Exercise of options at $3.50 per share                                             1,000                1            3,499
Issuance of shares under employment agreement                                    750,000              750        3,749,250
Issuance of shares under the 1989 Stock Plan                                      30,000               30          149,970
Amortization of deferred compensation, restricted stock                             --               --               --
Net loss                                                                            --               --               --
                                                                            ------------     ------------     ------------
Balance at July 31, 1989                                                       5,595,897            5,596       17,803,899

Issuance of shares for legal and consulting services                              52,463               52          258,725
Issuance of shares under the 1989 Stock Plan                                      56,000               56          335,944
Sale of shares for litigation settlement                                          50,000               50          351,067
Exercise of options at $3.00 - $3.50 per share                                   105,989              106          345,856
Sale of shares to private investors                                               89,480               90          354,990
Issuance of shares under employment agreement                                    750,000              750        3,749,250
Conversion of debentures at $5.00 per share                                      100,000              100          499,900
Amortization of deferred compensation, restricted stock                             --               --               --
Net loss                                                                            --               --               --
                                                                            ------------     ------------     ------------
Balance at July 31, 1990 (carried forward)                                     6,799,829            6,800       23,699,631


<CAPTION>
                                                                                               Deficit
                                                                                             accumulated
                                                                               Common          during
                                                                             stock to be     development       Subscription
                                                                               issued           stage          Receivable
                                                                            ------------     ------------      ------------
<S>                                                                         <C>              <C>               <C>
Balance at July 31, 1986 (brought forward)                                  $       --       $ (7,198,714)     $       --

Exercise of warrants at $10.00 per share                                            --               --                --
Issuance of shares under stock bonus plan for directors and consultants             --               --                --
Issuance of shares for services                                                     --               --                --
Sale of shares to private investors, net                                            --               --                --
Net loss                                                                            --         (2,604,619)             --
                                                                            ------------     ------------      ------------
Balance at July 31, 1987                                                            --         (9,803,333)             --

Issuance of shares for legal and consulting services                                --               --                --
Issuance of shares under employment incentive program                               --               --                --
Issuance of shares under stock grant program                                        --               --                --
Exercise of options at $3.00 per share                                              --               --                --
Issuance of shares for litigation settlement                                        --               --                --
Exercise of warrants at $7.06 per share                                             --               --                --
Sale of shares to private investors                                                 --               --                --
Amortization of deferred compensation, restricted stock                             --               --                --
Net loss                                                                            --         (3,272,773)             --
                                                                            ------------     ------------      ------------
Balance at July 31, 1988                                                            --        (13,076,106)             --

Sale of shares for litigation settlement                                            --               --                --
Conversion of debentures at $3.00 per share                                         --               --                --
Sale of shares to private investors                                                 --               --                --
Exercise of options at $3.50 per share                                              --               --                --
Issuance of shares under employment agreement                                       --               --                --
Issuance of shares under the 1989 Stock Plan                                        --               --                --
Amortization of deferred compensation, restricted stock                             --               --                --
Net loss                                                                            --         (2,952,869)             --
                                                                            ------------     ------------      ------------
Balance at July 31, 1989                                                            --        (16,028,975)             --

Issuance of shares for legal and consulting services                                --               --                --
Issuance of shares under the 1989 Stock Plan                                        --               --                --
Sale of shares for litigation settlement                                            --               --                --
Exercise of options at $3.00 - $3.50 per share                                      --               --                --
Sale of shares to private investors                                                 --               --                --
Issuance of shares under employment agreement                                       --               --                --
Conversion of debentures at $5.00 per share                                         --               --                --
Amortization of deferred compensation, restricted stock                             --               --                --
Net loss                                                                            --         (4,860,116)             --
                                                                            ------------     ------------      ------------
Balance at July 31, 1990 (carried forward)                                          --        (20,889,091)             --

<CAPTION>
                                                                             Deferred
                                                                              compen-
                                                                              sation,         Total stock-
                                                                             restricted     holders' equity
                                                                               stock          (deficiency)
                                                                            ------------      ------------
<S>                                                                         <C>              <C>
Balance at July 31, 1986 (brought forward)                                  $       --        $   (346,669)

Exercise of warrants at $10.00 per share                                            --             147,450
Issuance of shares under stock bonus plan for directors and consultants             --              75,000
Issuance of shares for services                                                     --             500,000
Sale of shares to private investors, net                                            --              25,000
Net loss                                                                            --          (2,604,619)
                                                                            ------------      ------------
Balance at July 31, 1987                                                            --          (2,203,838)

Issuance of shares for legal and consulting services                                --             724,487
Issuance of shares under employment incentive program                         (2,450,000)             --
Issuance of shares under stock grant program                                        --              66,500
Exercise of options at $3.00 per share                                              --             510,000
Issuance of shares for litigation settlement                                        --              31,137
Exercise of warrants at $7.06 per share                                             --             451,405
Sale of shares to private investors                                                 --             178,133
Amortization of deferred compensation, restricted stock                          449,167           449,167
Net loss                                                                            --          (3,272,773)
                                                                            ------------      ------------
Balance at July 31, 1988                                                      (2,000,833)       (3,065,782)

Sale of shares for litigation settlement                                            --           1,074,838
Conversion of debentures at $3.00 per share                                         --             400,000
Sale of shares to private investors                                                 --             420,000
Exercise of options at $3.50 per share                                              --               3,500
Issuance of shares under employment agreement                                 (3,750,000)             --
Issuance of shares under the 1989 Stock Plan                                    (150,000)             --
Amortization of deferred compensation, restricted stock                        1,050,756         1,050,756
Net loss                                                                            --          (2,952,869)
                                                                            ------------      ------------
Balance at July 31, 1989                                                      (4,850,077)       (3,069,557)

Issuance of shares for legal and consulting services                                --             258,777
Issuance of shares under the 1989 Stock Plan                                    (336,000)             --
Sale of shares for litigation settlement                                            --             351,117
Exercise of options at $3.00 - $3.50 per share                                      --             345,962
Sale of shares to private investors                                                 --             355,080
Issuance of shares under employment agreement                                 (3,750,000)             --
Conversion of debentures at $5.00 per share                                         --             500,000
Amortization of deferred compensation, restricted stock                        3,015,561         3,015,561
Net loss                                                                            --          (4,860,116)
                                                                            ------------      ------------
Balance at July 31, 1990 (carried forward)                                    (5,920,516)       (3,103,176)
</TABLE>



                                      F-8
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)





            Statement of Stockholders' Equity (Deficiency), Continued


                                                                     (Continued)

<TABLE>
<CAPTION>
                                                                           Common Stock
                                                                   -----------------------------      Capital in
                                                                     Number of                       excess of par
                                                                      Shares           Amount           value
                                                                   ------------     ------------     ------------
<S>                                                                   <C>           <C>              <C>
Balance at July 31, 1990 (brought forward)                            6,799,829     $      6,800     $ 23,699,631

Exercise of options at $6.50 per share                                   16,720               16          108,664
Issuance of shares for legal consulting services                         87,000               87          358,627
Issuance of shares under the 1989 Stock Plan                            119,000              119          475,881
Amortization of deferred compensation, restricted stock                    --               --               --
Net loss                                                                   --               --               --
                                                                   ------------     ------------     ------------
Balance at July 31, 1991                                              7,022,549            7,022       24,642,803

Exercise of options at $3.50 per share                                    1,000                1            3,499
Sale of shares to private investors                                      70,731               71          219,829
Conversion of debentures at $5.00 per share                              94,000               94          469,906
Issuance of shares for services                                          45,734               46          156,944
Issuance of shares under the 1989 Stock Plan                            104,000              104          285,896
Amortization of deferred compensation, restricted stock                    --               --               --
Net loss                                                                   --               --               --
                                                                   ------------     ------------     ------------
Balance at July 31, 1992                                              7,338,014            7,338       25,778,877

Sale of share to private investors                                      352,667              353          735,147
Issuance of shares for legal services                                    49,600               50          132,180
Issuance of shares for services                                           5,000                5            9,995
Issuance of shares under the 1989 Stock Plan                            117,000              117          233,883
Amortization of deferred compensation, restricted stock                    --               --               --
Net loss                                                                   --               --               --
                                                                   ------------     ------------     ------------
Balance at July 31, 1993                                              7,862,281            7,863       26,890,082

Conversion of debentures at $2.75 per share to $6.00 per share          425,400              425        1,701,575
Sale of shares to private investors, net                                743,000              743        1,710,048
Conversion of short-term borrowings                                      72,800               73          181,927
Issuance of shares for services                                          16,200               16           43,334
Issuance of shares under the 1989 Stock Plan, for services                5,000                5           14,995
Issuance of options to related parties upon conversion of
  accrued interest, payroll and expenses                                   --               --          3,194,969
Repurchase of stock options from related party                             --               --           (198,417)
Issuance of options upon conversion of accrued interest                    --               --            142,441
Common stock to be issued                                                  --               --               --
Amortization of deferred compensation, restricted stock                    --               --               --
Net loss                                                                   --               --               --
                                                                   ------------     ------------     ------------
Balance at July 31, 1994 (carried forward)                            9,124,681            9,125       33,680,954


<CAPTION>
                                                                                      Deficit
                                                                                     accumulated
                                                                      Common          during
                                                                    stock to be     development       Subscription
                                                                      issued           stage          Receivable
                                                                   ------------     ------------      -----------
<S>                                                                <C>              <C>               <C>
Balance at July 31, 1990 (brought forward)                         $       --       $(20,889,091)     $      --

Exercise of options at $6.50 per share                                     --               --               --
Issuance of shares for legal consulting services                           --               --               --
Issuance of shares under the 1989 Stock Plan                               --               --               --
Amortization of deferred compensation, restricted stock                    --               --               --
Net loss                                                                   --         (5,202,302)            --
                                                                   ------------     ------------      -----------
Balance at July 31, 1991                                                   --        (26,091,393)            --

Exercise of options at $3.50 per share                                     --               --               --
Sale of shares to private investors                                        --               --               --
Conversion of debentures at $5.00 per share                                --               --               --
Issuance of shares for services                                            --               --               --
Issuance of shares under the 1989 Stock Plan                               --               --               --
Amortization of deferred compensation, restricted stock                    --               --               --
Net loss                                                                   --         (4,772,826)            --
                                                                   ------------     ------------      -----------
Balance at July 31, 1992                                                   --        (30,864,219)            --

Sale of share to private investors                                         --               --               --
Issuance of shares for legal services                                      --               --               --
Issuance of shares for services                                            --               --               --
Issuance of shares under the 1989 Stock Plan                               --               --               --
Amortization of deferred compensation, restricted stock                    --               --               --
Net loss                                                                   --         (2,357,350)            --
                                                                   ------------     ------------      -----------
Balance at July 31, 1993                                                   --        (33,221,569)            --

Conversion of debentures at $2.75 per share to $6.00 per share             --               --               --
Sale of shares to private investors, net                                   --               --               --
Conversion of short-term borrowings                                        --               --               --
Issuance of shares for services                                            --               --               --
Issuance of shares under the 1989 Stock Plan, for services                 --               --               --
Issuance of options to related parties upon conversion of
  accrued interest, payroll and expenses                                   --               --               --
Repurchase of stock options from related party                             --               --               --
Issuance of options upon conversion of accrued interest                    --               --               --
Common stock to be issued                                                50,000             --               --
Amortization of deferred compensation, restricted stock                    --               --               --
Net loss                                                                   --         (2,234,428)            --
                                                                   ------------     ------------      -----------
Balance at July 31, 1994 (carried forward)                               50,000      (35,455,997)            --

<CAPTION>
                                                                    Deferred
                                                                     compen-
                                                                     sation,         Total stock-
                                                                    restricted     holders' equity
                                                                      stock          (deficiency)
                                                                   ------------      ------------
<S>                                                                <C>               <C>
Balance at July 31, 1990 (brought forward)                         $ (5,920,516)     $ (3,103,176)

Exercise of options at $6.50 per share                                     --             108,680
Issuance of shares for legal consulting services                           --             358,714
Issuance of shares under the 1989 Stock Plan                           (476,000)             --
Amortization of deferred compensation, restricted stock               2,891,561         2,891,561
Net loss                                                                   --          (5,202,302)
                                                                   ------------      ------------
Balance at July 31, 1991                                             (3,504,955)       (4,946,523)

Exercise of options at $3.50 per share                                     --               3,500
Sale of shares to private investors                                        --             219,900
Conversion of debentures at $5.00 per share                                --             470,000
Issuance of shares for services                                            --             156,990
Issuance of shares under the 1989 Stock Plan                           (286,000)             --
Amortization of deferred compensation, restricted stock               3,046,726         3,046,726
Net loss                                                                   --          (4,772,826)
                                                                   ------------      ------------
Balance at July 31, 1992                                               (744,229)       (5,822,233)

Sale of share to private investors                                         --             735,500
Issuance of shares for legal services                                      --             132,230
Issuance of shares for services                                         (10,000)             --
Issuance of shares under the 1989 Stock Plan                           (234,000)             --
Amortization of deferred compensation, restricted stock                 664,729           664,729
Net loss                                                                   --          (2,357,350)
                                                                   ------------      ------------
Balance at July 31, 1993                                               (323,500)       (6,647,124)

Conversion of debentures at $2.75 per share to $6.00 per share             --           1,702,000
Sale of shares to private investors, net                                   --           1,710,791
Conversion of short-term borrowings                                        --             182,000
Issuance of shares for services                                            --              43,350
Issuance of shares under the 1989 Stock Plan, for services                 --              15,000
Issuance of options to related parties upon conversion of
  accrued interest, payroll and expenses                                   --           3,194,969
Repurchase of stock options from related party                             --            (198,417)
Issuance of options upon conversion of accrued interest                    --             142,441
Common stock to be issued                                                  --              50,000
Amortization of deferred compensation, restricted stock                 265,000           265,000
Net loss                                                                   --          (2,234,428)
                                                                   ------------      ------------
Balance at July 31, 1994 (carried forward)                              (58,500)       (1,774,418)
</TABLE>



                                      F-9
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)





            Statement of Stockholders' Equity (Deficiency), Continued


<TABLE>
<CAPTION>
                                                                    Common Stock
                                                            -----------------------------      Capital in
                                                              Number of                       excess of par
                                                               Shares           Amount           value
                                                            ------------     ------------     ------------
<S>                                                            <C>           <C>              <C>
Balance at July 31, 1994 (brought forward)                     9,124,681     $      9,125     $ 33,680,954

Sale of shares to private investors, net                         961,000              961        2,023,241
Conversion of short-term borrowings                               17,600               17           43,983
Issuance of shares for services                                   30,906               31           77,234
Exercise of options at $2.27 - $2.50 per share                   185,000              185          437,015
Common stock to be issued                                           --               --               --
Common stock to be issued, for services                             --               --               --
Amortization of deferred compensation, restricted stock             --               --               --
Net loss                                                            --               --               --
                                                            ------------     ------------     ------------
Balance at July 31, 1995                                      10,319,187           10,319       36,262,427

Sale of shares to private investors, net                       2,953,327            2,953        8,969,655
Issuance of shares for services                                   19,995               20           70,858
Exercise of options at $2.50 - $3.87 per share                   566,700              567        1,657,633
Sale of warrants                                                    --               --             12,084
Issuance of options/warrants for services                           --               --             50,872
Common stock to be issued                                           --               --               --
Subscription receivable                                             --               --               --
Net loss                                                            --               --               --
                                                            ------------     ------------     ------------
Balance at July 31, 1996                                      13,859,209           13,859       47,023,529

Sale of shares to private investors, net                         112,000              112          503,888
Issuance of options for services                                    --               --             76,504
Exercise of options at $2.45 - $4.00 per share, net              729,134              729        2,620,359
Exercise of  warrants at $5.00 per share, net                    147,450              148          737,102
Net loss                                                            --               --               --
                                                            ------------     ------------     ------------
Balance at July 31, 1997                                      14,847,793           14,848       50,961,382

Sale of shares to private investors, net                       2,337,150            2,337        4,199,877
Issuance of options for services                                    --               --            199,954
Exercise of warrants at $2.20 - $2.50 per share                    4,950                5           11,080
Issuance of shares for services, net                              50,000               50           99,950
Net loss                                                            --               --               --
                                                            ------------     ------------     ------------
Balance at July 31, 1998                                      17,239,893           17,240       55,472,243

Issuance of options for services                                    --               --            205,593
Issuance of shares for services, net                              46,701               46           16,359
Net loss                                                            --               --               --
                                                            ------------     ------------     ------------
Balance at July 31, 1999                                      17,286,594     $     17,286     $ 55,694,195
                                                            ============     ============     ============

<CAPTION>
                                                                                Deficit
                                                                              accumulated
                                                               Common           during
                                                             stock to be      development       Subscription
                                                               issued            stage          Receivable
                                                            ------------      ------------      ------------
<S>                                                         <C>               <C>               <C>

Balance at July 31, 1994 (brought forward)                  $     50,000      $(35,455,997)     $       --

Sale of shares to private investors, net                         (50,000)             --                --
Conversion of short-term borrowings                                 --                --                --
Issuance of shares for services                                     --                --                --
Exercise of options at $2.27 - $2.50 per share                      --                --                --
Common stock to be issued                                        339,008              --                --
Common stock to be issued, for services                            4,800              --                --
Amortization of deferred compensation, restricted stock             --                --                --
Net loss                                                            --          (1,993,123)             --
                                                            ------------      ------------      ------------
Balance at July 31, 1995                                         343,808       (37,449,120)             --

Sale of shares to private investors, net                        (339,008)             --                --
Issuance of shares for services                                   (4,800)             --                --
Exercise of options at $2.50 - $3.87 per share                      --                --                --
Sale of warrants                                                    --                --                --
Issuance of options/warrants for services                           --                --                --
Common stock to be issued                                        258,335              --                --
Subscription receivable                                             --                --            (254,185)
Net loss                                                            --          (2,942,152)             --
                                                            ------------      ------------      ------------
Balance at July 31, 1996                                         258,335       (40,391,272)         (254,185)

Sale of shares to private investors, net                            --                --                --
Issuance of options for services                                    --                --                --
Exercise of options at $2.45 - $4.00 per share, net             (258,335)             --             254,185
Exercise of  warrants at $5.00 per share, net                       --                --                --
Net loss                                                            --          (5,018,867)             --
                                                            ------------      ------------      ------------
Balance at July 31, 1997                                            --         (45,410,139)             --

Sale of shares to private investors, net                            --                --                --
Issuance of options for services                                    --                --                --
Exercise of warrants at $2.20 - $2.50 per share                     --                --                --
Issuance of shares for services, net                                --                --                --
Net loss                                                            --          (6,387,506)             --
                                                            ------------      ------------      ------------
Balance at July 31, 1998                                            --         (51,797,645)             --

Issuance of options for services                                    --                --                --
Issuance of shares for services, net                                --                --                --
Net loss                                                            --          (3,156,636)             --
                                                            ------------      ------------      ------------
Balance at July 31, 1999                                    $       --        $(54,954,281)     $       --
                                                            ============      ============      ============

<CAPTION>
                                                             Deferred
                                                              compen-
                                                              sation,         Total stock-
                                                             restricted     holders' equity
                                                               stock          (deficiency)
                                                            ------------      ------------
<S>                                                         <C>               <C>
Balance at July 31, 1994 (brought forward)                  $    (58,500)     $ (1,774,418)

Sale of shares to private investors, net                            --           1,974,202
Conversion of short-term borrowings                                 --              44,000
Issuance of shares for services                                     --              77,265
Exercise of options at $2.27 - $2.50 per share                      --             437,200
Common stock to be issued                                           --             339,008
Common stock to be issued, for services                             --               4,800
Amortization of deferred compensation, restricted stock           58,500            58,500
Net loss                                                            --          (1,993,123)
                                                            ------------      ------------
Balance at July 31, 1995                                            --            (832,566)

Sale of shares to private investors, net                            --           8,633,600
Issuance of shares for services                                     --              66,078
Exercise of options at $2.50 - $3.87 per share                      --           1,658,200
Sale of warrants                                                    --              12,084
Issuance of options/warrants for services                           --              50,872
Common stock to be issued                                           --             258,335
Subscription receivable                                             --            (254,185)
Net loss                                                            --          (2,942,152)
                                                            ------------      ------------
Balance at July 31, 1996                                            --           6,650,266

Sale of shares to private investors, net                            --             504,000
Issuance of options for services                                    --              76,504
Exercise of options at $2.45 - $4.00 per share, net                 --           2,616,938
Exercise of  warrants at $5.00 per share, net                       --             737,250
Net loss                                                            --          (5,018,867)
                                                            ------------      ------------
Balance at July 31, 1997                                            --           5,566,091

Sale of shares to private investors, net                            --           4,202,214
Issuance of options for services                                    --             199,954
Exercise of warrants at $2.20 - $2.50 per share                     --              11,085
Issuance of shares for services, net                                --             100,000
Net loss                                                            --          (6,387,506)
                                                            ------------      ------------
Balance at July 31, 1998                                            --           3,691,838

Issuance of options for services                                    --             205,593
Issuance of shares for services, net                                --              16,405
Net loss                                                            --          (3,156,636)
                                                            ------------      ------------
Balance at July 31, 1999                                    $       --        $    757,200
                                                            ============      ============
</TABLE>


See accompanying notes to financial statements.


                                      F-10
<PAGE>

                            Statements of Cash Flows

                    Years ended July 31, 1999, 1998 and 1997,
                       and the Period from August 24, 1981
                      (Date of Inception) to July 31, 1999


<TABLE>
<CAPTION>
                                                                    August 24,
                                                                    1981 (date
                                                                     of incep-
                                                                     tion) to
                                                                     July 31,
                                                                       1999             1999              1998              1997
                                                                    ------------     ------------     ------------     ------------
<S>                                                                 <C>              <C>              <C>              <C>
Cash flows from operating activities:
  Net loss                                                          $(54,954,281)    $ (3,156,636)    $ (6,387,506)    $ (5,018,867)
  Adjustments to reconcile net loss to net cash
     used in operating activities:
      Gain on sale of marketable securities                              (25,963)            --               --               --
      Depreciation and amortization                                    1,324,095          101,231          102,836           72,799
      Loss on disposal of property and equipment                          18,926             --               --               --
      Noncash operating expenses                                       5,372,472          208,053          199,954           76,504
      Amortization of deferred compensation                           11,442,000             --               --               --
      Amortization of organization costs                                   4,590             --               --               --
      Changes in assets and liabilities:
        (Increase) decrease  in loan receivable, related party              --               --               --            112,250
        (Increase) decrease in other current assets                     (146,708)         (29,521)          47,919         (101,256)
        Decrease in other assets                                          36,184             --               --             31,877
        Increase in loans and interest payable, related party            744,539             --               --               --
        Increase (decrease) in accounts payable                          379,967         (513,338)         438,336          188,168
        Increase in accrued payroll and expenses, related parties      2,348,145             --               --               --
        Increase (decrease) in accrued expenses                        1,320,163         (314,248)         399,057          531,628
                                                                    ------------     ------------     ------------     ------------
           Net cash used in operating activities                     (32,135,871)      (3,704,459)      (5,199,404)      (4,106,897)
                                                                    ------------     ------------     ------------     ------------

Cash flows from investing activities:
      Purchase of marketable securities                                 (290,420)            --               --               --
      Proceeds from sale of marketable equity securities                 316,383             --               --               --
      Purchase of property and equipment                              (1,369,261)            --            (75,315)        (252,066)
      Patent costs                                                       (97,841)            --               --               --
                                                                    ------------     ------------     ------------     ------------

           Net cash used in investing activities                      (1,441,139)            --            (75,315)        (252,066)
                                                                    ------------     ------------     ------------     ------------
</TABLE>

                                                                     (Continued)


                                      F-11

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)





                       Statements of Cash Flows, Continued

<TABLE>
<CAPTION>
                                                                    August 24,
                                                                    1981 (date
                                                                     of incep-
                                                                     tion) to
                                                                     July 31,
                                                                       1999             1999             1998            1997
                                                                   ------------     ------------      ------------     ------------
<S>                                                                <C>              <C>               <C>              <C>
Cash flows from financing activities:
  Proceeds from short-term borrowings                              $    849,500     $       --        $       --       $       --
  Payment of short-term borrowings                                     (623,500)            --                --               --
  Increase in loans payable, related party, net                       2,628,868             --                --               --
  Proceeds from bank debt and other long-term debt,
      net of deferred debt cost                                       2,410,883             --                --              4,200
  Reduction of bank debt and long-term debt                          (2,918,728)          (9,175)       (1,381,416          (92,578)
  Proceeds from issuance of common stock, net                        26,805,447           (2,686)        4,202,214          504,000
  Proceeds from exercise of stock options and warrants, net           5,460,673             --              11,085        3,354,188
  Proceeds from issuance of convertible debentures                      347,000             --                --               --
                                                                   ------------     ------------      ------------     ------------
      Net cash provided by financing activities                      34,960,143          (11,861)        2,831,883        3,769,810
                                                                   ------------     ------------      ------------     ------------

      Net increase (decrease) in cash and cash equivalents            1,383,133       (3,716,320)       (2,442,836)        (589,153)
Cash and cash equivalents at beginning of period                           --          5,099,453         7,542,289        8,131,442
                                                                   ------------     ------------      ------------     ------------

Cash and cash equivalents at end of period                         $  1,383,133     $  1,383,133      $  5,099,453     $  7,542,289
                                                                   ============     ============      ============     ============

Supplemental disclosure of cash flow information - interest paid   $  1,648,733     $      2,378      $     21,782     $    134,845
                                                                   ============     ============      ============     ============
Noncash financing activities:
  Issuance of convertible subordinated debenture for
        loan payable to officer                                    $  2,725,000     $       --        $       --       $       --
                                                                   ============     ============      ============     ============
  Issuance of common stock upon the conversion of
        convertible subordinated debentures, related party         $  2,945,000     $       --        $       --       $       --
                                                                   ============     ============      ============     ============

  Conversion of short-term borrowings to common stock              $    226,000     $       --        $       --       $       --
                                                                   ============     ============      ============     ============
</TABLE>

                                                                     (Continued)

                                      F-12
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)





                       Statements of Cash Flows, Continued

<TABLE>
<CAPTION>
                                                                 August 24,
                                                                 1981 (date
                                                                  of incep-
                                                                  tion) to
                                                                  July 31,
                                                                    1999              1999              1998              1997
                                                                ------------      ------------      ------------      ------------
<S>                                                             <C>               <C>               <C>               <C>
Conversion of accrued interest, payroll and expenses by
       related parties to stock options                         $  3,194,969      $       --        $       --        $       --
                                                                ============      ============      ============      ============

Repurchase of stock options from related party                  $   (198,417)     $       --        $       --        $       --
                                                                ============      ============      ============      ============

Conversion of accrued interest to stock options                 $    142,441      $       --        $       --        $       --
                                                                ============      ============      ============      ============

Conversion of accounts payable to common stock                  $    193,986      $     16,631      $    100,000      $       --
                                                                ============      ============      ============      ============

Conversion of notes payable, bank and accrued
       interest to long-term debt                               $  1,699,072      $       --        $       --        $       --
                                                                ============      ============      ============      ============

Conversion of loans and interest payable, related party
       and accrued payroll and expenses, related parties
       to long-term accrued payroll and other, related party    $  1,863,514      $       --        $       --        $       --
                                                                ============      ============      ============      ============

Issuance of common stock upon the conversion of
       convertible subordinated debentures, other               $    127,000      $       --        $       --        $       --
                                                                ============      ============      ============      ============

Issuance of common stock for services rendered                  $      2,460      $      2,460      $       --        $       --
                                                                ============      ============      ============      ============
</TABLE>



See accompanying notes to financial statements.


                                      F-13
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


                    Years ended July 31, 1999, 1998 and 1997
                       and the Period From August 24, 1981
                      (Date of Inception) to July 31, 1999

(1)  Summary of Significant Accounting Policies

     Business Description

     Alfacell Corporation (the "Company") was incorporated in Delaware on August
     24, 1981 for the purpose of engaging in the  discovery,  investigation  and
     development of a new class of anti-cancer drugs and anti- viral agents. The
     Company  is a  development  stage  company  as  defined  in  the  Financial
     Accounting  Standards Board's Statement of Financial  Accounting  Standards
     No. 7. The Company is devoting  substantially all of its present efforts to
     establishing  its  business.  Its  planned  principal  operations  have not
     commenced  and,  accordingly,  no  significant  revenue  has  been  derived
     therefrom.

     The  Company's  current  operations  encompass  all the risks  inherent  in
     discovering and developing a new drug, including:  an uncertainty regarding
     the timing and amount of future  revenues to be derived from the  Company's
     technology;  obtaining  future capital as needed;  attracting and retaining
     key personnel;  and a business  environment  with  heightened  competition,
     rapid technological change and strict government regulations.

     Use of Estimates

     The  preparation  of  financial  statements  requires  management  to  make
     estimates and assumptions  that affect reported  amounts and disclosures in
     these  financial  statements.   Actual  results  could  differ  from  those
     estimates.

     Property and Equipment

     Property and equipment is stated at cost.  Depreciation  is computed  using
     the straight-line  method over the estimated useful lives of the respective
     assets  ranging  from three to seven  years.  When  assets  are  retired or
     otherwise  disposed of, the cost and related  accumulated  depreciation are
     removed  from the accounts  and any  resulting  gain or loss is included in
     operations for the period.

     The cost of repairs and  maintenance  is charged to operations as incurred;
     significant renewals and betterments are capitalized.

     Cash Equivalents

     The Company  considers all highly  liquid  investments  with  maturities of
     three months or less, at the time of purchase, to be cash equivalents.

     Research and Development

     Research and development costs are expensed as incurred.


                                                                     (Continued)

                                      F-14
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(1)  Summary of Significant Accounting Policies, (Continued)

     Fair Value of Financial Instruments

     For all financial instruments, their carrying value approximates fair value
     due to the short maturity of those instruments.

     Comprehensive Income (Loss)

     Effective  August 1, 1998,  the  Company  adopted  Statement  of  Financial
     Accounting Standards No. 130 ("SFAS 130"), Reporting  Comprehensive Income.
     SFAS  130   establishes   new  rules  for  the  reporting  and  display  of
     comprehensive  income  and  its  components.  The net  loss of  $3,157,000,
     $6,388,000 and $5,019,000, recorded for the years ended July 31, 1999, 1998
     and  1997,  respectively,  is equal  to the  comprehensive  loss for  those
     periods.

     Earnings Per Common Share

     "Basic"  earnings per common  share  equals net income  divided by weighted
     average common shares outstanding during the period. "Diluted" earnings per
     common  share  equals net income  divided  by the sum of  weighted  average
     common shares  outstanding during the period plus common stock equivalents.
     The  Company's  Basic and Diluted per share  amounts are the same since the
     assumed exercise of stock options and warrants are all  anti-dilutive.  The
     amount of options and warrants excluded from the calculation was 5,894,875,
     5,911,557 and 4,592,631 at July 31, 1999, 1998 and 1997, respectively.

     Long-Lived Assets

     The Company  reviews  long-lived  assets for impairment  whenever events or
     changes in business  circumstances  occur that  indicate  that the carrying
     amount of the assets  may not be  recoverable.  The  Company  assesses  the
     recoverability   of  long-lived  assets  held  and  to  be  used  based  on
     undiscounted  cash  flows,  and  measures  the  impairment,  if any,  using
     discounted  cash flows.  SFAS No. 121 has not had a material  impact on the
     Company's financial position, operating results or cash flows.

     Stock Option Plans

     Prior to August 1, 1996,  the Company  accounted for its stock option plans
     in accordance  with the  provisions of  Accounting  Principles  Board (APB)
     Opinion  No. 25,  Accounting  for Stock  Issued to  Employees,  and related
     interpretations.  As such,  compensation  expense  would be recorded on the
     date of grant only if the  current  market  price of the  underlying  stock
     exceeded the exercise  price.  On August 1, 1996, the Company  adopted SFAS
     No. 123, Accounting for Stock-Based Compensation, which permits entities to
     recognize  as  expense  over  the  vesting  period  the  fair  value of all
     stock-based awards on the date of grant.  Alternatively,  SFAS No. 123 also
     allows  entities to continue to apply the  provisions of APB Opinion No. 25
     and  provide  pro  forma  net  income  and pro  forma  earnings  per  share
     disclosures  for employee stock option grants as if the  fair-value  method
     defined  in SFAS No.  123 had been  applied.  The  Company  has  elected to
     continue  to apply the  provisions  of APB  Opinion  No. 25 and provide pro
     forma disclosure in accordance with the provisions of SFAS No. 123.

                                                                     (Continued)

                                      F-15
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(2)  Liquidity

     The  Company  has  reported  net  losses  of  $3,156,636,  $6,387,506,  and
     $5,018,867  for the  fiscal  years  ended  July 31,  1999,  1998 and  1997,
     respectively. The loss from date of inception, August 24, 1981, to July 31,
     1999  amounts  to  $54,954,281.   Also,  the  Company  has  limited  liquid
     resources.  These  factors  raise  substantial  doubt  about its ability to
     continue as a going  concern.  The financial  statements do not include any
     adjustments  relating to the  recoverability and classification of reported
     asset amounts or the amounts or  classification  of liabilities which might
     result from the outcome of this uncertainty.

     Until the Company's operations generate significant revenues, cash reserves
     will continue to fund  operations.  To date, a  significant  portion of the
     Company's financing has been through private placements of common stock and
     warrants,  the issuance of common  stock for stock  options  exercised  and
     services  rendered,  debt financing and financing provided by the Company's
     Chief  Executive  Officer.  The  Company  believes  that  its cash and cash
     equivalents as of July 31, 1999 will be sufficient to meet its  anticipated
     cash needs through  January 2000.  The report of the Company's  independent
     auditors on the Company's financial statements,  included elsewhere herein,
     includes an explanatory paragraph which states that the Company's recurring
     losses and  limited  liquid  resources  raise  substantial  doubt about the
     Company's ability to continue as a going concern.  The financial statements
     do not include any  adjustments  that might result from the outcome of this
     uncertainty.

     The  Company's  continued  operations  will  depend on its ability to raise
     additional funds through various  potential sources such as equity and debt
     financing,  collaborative agreements, strategic alliances, sale of tax loss
     carryforwards  and research and  development  tax credits and revenues from
     the  commercial  sale of ONCONASE,  however there can be no assurance  that
     such additional  funds will become  available.  The Company is currently in
     discussion with several potential  strategic  alliance partners for further
     development  and marketing of ONCONASE and the other potential new products
     in the Company's pipeline,  however there can be no assurance that any such
     alliances will materialize.  The ability of the Company to raise additional
     capital  through the sale of its securities  will primarily be dependent on
     the  outcome of the Phase III  clinical  trial for  unresectable  malignant
     mesothelioma.  However,  the  ability  to raise  funding at that time maybe
     dependent  upon  other  factors   including  without   limitation,   market
     conditions,  and  there  can  be no  assurance  that  such  funds  will  be
     available. The Company is in the process of analyzing the Phase III data of
     its clinical trial for unresectable  malignant  mesothelioma in preparation
     for a Pre-NDA meeting with the FDA.

     New  Jersey  has  enacted   legislation   permitting   certain  New  Jersey
     corporations  to sell NOLs.  The Company has state NOLs available for sale.
     In  October  1999,  the  Company  was  notified  by the  state  that it has
     qualified to sell their NOLs.  The Company  expects to receive net proceeds
     of  approximately  $675,000  by  January  2000.  However,  there  can be no
     assurance  that the  Company  will be able to find a buyer for its NOLs and
     that such funds will be available in a timely manner.

     The  Company's  Common Stock was delisted from The Nasdaq  SmallCap  Market
     effective  at the close of business  April 27, 1999 for failing to meet the
     minimum bid price  requirements set forth in the NASD Marketplace Rules. As
     of April  28,  1999,  the  Company's  Common  Stock  was  traded on the OTC
     Bulletin

                                                                     (Continued)

                                      F-16
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(2)  Liquidity, (Continued)

     Board under the symbol "ACEL". Delisting of the Company's Common Stock from
     Nasdaq,  could have a material adverse effect on the Company  including its
     ability to raise additional capital, stockholder liquidity and price of the
     Company's Common Stock.

(3)  Property and Equipment

     Property and equipment, at cost, consists of the following at July 31:


                                                   1999             1998
                                                ----------       ----------

     Laboratory equipment                       $  755,040          755,040
     Office equipment                              290,764          290,764
     Leasehold improvements                         97,833           97,833
                                                ----------       ----------
                                                $1,143,637        1,143,637
                                                ==========       ==========

(4)  Long-term Debt

     Long-term debt consists of the following at July 31:

                                                                1999      1998
                                                               -------   -------
Notes payable, interest at 8.45%, maturing through
           July 1999, secured by equipment                     $  --     $ 1,520

Note payable in monthly  installments of $729, including
     principal and interest commencing April 1996 and each
      month thereafter until May 2000, secured by equipment      6,727    14,382
                                                               -------   -------
                                                                 6,727    15,902
Less current portion                                             6,727     9,175
                                                               -------   -------
                                                               $  --     $ 6,727
                                                               =======   =======

(5)  Leases

     The Company leases its facility under a five-year  operating lease which is
     due to expire on December 31, 2001.  The annual  rental  obligation,  which
     commenced  January 1, 1997, is $96,775 and is subject to annual  escalation
     amounts.  Rent expense  charged to operations  was $108,000,  $97,000,  and
     $76,000 in 1999, 1998 and 1997, respectively.

     Future  minimum lease  payments  under  noncancellable  leases for the next
     three years ending July 31 are as follows:




                                                                     (Continued)

                                      F-17
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(5)  Leases, (Continued)

                                           Operating leases
                                           ----------------

                   2000                $              127,497
                   2001                               136,000
                   2002                                56,667

(6)  Stockholders' Equity

     On September 1, 1981,  the Company  issued  712,500  shares of common stock
     (1,068,750  shares  adjusted  for the stock split on  September 8, 1982) to
     officers  and   stockholders  in  exchange  for  equipment,   research  and
     development services,  stock registration costs,  reimbursement of expenses
     and other miscellaneous  services. The common stock issued for services was
     recorded at the estimated  fair value of services  rendered  based upon the
     Board  of  Directors'  determination  and  ratification  of  the  value  of
     services.  Equipment  received in exchange for common stock was recorded at
     the transferor's  cost.  Common stock issued for  reimbursement of expenses
     was recorded based upon expenses incurred. All values assigned for expenses
     and  services  rendered  have been charged to  operations  except for stock
     registration costs which were charged against proceeds.

     On July 30, 1982,  the Company sold 82,143 shares of common stock  (123,214
     shares  adjusted  to reflect  the stock  split on  September  8, 1982) to a
     private  investor at a price of $1.40 per share,  resulting in net proceeds
     to the Company of approximately $108,500.

     On September 8, 1982,  the Company  declared a 3-for-2 stock split.  Shares
     previously  issued by the Company have been restated in accordance with the
     stock split.

     On September 8, 1982,  the Company  issued 15,000 shares of common stock to
     an officer  and  stockholder  in  exchange  for  equipment.  The  equipment
     received in exchange for the common stock was recorded at the  transferor's
     cost.

     On November 1, 1982 and January 3, 1983, the Company sold 28,125 and 16,071
     shares of common  stock,  respectively,  to private  investors  at $.93 per
     share, resulting in net proceeds to the Company of approximately $41,250.

     On January 17, 1983,  the Company  sold 660,000  shares of its common stock
     and 330,000 common stock purchase  warrants in a public offering at a price
     of  $2.50  per  share,   resulting  in  net  proceeds  to  the  Company  of
     approximately  $1,308,446.  The  warrants  were to expire  12 months  after
     issuance;  however,  the Company  extended the expiration  date to July 16,
     1984.  During  the  fiscal  years  ended  July 31,  1983 and 1984,  the net
     proceeds to the Company from the  exercising  of the  warrants  amounted to
     $934,000.  Each common stock purchase  warrant was not detachable  from its
     common stock or  exercisable  until six months  after the issuance  date of
     January 17, 1983. Each warrant entitled the holder to purchase one share of
     common  stock at an  exercise  price of $3.00 after six months and prior to
     nine months after  issuance.  The exercise  price  increased to $3.50 after
     nine months and prior to 12 months after issuance.


                                                                     (Continued)

                                      F-18
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     In connection with the public  offering,  the Company sold 60,000 five-year
     purchase warrants to the underwriters at a price of $.001 per warrant. Each
     warrant  entitled  the holder to purchase  one share of common  stock at an
     exercise  price of $3.00.  Pursuant to the  antidilution  provisions of the
     warrants,  the underwriters  received warrants to purchase 67,415 shares at
     an  exercise  price of $2.67  per  share.  As of July  31,  1986,  all such
     warrants were exercised and the Company received  proceeds of approximately
     $180,000.

     On February 22, 1984, the Company filed a  registration  statement with the
     Securities  and Exchange  Commission  for the issuance of two series of new
     warrants  each to  purchase an  aggregate  of 330,000  shares  (hereinafter
     referred to as one-year  warrants  and  two-year  warrants).  The  one-year
     warrants  had an  exercise  price of $6.50 per share and  expired  July 17,
     1985.  The two-year  warrants had an exercise price of $10.00 per share and
     were to expire July 17, 1986. However,  the Company extended the expiration
     date to August 31, 1987. The one-year  warrants and two-year  warrants were
     issued as of July 17, 1984 on a one-for-one  basis to those public offering
     warrant  holders who exercised their original  warrants,  with the right to
     oversubscribe to any of the warrants not exercised. During the fiscal years
     ended July 31, 1985, 1986, 1987 and 1988, the Company received net proceeds
     of approximately $2,471,000 as a result of the exercise of the warrants.

     On January 2, 1987,  the Company  issued  250,000 shares of common stock to
     officers and  stockholders,  including the  President  and Chief  Executive
     Officer,  in  recognition of services  performed for the Company.  The fair
     value of such shares was recorded as compensation expense.

     On February 3, 1987,  the Company  sold 5,000  shares of common  stock to a
     private  investor  for $5.00 per share,  resulting  in net  proceeds to the
     Company of approximately $25,000.

     On September 1, 1987,  the Board of Directors  approved new wage  contracts
     for three  officers.  The  contracts  provided  for the issuance of 700,000
     shares of common  stock as an  inducement  for  signing.  The fair value of
     these shares was recorded as deferred  compensation  and was amortized over
     the term of the employment agreements.  The contracts also provided for the
     issuance of 1,500,000 shares of common stock in 750,000 increments upon the
     occurrence  of certain  events.  These shares were issued during the fiscal
     years  ended July 31,  1989 and 1990 and the fair value of such  shares was
     recorded as deferred compensation and was amortized over the remaining term
     of the  employment  agreements.  The contracts  also provided for five-year
     options  to  purchase  750,000  shares of common  stock at $3.00 per share;
     options for the purchase of 170,000  shares were exercised on June 16, 1988
     and the  remaining  options for the purchase of 580,000  shares  expired on
     September 2, 1992.

     During the fiscal  year ended July 31,  1988,  the Company  issued  206,429
     shares of common stock for payment of legal and  consulting  services.  The
     fair value of such shares was charged to operations.

     During the fiscal  year ended July 31,  1988,  the  Company  issued  12,500
     shares  of  common  stock in  connection  with the  settlement  of  certain
     litigation. The fair value of these shares was charged to operations.

                                                                     (Continued)

                                      F-19
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     During the fiscal year ended July 31, 1988,  the Company sold 61,073 shares
     of common stock to private  investors  at $2.92 per share  resulting in net
     proceeds to the Company of approximately $178,133.

     On September 21, 1988, the Company entered into a stipulation of settlement
     arising  from a lawsuit  wherein it agreed to pay a total of $250,000 in 12
     monthly  installments.  Under the  agreement,  the Company  authorized  the
     issuance  on  September  7, 1988 and  October 18, 1988 of 85,000 and 50,000
     shares,  respectively,  to an  escrow  account  to  secure  payment  of the
     $250,000 due under the  stipulation of  settlement.  During the fiscal year
     ended July 31,  1989,  the Company  issued and sold the  135,000  shares of
     common stock for  $1,074,838.  On February 14, 1989, the Board of Directors
     authorized  the issuance of an additional  50,000  shares.  During the year
     ended July 31, 1990,  the shares were sold for $351,117.  The proceeds from
     the above  transactions  were used to pay the  settlement and related legal
     costs,  reduce loans from and interest due to the Company's Chief Executive
     Officer, and for working capital.

     During the fiscal year ended July 31, 1989, the Company sold 105,840 shares
     of common stock to private  investors  at $3.97 per share  resulting in net
     proceeds to the Company of approximately $420,000.

     During the fiscal  year ended July 31,  1990,  the  Company  issued  52,463
     shares of common stock for payment of legal and  consulting  services.  The
     fair value of the common stock was charged to operations.

     During the fiscal  year ended July 31,  1990,  the  Company  issued  50,000
     shares  of  common  stock in  connection  with the  settlement  of  certain
     litigation. The fair value of the common stock was charged to operations.

     During the fiscal year ended July 31, 1990,  the Company sold 89,480 shares
     of common stock to private  investors  at $3.97 per share  resulting in net
     proceeds to the Company of approximately $355,080.

     During the fiscal  year ended July 31,  1991,  the  Company  issued  87,000
     shares of common stock for payment of legal and  consulting  services.  The
     fair value of the common stock was charged to operations.

     During the fiscal year ended July 31, 1992,  the Company sold 70,731 shares
     of common stock to private  investors at $2.75 to $3.50 per share resulting
     in net proceeds to the Company of approximately $219,900.

     During the fiscal  year ended July 31,  1992,  the  Company  issued  45,734
     shares of common stock as payment for services rendered to the Company. The
     fair value of the common stock was charged to operations.

     During the fiscal  years  ended July 31,  1992 and 1990,  94,000 and 50,000
     shares of common stock,  respectively,  were issued to the Company's  Chief
     Executive Officer upon the conversion of outstanding debentures.



                                                                     (Continued)

                                      F-20
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     During the fiscal year ended July 31, 1993, the Company sold 352,667 shares
     of common stock to private  investors at prices ranging from $2.00 to $3.00
     per  share  resulting  in net  proceeds  to the  Company  of  approximately
     $735,500.  In  addition,  the private  investors  were  granted  options to
     purchase common stock totaling  587,167 shares at prices ranging from $3.00
     to $7.00. During the fiscal years ended July 31, 1995 and 1996, 322,500 and
     228,833  options  expired,  respectively.  A total of 42,167 options due to
     expire on July 31, 1995 were  extended to July 31, 1996 and their  exercise
     price was reduced to $2.50.

     During the fiscal year ended July 31, 1996,  35,834  options were exercised
     resulting in net proceeds to the Company of approximately $89,600.

     During the fiscal  year ended July 31,  1993,  the  Company  issued  54,600
     shares of common  stock as payment for legal and other  services  performed
     for the Company. The fair value of 49,600 shares was charged to operations.
     The remaining 5,000 shares were recorded as deferred  compensation and were
     amortized over a one-year period, beginning in February 1993, in accordance
     with the agreement entered into with the recipient.

     During the fiscal year ended July 31, 1994, the Company issued 7,000 shares
     of common stock as payment for services performed for the Company. The fair
     value of the common stock was charged to operations.

     During the fiscal year ended July 31, 1994,  the Company sold 25,000 shares
     of common stock to a private  investor at $2.00 per share  resulting in net
     proceeds to the Company of $50,000.  In addition,  the private investor was
     granted  options to purchase  common stock totaling  25,000 shares at $4.00
     per common share.  These options were exercised in September 1996 resulting
     in net proceeds to the Company of $100,000.

     During the fiscal year ended July 31, 1994, the Company sold 800,000 shares
     of common stock to private  investors  at $2.50 per share  resulting in net
     proceeds to the Company of $1,865,791.  In addition,  the private investors
     were granted  warrants to purchase common stock totaling  800,000 shares at
     $5.00 per common  share.  Warrants for the purchase of 147,450  shares were
     exercised  during  fiscal 1997  resulting in net proceeds to the Company of
     $737,250. The remaining 652,550 warrants expired during fiscal 1997.

     During the fiscal year ended July 31, 1994,  400,000 shares of common stock
     were issued to the Company's Chief Executive Officer upon the conversion of
     outstanding debentures.

     During the fiscal year ended July 31, 1994,  25,400  shares of common stock
     were issued upon the conversion of other outstanding debentures.

     In September 1994, the Company completed a private  placement  resulting in
     the issuance of 288,506 shares of common stock and  three-year  warrants to
     purchase  288,506  shares of common stock at an exercise price of $5.50 per
     share.  The  warrants  expired  during  fiscal  1998.  The common stock and
     warrants were sold in units consisting of 20,000 shares of common stock and
     warrants to purchase 20,000



                                                                     (Continued)

                                      F-21
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     shares  of  common  stock.  The price  per unit was  $50,000.  The  Company
     received proceeds of approximately  $545,000,  net of costs associated with
     the placement of  approximately  $55,000 and the conversion of certain debt
     by creditors of $121,265 into equivalent  private placement units of 17,600
     shares for conversion of short-term borrowings and 30,906 shares issued for
     services rendered.  In October 1994, an additional two units at $50,000 per
     unit were sold to a private  investor under the same terms as the September
     1994 private placement resulting in the issuance of 40,000 shares of common
     stock and warrants to purchase 40,000 shares of common stock.  The warrants
     expired during fiscal 1998.

     During the fiscal year ended July 31, 1995,  185,000 shares of common stock
     were  issued  upon the  exercise  of stock  options  by  unrelated  parties
     resulting in net proceeds to the Company of $437,200.  The exercise  prices
     of the options  ranged  from $2.27 to $2.50,  which had been  reduced  from
     $3.50 and $5.00, respectively, during fiscal 1995.

     During the fiscal year ended July 31, 1995, the Company sold 681,000 shares
     of common  stock to private  investors  resulting  in net  proceeds  to the
     Company of approximately $1,379,000. The shares were sold at prices ranging
     from $2.00 to $2.25.

     During the fiscal year ended July 31, 1995, the Company sold 139,080 shares
     of common stock and 47,405 three-year warrants to purchase shares of common
     stock at an  exercise  price of $4.00 per share to private  investors.  The
     stock and  warrants  were sold at prices  ranging  from  $2.25 to $2.73 per
     share and  resulted in net  proceeds to the Company of  $343,808,  of which
     $4,800 was for  services  rendered.  The common  shares  were issued to the
     investors subsequent to July 31, 1995.

     On August 4, 1995,  the  Company  issued  6,060  shares of common  stock as
     payment for services rendered to the Company.  The fair value of the common
     stock was charged to operations.

     On September 29, 1995, the Company completed a private placement  resulting
     in the issuance of 1,925,616 shares of common stock and three-year warrants
     to purchase an  aggregate  of 55,945  shares of common stock at an exercise
     price of $4.00 per share.  Of these  shares  1,935 were issued for services
     rendered  to the  Company.  The  common  stock was sold  alone at per share
     prices ranging from $2.00 to $3.70, and in combination with warrants at per
     unit prices  ranging from $4.96 to $10.92,  which  related to the number of
     warrants   contained  in  the  unit.  The  Company  received   proceeds  of
     approximately $4.1 million,  including $1,723,000 for approximately 820,000
     shares  received  during the fiscal year ended July 31, 1995.  The warrants
     expired in October 1998.

     As  consideration  for the extension of the Company's  term loan  agreement
     with its bank,  the Company  granted the bank a warrant to purchase  10,000
     shares of common stock at an exercise  price of $4.19.  The  warrants  were
     issued as of October 1, 1995 and expired on August 31, 1997.



                                                                     (Continued)

                                      F-22
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     In June 1996, the Company sold in a private  placement  1,515,330 shares of
     common stock and three-year  warrants to purchase  313,800 shares of common
     stock at an exercise price of $7.50 per share. Of these shares, 12,000 were
     issued for  services  rendered to the  Company.  The common  stock was sold
     alone at a per share price of $3.70, in combination  with warrants at a per
     unit price of $12.52 and warrants were sold alone at a per warrant price of
     $1.42. Each unit consisted of three shares of common stock and one warrant.
     The Company received proceeds of approximately  $5.7 million.  The warrants
     have expired in August and September 1999.

     In June 1996, the Company issued 10,000  five-year stock options as payment
     for services rendered.  The options vested immediately and have an exercise
     price of $4.95 per share.  The Company  recorded  research and  development
     expense  of $28,260  which was the fair  value of the stock  options on the
     date of issuance.

     During the fiscal year ended July 31, 1996,  207,316 shares of common stock
     were sold from October to April 1996 at per share prices ranging from $3.60
     to $4.24 resulting in proceeds of approximately $808,000.

     During the fiscal year ended July 31,  1996,  656,334  stock  options  were
     exercised by both related and unrelated  parties  resulting in net proceeds
     of approximately $1.9 million to the Company. Of these shares,  89,634 were
     issued  subsequent  to July 31, 1996.  The  exercise  prices of the options
     ranged from $2.50 to $3.87 per share.

     In August 1996,  the Company  issued  10,000 stock options with an exercise
     price of $4.69 per share exercisable for five years as payment for services
     to be rendered.  An equal portion of these options  vested  monthly for one
     year  commencing  September  1, 1996.  The  Company  recorded  general  and
     administrative  expense  of  $27,900  which was the fair value of the stock
     options on the date of issuance.

     In March 1997,  the Company  issued 112,000 shares of common stock at $4.50
     per share in a private  placement  to a single  investor  resulting  in net
     proceeds of $504,000 to the Company.

     In May 1997, the Company issued 100,000 stock options to a director with an
     exercise price of $5.20 per share as payment for serving as Chairman of the
     Scientific  Advisory Board (the "SAB").  These options will vest as follows
     provided the director is then serving as Chairman of the SAB at the time of
     vesting:  10,000 vested  immediately,  10,000 after one full calendar year,
     10,000 annually for each of the following three years and 50,000 on May 13,
     2002.  The  vesting  of the  50,000  options  which vest in May 2002 may be
     accelerated  upon the  occurrence of the following  events:  25,000 options
     upon the good faith  determination by the Company's Board of Directors that
     a  substantive  collaborative  agreement  with  a  major  biopharmaceutical
     company was a result of Dr.  Carter's  efforts and 25,000  options upon the
     good faith  determination  by the  Company's  Board of  Directors  that Dr.
     Carter  made a material  contribution  towards  the  approval by the United
     States  Food and Drug  Administration  of a New  Drug  Application  for the
     marketing of ONCONASE in the United States.  The Company recorded  research
     and development expense of $192,100 which was the fair value on the date of
     issuance of that  portion of the stock  options  that had vested as of July
     31, 1999.

                                                                     (Continued)

                                      F-23
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     During the fiscal year ended July 31,  1997,  639,500  stock  options  were
     exercised by both related and unrelated  parties  resulting in net proceeds
     of  approximately  $2.6 million to the Company.  The exercise prices of the
     options ranged from $2.45 to $4.00 per share.

     During the fiscal year ended July 31, 1997, 147,450 warrants were exercised
     by  both  related  and  unrelated  parties  resulting  in net  proceeds  of
     approximately  $737,250 to the Company.  The exercise price of the warrants
     was $5.00 per share.

     In October 1997, the Company issued 75,000 stock options to a director with
     an  exercise  price of $3.66 per share as  payment  for  non-board  related
     services to be rendered. These options will vest as follows provided he has
     been serving  continuously  on the Company's board of directors at the time
     of vesting: 10,000 vested immediately; 10,000 after one full calendar year;
     10,000  annually  for each of the  following  three  years;  and  25,000 on
     October 31,  2002.  The vesting and  exercisability  of the 25,000  options
     which  vest  in  October  2002  may be  accelerated  upon  the  good  faith
     determination  of the  Company's  Board  of  Directors  that a  substantive
     collaborative agreement with a major  pharmaceutical/biotechnology  company
     was a  direct  result  of the  director's  efforts.  A  total  general  and
     administrative  expense of  $185,600  is being  amortized  over a five-year
     period which  commenced in October 1997.  As of July 31, 1999,  the Company
     recorded general and administrative expense of $86,800, based upon the fair
     value of such  75,000  options  on the  date of  issuance,  amortized  on a
     straight-line basis over the vesting period of the grant.

     In October 1997,  the Company  issued 12,000  five-year  stock options to a
     consultant  with an  exercise  price of $3.91  per  share  as  payment  for
     services to be rendered. An equal portion of these options vest monthly and
     are to be amortized over a one-year period which commenced in October 1997.
     In May 1998, the Company  terminated  the services of the consultant  which
     resulted in the cancellation of 5,000 options. The Company recorded a total
     research and  development  expense for the  remaining  7,000 options in the
     amount of $15,800, based upon the fair value of such options on the date of
     issuance, amortized on a straight-line basis over the vesting period of the
     grant.

     On December 9, 1997,  the  stockholders  authorized  the  amendment  of the
     Company's Certificate of Incorporation to increase the number of authorized
     shares  of  common  stock,  par  value  $.001  from  25,000,000  shares  to
     40,000,000 shares.

     On December 9, 1997, the  stockholders  approved the 1997 Stock Option Plan
     (the "1997  Plan").  The total number of shares of common stock  authorized
     for  issuance  upon  exercise  of  options  granted  under the 1997 Plan is
     2,000,000.  Options  are  granted at fair  market  value on the date of the
     grant and generally are  exercisable in 20%  increments  annually over five
     years  starting one year after the date of grant and  terminate  five years
     from their initial exercise date.

     On January 23, 1998 the  Securities  and  Exchange  Commission  (the "SEC")
     declared  effective a registration  statement on Form S-3 for the offer and
     sale by certain stockholders of up to 3,734,541 shares


                                                                     (Continued)

                                      F-24
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     of common stock. Of these shares (i) an aggregate of 2,737,480  shares were
     issued to private  placement  investors in private  placement  transactions
     which were  completed  during the period from March 1994 through March 1997
     (the "Earlier Private Placements"), (ii) an aggregate of 409,745 shares are
     issuable upon exercise of warrants  which were issued to private  placement
     investors  in the Earlier  Private  Placements  and (iii) an  aggregate  of
     587,316 shares may be issued, or have been issued, upon exercise of options
     which were issued to option holders in certain other private  transactions.
     As a result of the delisting of the Company's  Common Stock from the Nasdaq
     SmallCap  Market,  upon the filing of the  Company's  Annual Report on Form
     10-K for the  fiscal  year  ended  July  31,  1999 the  Company  no  longer
     qualified  for  the  use of a Form  S-3  registration  statement  for  this
     offering and thus, this registration statement is no longer effective.

     In February 1998, the Company completed the February 1998 Private Placement
     primarily  to  institutional  investors  which  resulted in the issuance of
     1,168,575  units at a unit price of $4.00.  Each unit  consisted of two (2)
     shares of the Company's common stock, par value $.001 per share and one (1)
     three-year warrant to purchase one (1) share of common stock at an exercise
     price of $2.50 per share.  The Company  received  proceeds of approximately
     $4,202,000,   net  of  costs  associated  with  the  private  placement  of
     approximately  $472,000.  The  placement  agent also  received  warrants to
     purchase an additional  116,858 units comprised of the same securities sold
     to  investors  at an  exercise  price  of  $4.40  per  unit  as part of its
     compensation.

     In March 1998, the Company entered into a conversion  agreement with one of
     its raw  material  suppliers  (the  "Supplier")  for the  conversion  of an
     outstanding payable (the "Conversion  Agreement") into 50,000 shares of the
     Company's Common Stock. Pursuant to the Conversion  Agreement,  the Company
     issued 50,000 shares of Common Stock to the Supplier. The fair value of the
     Common Stock approximated the outstanding payable amount of $100,000.

     In March 1998,  the Company  issued 75,000 stock options to a director with
     an  exercise  price of $2.80 per share as  payment  for  non-board  related
     services to be rendered. These options will vest as follows provided he has
     been serving  continuously  on the Company's board of directors at the time
     of vesting: 10,000 vested immediately; 10,000 after one full calendar year;
     10,000 annually for each of the following three years;  and 25,000 on March
     24, 2003. The vesting and  exercisability  of the 25,000 options which vest
     in March 2003 may be accelerated  upon the good faith  determination of the
     Company's Board of Directors that a substantive collaborative agreement and
     licensing      or      financing      arrangement      with     a     major
     pharmaceutical/biotechnology  company was a direct result of the director's
     efforts.  A total general and  administrative  expense of $138,100 is being
     amortized over a five-year period which commenced in March 1998. As of July
     31,  1999,  the  Company  recorded  general and  administrative  expense of
     $52,900,  based upon the fair value of such  75,000  options on the date of
     issuance, amortized on a straight-line basis over the vesting period of the
     grant.


                                                                     (Continued)

                                      F-25
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     On April 20, 1998 the SEC declared  effective a  registration  statement on
     Form S-3 for the offer and sale by certain  stockholders of up to 3,918,299
     shares of common  stock.  Of these  shares (i) an  aggregate  of  2,337,150
     shares of Common  Stock were issued to the private  placement  investors in
     the February 1998 Private Placement,  (ii) an aggregate of 1,168,575 shares
     may be issued  upon  exercise  of the  Warrants  which  were  issued to the
     private placement  investors in the February 1998 Private Placement,  (iii)
     350,574  shares may be issued  upon the  exercise  of the  Placement  Agent
     Warrant  which  was  issued to the  placement  agent in the  February  1998
     Private  Placement and the Warrants issuable upon exercise of the Placement
     Agent Warrant, (iv) 50,000 shares of Common Stock were issued to a Supplier
     in connection with conversion of an outstanding  accounts payable,  and (v)
     12,000  shares may be issued upon the exercise of options which were issued
     as payment for services to be rendered. As a result of the delisting of the
     Company's Common Stock from the Nasdaq SmallCap Market,  upon the filing of
     the Company's Annual Report on Form 10-K for the fiscal year ended July 31,
     1999 the Company no longer qualified for the use of a Form S-3 registration
     statement for this  offering and thus,  this  registration  statement is no
     longer effective.

     During  the  fiscal  year  ended  July 31,  1998,  the  Company  issued 833
     three-year  stock options as payment for services  rendered in August 1997.
     The options  vested thirty days from the issuance date and have an exercise
     price of $4.47 per share.  The total  general  and  administrative  expense
     recorded  for these  options was $1,700,  based upon the fair value of such
     options on the date of issuance.

     During the fiscal  year ended July 31,  1998,  the  Company  issued  15,000
     three-year  stock  options  with an  exercise  price of $4.15  per share as
     payment for services to be rendered. An equal portion of these options vest
     monthly and a total general and administrative  expense of $30,000 is being
     amortized  over a one-year  period  which  commenced  September  1997.  The
     Company also issued 5,000  three-year  stock options with an exercise price
     of $4.15  per  share as  payment  for  services  to be  rendered.  Of these
     options,  833 vested monthly for five months commencing  September 30, 1997
     and 835  vested  on the last day of the  sixth  month.  Total  general  and
     administrative expense of $9,700 is being amortized over a six-month period
     which commenced  September 1997. As of July 31, 1998, the Company  recorded
     general and administrative expense of $37,100, based upon the fair value of
     the  20,000  stock  options  on the date of the  issuance,  amortized  on a
     straight-line basis over the vesting periods of the grants.

     During the fiscal year ended July 31,  1998,  4,950  shares of Common Stock
     were issued upon the exercise of warrants by unrelated parties resulting in
     net proceeds of approximately  $11,100 to the Company.  The exercise prices
     of the warrants ranged from $2.20 to $2.50 per share.

     On October 1, 1998 (the  "Effective  Date"),  the Company  entered  into an
     agreement with a consultant (the "Agreement"), resulting in the issuance of
     200,000  five-year  stock options with an exercise price of $1.00 per share
     as payment for services to be rendered. These options will vest as follows:
     an aggregate  of20,000 shall vest on October 1, 1999 or upon signing of the
     first corporate  partnering deal, whichever shall occur first; an aggregate
     of 2,500 of such options  shall vest on the last day of each month over the
     first  twelve  months  after  the  Effective  Date  of the  Agreement;  the
     remaining 150,000 options will vest on

                                                                     (Continued)

                                      F-26
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     the third anniversary of the Effective Date of the Agreement  provided that
     the consultant is still providing  consulting services to the Company under
     the Agreement at that time. The vesting of such remaining  options shall be
     accelerated  as follows:  50,000 of such  options or the  remainder  of the
     unvested  options,  whichever is less,  shall vest upon the signing of each
     corporate partnering deal in which the total consideration  provided in the
     Agreement is less than $5,000,000; 100,000 of such options or the remainder
     of the unvested options,  whichever is less, shall vest upon the signing of
     each corporate partnering deal in which the total consideration provided in
     the Agreement is greater than $5,000,000 but less than $10,000,000; 200,000
     of such  options or the  remainder of the  unvested  options,  whichever is
     less,  shall vest upon the  signing of each  corporate  partnering  deal in
     which the total  consideration  provided in the  Agreement  is greater than
     $10,000,000.  Should the Company sell a controlling  interest in its assets
     and/or equity at any time after the signature of the Agreement, all options
     will vest.  The Company has recorded  approximately  $40,200 of general and
     administrative  expense  based upon the fair  value of the  vested  options
     through July 31, 1999.  Additional  expense will be recorded in  subsequent
     periods through October 1, 2001 as the remainder of the options vest.

     During  the fiscal  year ended July 31,  1999,  the  Company  issued  5,000
     three-year  stock  options as payment for  services  rendered.  The options
     vested immediately and have an exercise price of $1.43 per share. The total
     general and  administrative  expense recorded for these options was $4,200,
     based upon the fair value of such options on the date of issuance.

     During the fiscal  year ended July 31,  1999,  the  Company  issued  40,701
     shares of common stock for payment of legal services. The fair value of the
     common stock in the amount of $16,631 was charged to operations.

     During the fiscal year ended July 31, 1999, the Company issued 6,000 shares
     of common  stock for  payment of services  rendered.  The fair value of the
     common stock in the amount of $2,460 was charged to operations.

(7)  Common Stock Warrants

     During the fiscal years 1988 and 1991, the Board of Directors granted stock
     purchase warrants to acquire a maximum of 400,000 shares of common stock at
     $5.00 per share which were not exercised and expired.

     The following table summarizes the activity of common stock warrants issued
     in connection  with the Private  Placements  completed in fiscal years 1994
     through 1999:




                                                                     (Continued)


                                      F-27
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(7)   Common Stock Warrants, (Continued)

<TABLE>
<CAPTION>
                                                               Warrants    Exercise Price          Expiration
                                                               --------    --------------          ----------
<S>                                                           <C>         <C>                <C>
      Sold in March 1994 Private Placement                      800,000   $     5.00         3/21/97 to 6/21/97

      Outstanding at July 31, 1994                              800,000         5.00         3/21/97 to 6/21/97

      Sold in September 1994 Private Placement                  288,506         5.50         12/9/97 to 12/14/97
      Sold in October 1994 Private Placement                     40,000         5.50               1/21/98
      Sold in September 1995 Private Placement                   47,405          4.00              10/1/98
                                                             ----------

      Outstanding and exercisable at July 31, 1995            1,175,911      4.00 - 5.50     3/21/97 to 10/1/98

      Issued to bank in connection with an amendment
           to the Company's term loan                            10,000         4.19               8/31/97
      Sold in September 1995 Private Placement                    8,540         4.00               10/1/98
      Sold in June 1996 Private Placement                       313,800          7.50        8/29/99 to 9/10/99
                                                             ----------

      Outstanding and exercisable at July 31, 1996            1,508,251      4.00 - 7.50     3/21/97 to 9/10/99

      Exercised                                                 147,450         5.00         3/21/97 to 6/21/97
      Expired                                                   652,550         5.00         3/21/97 to 6/21/97
                                                             ----------

      Outstanding and exercisable at July 31, 1997              708,251      4.00 - 7.50     12/9/97 to 9/10/99

      Sold in February 1998 Private Placement                 1,168,575         2.50               5/19/01
      Issued to the Placement Agent in connection
          with the February 1998 Private Placement
          (see note 6)                                          350,574      2.20 - 2.50           5/19/01
      Exercised                                                   4,950      2.20 - 2.50           5/19/01
      Expired                                                   338,506      4.19 - 5.50     8/31/97 to 1/21/98
                                                             ----------

      Outstanding and exercisable at July 31, 1998            1,883,944      2.20 - 7.50     10/1/98 to 5/19/01

      Expired                                                    55,945         4.00               10/1/98
                                                             ----------

      Outstanding and exercisable at July 31, 1999            1,827,999      2.20 - 7.50     8/29/99 to 5/19/01
                                                              =========      ===========
</TABLE>



                                                                     (Continued)

                                      F-28
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(8)  Stock Options

     1993 Stock Option Plan

     The  Company's  stockholders  approved the 1993 stock option plan  totaling
     3,000,000  shares,  which provide that options may be granted to employees,
     directors and consultants.  Options are granted at market value on the date
     of the grant and generally are exercisable in 20% increments  annually over
     five years  starting  one year after the date of grant and  terminate  five
     years from their initial exercise date.

     1997 Stock Option Plan

     The  Company's  stockholders  approved the 1997 stock option plan  totaling
     2,000,000  shares,  which provide that options may be granted to employees,
     directors and consultants.  Options are granted at market value on the date
     of the grant and generally are exercisable in 20% increments  annually over
     five years  starting  one year after the date of grant and  terminate  five
     years from their initial exercise date.

     The following table  summarizes stock option activity for the period August
     1, 1994 to July 31, 1999  including  options issued under the 1997 and 1993
     stock option plans and the 1989 stock plan:

<TABLE>
<CAPTION>
                                                                                              Weighted Average
                                                      Shares Available                        Exercise Price Per
                                                         for Grant              Shares             Share
                                                         ---------              ------             -----
<S>                                                        <C>                <C>            <C>
       Balance August 1, 1994                              1,926,841           5,935,337     $          3.76
            Granted                                         (818,850)            818,850                2.60
            Exercised                                           --              (185,000)               2.36
            Canceled                                            --            (1,897,500)               4.30
                                                       -------------          -----------
       Balance July 31, 1995                               1,107,991           4,671,687                3.39
            Granted                                         (296,205)            296,205                3.99
            Exercised                                              -            (656,334)               2.92
            Canceled                                           6,500            (235,333)               4.89
                                                         -----------            ---------
       Balance July 31, 1996                                 818,286           4,076,225                3.43
            1997 Plan                                      2,000,000                   -                  -
            Granted                                         (932,500)            932,500                4.90
            Exercised                                              -            (639,500)               3.82
            Canceled                                         484,845            (484,845)               4.70
                                                          ----------           ----------
       Balance July 31, 1997                               2,370,631           3,884,380                3.56
            Granted                                         (234,333)            234,333                3.31
            Canceled                                          91,100             (91,100)               3.81
                                                          ----------          -----------
      Balance July 31, 1998                                2,227,398           4,027,613                3.54
            Granted                                         (595,000)            595,000                 .62
            Canceled                                         443,934            (555,737)               3.97
                                                          ----------          -----------
       Balance July 31, 1999                               2,076,332           4,066,876                3.05
                                                           =========           =========                ====
</TABLE>


                                                                     (Continued)

                                      F-29
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(8)  Stock Options, (Continued)

     The options  outstanding at July 31, 1999 will expire between  September 1,
     1999 and March 24, 2008.

     In August 1998, Ms. Shogen and Dr. Mikulski settled, and the court approved
     the  settlement,  of a claim  brought  against  them in the  United  States
     District  Court,  District  of New  Jersey  at  Newark,  New  Jersey,  by a
     shareholder under Section 16(b) of the Securities  Exchange Act of 1934 for
     profits  alleged to have been  realized by Ms.  Shogen and Dr.  Mikulski in
     transactions  involving the Company's  securities in 1988 and 1989.  Claims
     under section 16(b) are for profits  calculated  under such statute to have
     been  realized for sales and  purchases of the  Company's  securities  made
     within a six month  period.  In this case the  purchases  which  formed the
     basis for this claim were  issuances  of shares of stock to Ms.  Shogen and
     Dr.  Mikulski under  employment  agreements with the Company based upon the
     Company's  achievement of certain milestones.  No allegations of fraud were
     made.  Ms. Shogen  agreed to pay the Company  $91,971.00  and Dr.  Mikulski
     agreed to pay the Company  $72,903.00.  Such  payments  are to be made in a
     form  acceptable  to the Company  whether in cash,  shares of the Company's
     common stock or options to purchase the Company's common stock, with 25% of
     such  payments  having been made in August 1998 and the  remainder  of such
     amounts payable in three equal  installments in August 1999, 2000 and 2001.
     The initial  payments were made by the  cancellation of options to purchase
     44,999 shares of common stock owned by Ms. Shogen and the  cancellation  of
     options to purchase  35,669  shares of common stock owned by Dr.  Mikulski.
     The  obligation to make the remaining  payments is secured by the pledge to
     the  Company of options to purchase  154,908  and 122,136  shares of common
     stock by Ms. Shogen and Dr.  Mikulski,  respectively.  In August 1999,  Ms.
     Shogen paid the balance in full by the  cancellation of options to purchase
     134,995  shares owned by Ms. Shogen and Dr.  Mikulski  paid an  installment
     equal to  one-third  of the  balance  by the  cancellation  of  options  to
     purchase 35,367 shares owned by Dr. Mikulski.

     On August 31, 1999 the Company  entered  into a  separation  agreement  and
     general  release with Ms. Gail E. Fraser,  former Chief  Financial  Officer
     pursuant to which the Company and Ms.  Fraser  agreed that an  aggregate of
     395,000 options granted to Ms. Fraser under the 1993 Plan, all of which had
     vested as of the Date of  Resignation  will remain  vested and  exercisable
     until  December 30, 2000 and an aggregate of 70,000  options  granted under
     the 1993 Plan  which  had not  vested  on the Date of  Resignation  will be
     deemed  vested as of the Date of  Resignation  and will remain  exercisable
     until December 30, 2000.

     The weighted-average fair value per option at the date of grant for options
     granted during the fiscal years 1999,  1998 and 1997 were $0.36,  $2.03 and
     $3.02,  respectively.  The fair value was estimated using the Black-Scholes
     options pricing model based on the following assumptions:


                                                1999       1998       1997
                                             -------    -------    -------

     Expected dividend yield                       0%         0%         0%
     Risk-free interest rate                    6.00%      6.00%      6.00%
     Expected stock price volatility           93.99%     88.15%     59.78%
     Expected term until exercise (years)       5.59       6.17       6.20



                                                                     (Continued)

                                      F-30
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(8)  Stock Options, (Continued)

     Pro forma net loss and loss per share reflecting  approximate  compensation
     cost for the fair value of stock options awarded are as follows:


                                   1999             1998             1997
                              -------------    -------------    -------------
     Net Loss:
      As reported             $  (3,156,636)   $  (6,387,506)   $  (5,018,867)
      Pro forma                  (3,429,057)      (6,697,066)      (5,724,076)
     Loss per common share:
      As reported             $       (0.18)   $       (0.40)   $       (0.34)
      Pro forma                       (0.22)           (0.42)           (0.39)

     The pro forma  effects  on net loss and loss per  share for 1999,  1998 and
     1997 may not be  representative  of the pro forma  effects in future  years
     since  compensation  cost is  allocated on a  straight-line  basis over the
     vesting periods of the grants, which extend beyond the reported years.

     The following table summarizes  information  concerning options outstanding
     at July 31, 1999:

<TABLE>
<CAPTION>
                            Options Outstanding                                     Options Exercisable
   -----------------------------------------------------------------        ----------------------------------
                                     Weighted Average       Weighted                                 Weighted
       Range of         Number           Remaining          Average             Number               Average
       Exercise       Outstanding       Contractual         Exercise         Exercisable             Exercise
        Prices        at 7/31/99       Term (Years)          Price            at 7/31/99              Price
        ------        ----------       ------------          -----            ----------              -----
<S>                        <C>             <C>           <C>                       <C>           <C>
   $  0.29 - 1.99            595,000       4.59          $    0.62                   375,000     $    0.48
      2.00 - 2.99            335,250       2.41               2.61                   260,250          2.58
      3.00 - 3.99          2,360,948       2.34               3.21                 2,305,948          3.19
      4.00 - 4.99            563,178       2.20               4.29                   514,178          4.26
      5.00 - 5.99            167,500       4.58               5.17                   102,500          5.18
      6.00 - 6.99             45,000       3.42               6.97                    45,000          6.97
      ===========          ---------       ====               ====                 ---------          ====
                           4,066,876                                               3,602,876
                           =========                                               =========
</TABLE>

     Stock option activity prior to adoption of SFAS No. 123 is as follows:

     1981 Non-Qualified Stock Option Plan

     In 1981, the Board of Directors  adopted a non-qualified  stock option plan
     and  had  reserved   300,000  shares  for  issuance  to  key  employees  or
     consultants.  Options  were  nontransferable  and expired if not  exercised
     within five years.  Option grants of 60,000 shares  expired  unexercised by
     July 31, 1991.



                                                                     (Continued)

                                      F-31
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(8)  Stock Options, (Continued)

     Non-Qualified Stock Options

     The Board of Directors  issued  non-qualified  stock options which were not
     part of the 1981 non-qualified  stock option plan or the 1989 Stock Plan as
     follows:

                                                       Shares       Price Range
                                                       ------       -----------

      Granted                                         1,782,000    $  3.00-3.87
      Exercised                                        (276,989)      3.00-3.50
      Canceled                                         (106,000)      3.00-3.50
      Expired                                          (649,011)      3.00-3.50
      Granted pursuant to conversion of
       certain liabilities:
        Related party                                 1,324,014          3.20
        Unrelated party                                  73,804          3.20
      Repurchased stock options                        (102,807)         3.20
                                                      ---------
      Balance at July 31, 1994                        2,045,011       3.20-3.87
                                                      =========     ===========

     In connection with certain private  placements,  the Board of Directors had
     included in the agreements,  options to purchase  additional  shares of the
     Company's common stock as follows:


                                                          Shares     Price Range
                                                          ------     -----------

      Granted (42,167 options were repriced and extended  894,887    $2.50-7.00
          as described in note 8)
      Exercised                                           (81,000)    3.97-6.50
      Expired                                            (201,720)    3.97-6.50
                                                         --------
      Balance at July 31, 1994                            612,167     2.50-7.00
                                                         ========    ==========

     1989 Stock Plan

     On February 14, 1989,  the Company  adopted the Alfacell  Corporation  1989
     Stock  Plan  (the  "1989  Stock  Plan"),  pursuant  to which  the  Board of
     Directors  could issue awards,  options and grants.  The maximum  number of
     shares of common  stock that could have been issued  pursuant to the option
     plan was 2,000,000.

     No more  options are being  granted  pursuant  to this plan.  The per share
     option exercise price was determined by the Board of Directors. All options
     and shares issued upon exercise were nontransferable and forfeitable in the
     event  employment was  terminated  within two years of the date of hire. In
     the event the option was  exercised  and said  shares were  forfeited,  the
     Company would return to the optionee the lesser of the current market value
     of the securities or the exercise price paid.

     The stock option activity is as follows:


                                                                     (Continued)

                                      F-32
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(8)  Stock Options, (Continued)

                                                    Shares         Price Range
                                                    ------         -----------
          Granted, February 14, 1989              3,460,000       $  3.50-5.00
          Options issued in connection
              with share purchase                    36,365            2.75
          Expired                                (1,911,365)         2.75-5.00
          Canceled                                  (10,000)           5.00
                                                 ----------
          Balance at July 31, 1994                1,575,000          3.50-5.00
                                                 ==========        ===========

     As of fiscal year ended July 31, 1994, 1,703,159 options were granted under
     the 1993 stock option plan.

(9)  Stock Grant and Compensation Plans

     The Company had adopted a stock grant program effective  September 1, 1981,
     and pursuant to said plan, had reserved  375,000 shares of its common stock
     for issuance to key  employees.  The stock grant program was  superseded by
     the 1989 Stock Plan and no further  grants  will be given  pursuant  to the
     grant plan. The following stock  transactions  occurred under the Company's
     stock grant program:


      Year                                                  Amount
     ended                                Fair                of
    July 31,          Shares              Value          Compensation
    --------          ------              -----          ------------

      1983            20,000      $       5.50                $  110,000
      1984            19,750              5.125                  101,219
      1985            48,332           5.125-15.00               478,105
      1986            11,250           5.125-15.00               107,032
      1988            19,000              3.50                     6,500
                      ======              ====                     =====

     On January 26, 1984,  the Company  adopted a stock bonus plan for directors
     and  consultants.  The plan was  amended on  October  6,  1986,  to reserve
     500,000  shares for  issuance  under the plan and to clarify a  requirement
     that stock issued under the Plan could not be transferred until three years
     after  the date of the  grant.  The  stock  bonus  plan for  directors  and
     consultants  was  superseded  by the 1989 Stock Plan and no further  grants
     will  be  given  pursuant  to  the  stock  bonus  plan  for  directors  and
     consultants.  The following stock transactions occurred under the Company's
     stock bonus plan:


      Year                                                  Amount
     ended                                Fair                of
    July 31,          Shares              Value          Compensation
    --------          ------              -----          ------------

      1984            130,250       $    2.50-3.88           $  385,917
      1985             99,163            3.50-15.00             879,478
      1985            (42,500)              2.50               (105,825)*
      1986             15,394            9.65-15.00             215,400
      1987              5,000              15.00                 75,000
                       ======              =====                 =======

     *    Shares  granted in 1984 were  renegotiated  in 1985 and  canceled as a
          result of the recipient's termination.

                                                                     (Continued)

                                      F-33
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(9)  Stock Grant and Compensation Plans, (Continued)

     1989 Stock Plan

     Under the 1989 Stock Plan, one million shares of the Company's common stock
     were reserved for issuance as awards to employees. The 1989 Stock Plan also
     provides  for the  granting  of options  to  purchase  common  stock of the
     Company  (see note 8). In  addition,  the 1989 Stock Plan  provided for the
     issuance of 1,000,000 shares of the Company's common stock as grants. To be
     eligible for a grant, grantees must have made substantial contributions and
     shown loyal dedication to the Company.

     Awards  and grants  were  authorized  under the 1989 Stock Plan  during the
     following fiscal years:


              Year ended                                             Amount of
               July 31,              Shares      Fair Value        Compensation
               --------              ------      ----------        ------------

                 1989                30,000     $     5.00         $    150,000
                 1990                56,000           6.00              336,000
                 1991               119,000           4.00              476,000
                 1992               104,000           2.75              286,000
                 1993               117,000           2.00              234,000
                 1994                 5,000           3.00               15,000
                                      =====           ====               ======

     Compensation expense is recorded for the fair value of all stock awards and
     grants  over the  vesting  period.  The 1994  stock  award was  immediately
     vested. There were no stock awards in fiscal 1999, 1998 or 1997.

(10) Income Taxes

     The Company  accounts for income taxes under the provisions of Statement of
     Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
     No.  109).  Under this  method,  deferred  tax assets and  liabilities  are
     determined based on the difference between the financial statement carrying
     amounts and tax bases of assets and liabilities  using enacted tax rates in
     effect for all years in which the  temporary  differences  are  expected to
     reverse.

     At July 31, 1999 and 1998,  the tax effects of temporary  differences  that
     give rise to the deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                   1999             1998
                                                                ------------    ------------
<S>                                                             <C>             <C>
     Deferred tax assets:
           Excess of book over tax depreciation                 $     37,035    $     21,035
           Accrued expenses                                          311,458         159,623
           Federal and state net operating loss carryforwards     15,227,316      14,407,990
           Research and experimentation and investment tax
               credit carry forwards                                 843,418         753,314
                                                                ------------    ------------
     Total gross deferred tax assets                              16,419,227      15,341,962

     Valuation allowance                                         (16,419,227)    (15,341,962)
                                                                ------------    ------------
     Net deferred tax assets                                    $       --      $       --
                                                                ============    ============
</TABLE>


                                      F-34
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(10)  Income Taxes, (Continued)

     A valuation allowance is provided when it is more likely than not that some
     portion or all of the deferred tax assets will not be realized.

     At July 31, 1999, the Company has federal net operating loss  carryforwards
     of  approximately  $40,296,000  that expire in the years 2000 to 2019.  The
     Company  also has  investment  tax  credit  carryforwards  of  $33,015  and
     research and  experimentation  tax credit  carryforwards  of $810,403  that
     expire in the years 2000 to 2019. Ultimate utilization/availability of such
     net  operating  losses and  credits  may be  significantly  curtailed  if a
     significant change in ownership occurs in accordance with the provisions of
     the Tax Reform Act of 1986.

(11) Other Financial Information

     Accrued expenses as of July 31, consist of the following:


                                                  1999              1998
                                                --------         ----------

     Payroll and payroll taxes                  $ 50,160         $   38,147
     Professional fees                            28,000             98,568
     Clinical trial grants                       683,515            781,883
     Clinical supplies                              --              171,600
     Other                                        16,975              2,700
                                                --------         ----------
                                                $778,650         $1,092,898
                                                ========         ==========

     Other current assets as of July 31, consist of the following:


                                                  1999               1998
                                                --------           --------

     Insurance                                  $ 65,330           $ 65,661
     NIH research                                 14,579             31,625
     Other                                        66,799             19,901
                                                --------           --------
                                                $146,708           $117,187
                                                ========           ========

(12) Commitments and Contingencies

     On July 23, 1991,  the Board of Directors  authorized the Company to pay to
     the Chief  Executive  Officer of the Company an amount  equal to 15% of any
     gross  royalties  which may be paid to the Company from any license(s) with
     respect to the Company's principal product, ONCONASE, or any other products
     derived  from  amphibian  source  extract,  produced  either as a  natural,
     synthesized,  and/or  genetically  engineered drug for which the Company is
     the owner or  co-owner  of the  patents,  or  acquires  such  rights in the
     future,  for a period not to exceed the life of the patent.  If the Company
     manufactures  and markets its own drugs,  then the Company  will pay to the
     Chief  Executive  Officer  an amount  equal to 5% of gross  sales  from any
     products  sold during the life of the patents.  In addition,  the agreement
     provides for a reduction of any indebtedness to the Chief Executive Officer
     in the  amount of  $200,000  upon the  Company  entering  into a  licensing
     agreement for its principal product.

                                                                     (Continued)

                                      F-35
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(12) Commitments and Contingencies, (Continued)

     The  Company  has  product  liability  insurance  coverage in the amount of
     $6,000,000 for clinical trials. No product liability claims have been filed
     against the  Company.  If a claim arises and the Company is found liable in
     an amount  that  significantly  exceeds  the policy  limits,  it may have a
     material adverse effect upon the financial condition of the Company.

(13) Research and Development Agreement

     In  November  1992,  the  Company  entered  into a CRADA  with the NIH.  In
     accordance with this CRADA,  the NIH will perform  research for the Company
     on potential uses for its drug technology. During the term of this research
     and development  agreement,  which expired in July 31, 1999, the Company is
     obligated to pay approximately  $5,300 per month to the NIH. Total research
     and development expenses under this arrangement amounted to $64,000 for the
     three years ended July 31, 1999, 1998 and 1997.

     In  August  1995,  the  Company  entered  into a CRADA  with  the  NCI.  In
     accordance with this CRADA,  the NCI will perform  research for the Company
     on potential uses for its drug technology. During the term of this research
     and  development  agreement,  which expired in August 1999, the Company was
     obligated  to pay  approximately  $5,200 per month to the NCI. In September
     1999,  this  research and  development  agreement  was amended to expire in
     August 2000 without  additional  cost for the Company.  Total  research and
     development  expenses under this arrangement  amounted to $62,400,  $60,400
     and  $59,100  for the  fiscal  years  ended July 31,  1999,  1998 and 1997,
     respectively.

(14) 401 (K) Savings Plan

     Effective  October 1, 1998, the Company  adopted a 401(K) Savings Plan (the
     "Plan").  Qualified  employees may  participate by contributing up to 6% of
     their  gross  earnings  to the Plan  subject  to certain  Internal  Revenue
     Service restrictions.  The Company will match an amount equal to 50% of the
     first 6% of each participant's contribution.  The Company's contribution is
     subject to a vesting  schedule of 0%, 25%, 50%, 75% and 100% for employment
     of less than one year,  one year,  two years,  three  years and four years,
     respectively,  except for existing  employees  which  vesting  schedule was
     based from the date the Plan was  adopted.  For the fiscal  year ended July
     31, 1999, the Company's contribution to the Plan amounted to $16,052.





                                      F-36