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, 2000                                      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. [X]

     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 October 24, 2000 was  $17,031,321.  As of
October 24, 2000 there were 18,816,691  shares of common stock,  par value $.001
per share, outstanding.

     The Index to Exhibits appears on page 23.

                       Documents Incorporated by Reference

                                      None


<PAGE>


                                Table of Contents

PART I                                                                      Page
                                                                            ----

         Item  1.   Business                                                   1

         Item  2.   Properties                                                 9

         Item  3.   Legal Proceedings                                         10

         Item  4.   Submission of Matters to a
                    Vote of Security Holders                                  10

PART II

         Item  5.   Market for Common Equity and
                    Related Stockholder Matters                               10

         Item  6.   Selected Financial Data                                   11

         Item  7.   Management's Discussion and
                    Analysis of Financial Condition
                    and Results of Operations                                 12

         Item  7A.  Quantitative and Qualitative
                    Disclosure About Market Risk                              15

         Item  8.   Financial Statements and
                    Supplementary Data                                        15

         Item  9.   Changes in and Disagreements
                    with Accountants on Accounting
                    and Financial Disclosure                                  15

PART III

         Item 10.   Directors and Executive Officers
                    of the Registrant                                         16

         Item 11.   Executive Compensation                                    18

         Item 12.   Security Ownership of Certain
                    Beneficial Owners and Management                          21

         Item 13.   Certain Relationships and
                    Related Transactions                                      22

PART IV

         Item 14.   Exhibits, Financial Statement
                    Schedules, and Reports on Form 8-K                        23


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>


Information  contained herein contains,  in addition to historical  information,
forward-looking statements that involve risks and uncertainties. All statements,
other than  statements of  historical  fact,  regarding our financial  position,
potential,  business  strategy,  plans and objectives for future  operations are
"forward-looking  statements."  These statements are commonly  identified by the
use  of  forward-looking   terms  and  phrases  as  "anticipates,"   "believes,"
"estimates,"  "expects,"  "intends," "may," "seeks,"  "should," or "will' or the
negative thereof or other variations  thereon or comparable  terminology,  or by
discussions  of strategy.  We cannot assure that the future  results  covered by
these  forward-looking  statements  will be  achieved.  The matters set forth in
Exhibit  99.1 hereto  constitute  cautionary  statements  identifying  important
factors with respect to these forward-  looking  statements,  including  certain
risks and  uncertainties,  that could cause actual results to vary significantly
from the future results  indicated in these  forward-looking  statements.  Other
factors could also cause actual results to differ  significantly from the future
results indicated in these forward-looking statements.

                                     Part I

Item 1. BUSINESS.

Overview

We are a  biopharmaceutical  company  organized in 1981 that went public in 1983
and are primarily  engaged in the discovery  and  development  of a new class of
anti-cancer   drugs  from   amphibian   ribonucleases.   Ribonucleases   degrade
ribonucleic acids causing an interruption in protein synthesis  resulting in the
inhibition  of cell growth and induction of apoptosis  (programmed  cell death).
Our first product under  development is  ONCONASE(R)  which targets a variety of
cancers,  most of which are known to become resistant to other  chemotherapeutic
drugs.

ONCONASE(R) is a novel  amphibian  ribonuclease  that has been isolated from the
eggs of the leopard frog (Rana pipiens). Ribonucleases mediate several important
biological functions in nature,  including regulation of angiogenesis (formation
of  new  blood  vessels  that  supply  tumors),  anti-viral  and  anti-parasitic
defenses. In addition to taking advantage of the natural biological functions of
ribonucleases,  amphibian ribonucleases may be more therapeutically effective in
humans than mammalian  ribonucleases  because they do not appear to be adversely
affected  by  inhibitors  found  in  mammals.  Therefore,  developing  amphibian
ribonucleases  into  therapeutics,  and thereby taking  advantage of the natural
role of ribonucleases,  may result in a new class of compounds for proliferative
diseases  such as cancer and AIDS.  We hold a number of  patents  and retain all
commercial rights to compounds resulting from this program.

ONCONASE(R) has many potential  commercial  uses.  Based on years of preclinical
and clinical testing,  it is believed that ONCONASE(R) and related compounds may
have utility:

     o    as a single anti-cancer agent;

     o    in combination with other anti-cancer agents;

     o    as an active ingredient or payload,  in a targeted conjugate or fusion
          protein (new compound  resulting from chemically joining two different
          molecules with targeted specificity); and

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


                                        1
<PAGE>


To date,  over 700 patients have been treated with  ONCONASE(R)  and a favorable
safety profile has been  demonstrated.  Side effects associated with ONCONASE(R)
treatment have been modest and  reversible.  Patients  treated with  ONCONASE(R)
have shown virtually no evidence of myelosuppression  (bone marrow suppression),
alopecia (hair loss), or other severe organ toxicities frequently observed after
treatment with most other chemotherapeutic drugs.

ONCONASE(R)  has been used to treat  patients  with  advanced  stages of cancer.
Based  upon the Phase II and  Phase  III  clinical  data,  ONCONASE(R)  has been
observed  to be  clinically  active in  treating  unresectable  (not  surgically
removable) malignant  mesothelioma (a cancer found in the lining of the lung and
abdomen   associated   with  exposure  to  asbestos).   Unresectable   malignant
mesothelioma afflicts approximately  2,500-3,500 newly diagnosed patients in the
U.S. each year.  Epidemiologists  have  predicted that during the next 35 years,
over 250,000  people will die from this disease in Europe  alone.  Additionally,
other pilot clinical studies have been conducted and produced  promising results
in non-small cell lung cancer, metastatic breast cancer and renal cell cancer.

In June 1997, we initiated a Phase III  randomized,  controlled  clinical  trial
comparing  ONCONASE(R)  as a single  therapeutic  agent to doxorubicin (a widely
used chemotherapy  drug) in patients with unresectable  malignant  mesothelioma.
This multicenter  clinical trial was designed to compare the efficacy (survival)
and safety of ONCONASE(R) versus doxorubicin for this indication  (disease).  In
April 1999, the patient enrollment for this trial was completed. Thereafter, the
trial was  amended  to  compare  the  efficacy  and  safety of  ONCONASE(R)  and
doxorubicin  versus  doxorubicin as a single therapeutic agent, and is currently
ongoing. Our regulatory strategy for the amendment of this Phase III trial was:

o    to expand the visibility and interest in ONCONASE(R) worldwide;

o    to confirm the  observed  synergism  in vivo  (studies  performed on living
     animals) previously reported by National Cancer Institute, or NCI;

o    to provide confirmatory survival data; and

o    to provide meaningful  clinical data for potential  marketing  extension in
     this indication.

Currently,  there is no standard Food and Drug Administration,  or FDA, approved
therapy for unresectable malignant mesothelioma.

We have produced a modified  recombinant  (cloned),  version of ranpirnase which
enables other molecules to be attached to it, including  molecules with directed
specificity, such as monoclonal antibodies, growth factors and specific peptides
(which are short sequences of amino acids). This has resulted in the development
of potential new product lines of ranpirnase conjugates.  Our collaboration with
NCI has produced a potential  new  product.  A conjugate  of  ranpirnase  with a
monoclonal  antibody has  demonstrated  preclinical  activity in non-  Hodgkin's
lymphoma.  Manufacturing scale-up and pre-clinical studies are ongoing at NCI in
preparation for commencing  clinical  trials for the treatment of  non-Hodgkin's
lymphoma.

We have  discovered a number of other  biologically  active  proteins.  In vitro
studies  (performed in  established  cell lines in test tubes) of these proteins
have shown them to be involved in the  regulation  of both early  embryonic  and
malignant cell growth and differentiation.  However, it will require significant
additional research and funding to develop these proteins into therapeutics.  At
this time,  we are unable to fund such research and we do not know if we will be
able to raise sufficient capital in the future.

We believe that  ranpirnase  may also be developed as an anti-viral  agent.  The
National  Institutes of Health have  performed  independent  in vitro studies of
ONCONASE(R)  against  the HIV virus  type 1. The  results  show  ONCONASE(R)  to
inhibit replication of HIV by up to 99.9%. In addition,  the National Institutes
of Health -


                                        2
<PAGE>


Division of AIDS found ONCONASE(R) to have in vitro anti-viral activity. Subject
to the availability of the required capital, we plan to conduct further research
concerning anti-viral activity and in other viral indications such as hepatitis
C . We may not have sufficient capital to engage in further development for this
application.

ONCONASE(R) (Ranpirnase) Profile

In 1987,  we completed  the molecular  characterization  of a specific  protein,
which we have  trademarked  as  ONCONASE(R).  In October 1998, the United States
Adopted Names Council  adopted the generic name  ranpirnase as the United States
adoptive  name for  ONCONASE(R).  Based upon the  complete  amino acid  sequence
analysis  (a  protein  structure  blueprint),   it  has  been  established  that
ranpirnase  has a  unique  structure.  The  unique  nature  of our  protein  was
established  after  comparing  its  structure  to those of over  10,000  protein
sequences  registered with the National  Biomedical  Research Foundation Protein
Identification Resource, Georgetown University, Washington, DC.

Preclinical research

There is significant  in vitro and in vivo data which  indicates that the use of
ONCONASE(R) with the number of drugs is synergistic, which means that the effect
of ONCONASE(R)  with certain drugs acting together is greater than the effect of
them acting  alone and greater than the sum of their  effects.  Results of these
studies have been presented at scientific  meetings as well as published in peer
reviewed journals.

In Vitro:

NCI's in vitro  screen has  determined  that  ONCONASE(R)  demonstrates  a broad
spectrum  of  anti-tumor  activity.  Scientists  at the Harvard  Medical  School
demonstrated  that  ONCONASE(R)  can  counteract  the  biological   activity  of
angiogenin.  Angiogenin  is a protein  which  promotes  angiogenesis  (new blood
vessel formation).  Anti-angiogenic  activity is the process in which a chemical
interferes with the blood supply to cells, particularly tumors.


     Drug Combination                                 Cancer
 ONCONASE(R) + Tamoxifen                Prostatic, Ovarian, Renal Cell Carcinoma
 ONCONASE(R) + Phenothiazine            Non-Small Cell Lung Carcinoma
 ONCONASE(R) + Lovastatin               Non-Small Cell Lung, Ovarian
 ONCONASE(R) + Cisplatin                Ovarian
 ONCONASE(R) + All-trans-retinoic acid  Glioma
 ONCONASE(R) + Vincristine              Colorectal, Breast
 ONCONASE(R) + Doxorubicin              Colorectal, Resident Breast
 ONCONASE(R) + Taxol                    Resident Breast


                                        3
<PAGE>


In Vivo:

There is in vivo data which  indicates  ONCONASE(R)  with the following drugs is
synergistic:

          o    vincristine,

          o    doxorubicin, and

          o    tamoxifen.

These synergisms suggest a potential for the therapeutic  utility of ONCONASE(R)
in patients with chemotherapy- resistant tumors.

The National  Cancer  Institute  reported the ability of ONCONASE(R) to overcome
multiple drug  resistance both in vitro and in vivo.  Moreover,  ONCONASE(R) has
also been  shown to  overcome  other  forms of drug  resistance  such as that to
cisplatin.

ONCONASE(R) 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  potential   radiosensitizing   (an  increasing
sensitivity to ionizing radiation) and co-antiangiogenic effects of ONCONASE(R).
This research showed that systemic administration of ONCONASE(R) resulted in the
diminution of  interstitial  tumor fluid pressure which could promote  increased
penetration of various drugs into tumor tissue.

Regulatory Strategy

We have  been very  selective  in our  product  development  strategy,  which is
focused on the use of ONCONASE(R)  alone or in combination with drugs which have
shown  evidence of  preclinical  and clinical  efficacy on tumor types for which
median  survivals  are  typically  less than a year and  there  are no  approved
treatments.

Clinical Trials

ONCONASE(R)  has been  tested as a single  agent in  patients  with a variety of
cancers and in combination with tamoxifen in cancers such as prostate,  advanced
pancreatic and renal cell carcinoma.

In June 1997, we initiated a Phase III  randomized,  controlled  clinical  trial
comparing  ONCONASE(R)  as a single  therapeutic  agent to doxorubicin (a widely
used chemotherapy drug) in patients with unresectable  malignant mesothelioma in
35 cancer  centers  across the United  States,  including  major centers such as
Columbia-Presbyterian,  University of Chicago,  M.D.  Anderson and  Cedars-Sinai
Cancer  Centers.  This  multicenter  clinical  trial was designed to compare the
efficacy and safety of ONCONASE(R)  versus  doxorubicin for this indication.  In
April 1999, the patient enrollment for this trial was completed. Thereafter, the
trial was  amended  to  compare  the  efficacy  and  safety of  ONCONASE(R)  and
doxorubicin  versus  doxorubicin as a single therapeutic agent, and is currently
ongoing. Our regulatory strategy for the amendment of this Phase III trial was:

o    to expand the visibility and interest in ONCONASE(R) worldwide;

o    to confirm the observed synergism in vivo previously reported by NCI;

o    to provide confirmatory survival data; and

o    to provide meaningful  clinical data for potential  marketing  extension in
     this indication.

Most patients  with advanced  unresectable  malignant  mesothelioma  die of this
progressive disease within 6 to 12 months of diagnosis. No standard FDA-approved
therapy exists to treat this deadly cancer.


                                        4
<PAGE>


Gaining Marketing Approval

In order  to gain  marketing  approval  for  ONCONASE(R)  for the  treatment  of
unresectable   malignant   mesothelioma,   its  safety  and  efficacy   must  be
demonstrated.  A pre-NDA (New Drug Application) meeting with the FDA was held to
discuss the  preliminary  efficacy  and safety  results as well as the scope and
details of the proposed NDA filing. Our preliminary survival results indicated a
subset of patients defined as the Treatment Target Group, or TTG, demonstrated a
clear   survival   benefit   for   ONCONASE(R)-treated   patients   compared  to
doxorubicin-treated  patients.  No safety  concerns  related to  treatment  with
ONCONASE(R)  were identified  from the analyses of over 700 patients.  Following
the pre-NDA meeting,  we met and communicated with the FDA to establish mutually
agreed upon parameters for the NDA submission. In order to file the NDA, we must
complete all chemistry,  manufacturing and controls  requirements,  pharmacology
studies and provide  confirmatory  survival  data in the TTG patient  population
from the ongoing  trial.  Since survival  results are determined  only from dead
patients,  we cannot accurately project the date of the NDA filing at this time.
In  addition,  we are  taking  steps  to  insure  a  timely  European  marketing
registration for ONCONASE(R).  We cannot assure you that marketing  approval for
ONCONASE(R) as a treatment for malignant mesothelioma will be granted by the FDA
or by other foreign regulatory agencies.

A  Phase  I/II  clinical  trial  testing   ONCONASE(R)   in   combination   with
13-cis-retinoic acid and alpha-interferon in metastatic renal cell carcinoma has
been  conducted.  A  metastatic  renal cell  carcinoma is a cancer of the kidney
which  originates in the kidney and spreads to the other parts of the body.  The
Phase I results have led to the modification of the trial design.  The new study
has not yet been initiated.

We  initially  focused our  development  efforts on clinical  trials in advanced
pancreatic  cancer.  However,  due to the lack of a  demonstrated  statistically
significant  survival  benefit,  in July  1998 we  discontinued  two  Phase  III
clinical trials testing  ONCONASE(R) in combination with tamoxifen in pancreatic
cancer.

Research and Development Programs

Research  and  development  expenses  for the fiscal  years ended July 31, 2000,
1999, and 1998 were $1,880,000,  $2,402,000, and $5,265,000,  respectively.  Our
research  and  development  programs  focus  primarily  on  the  development  of
therapeutics from amphibian ribonucleases.  Ribonucleases are enzymes which have
been shown to be involved in the regulation of cell  proliferation,  maturation,
differentiation  and apoptosis.  Apoptosis is programmed cell death.  Therefore,
ribonucleases  may be ideal  candidates for the development of therapeutics  for
the  treatment  of cancer and other  life-threatening  diseases,  including  HIV
infection, that require anti- proliferative and pro-apoptotic properties.

The  following  table  outlines  our research and  development  program.  We are
pursuing some of these programs independently, while others are being undertaken
in collaboration with NCI.


             Program                                Disease
Cancer:
      ONCONASE(R)(ranpirnase)          Mesothelioma (ongoing clinical trials)
                                         and other solid tumors

      Ranpirnase conjugate(1)          Non-Hodgkin's lymphoma(1)

      Other novel amphibian
        ribonuclease variants          Broad spectrum of cancers

      Proteasome inhibitors            Broad spectrum of cancers

      Ranpirnase variant conjugate
        and fusion protein             Broad spectrum of cancers

      Gene therapy                     Broad spectrum of cancers


                                        5
<PAGE>


Viral Disease:
      ONCONASE(R)(ranpirnase)          HIV infection

Anti-inflammatory Diseases:
      Ranpirnase variant conjugate     Anti-inflammatory and autoimmune diseases

(1)  In collaboration  with the National  Institutes of Health - National Cancer
     Institute

Ranpirnase Conjugates and Fusion Proteins

In  addition  to use in its  native  form,  ranpirnase  is being  combined  with
targeting  molecules  to  ensure  its  delivery  to  specific  targets.  We have
developed a number of ONCONASE(R) conjugates which demonstrate  significant bio-
activity.  In  addition,  several  genes of  ranpirnase,  its variants and other
amphibian   ribonucleases  are  being   synthesized   using   "state-of-the-art"
recombinant  technologies.  We  intend  to use  these  genes  to  develop  novel
therapeutics  that  selectively  target  specific  tumors.  Production  of these
engineered  genes and  products  may also lead to their use in gene  therapy and
other therapeutic applications such as cancer and other pathological conditions.

In  collaboration  with the  National  Cancer  Institute,  we are  developing  a
ranpirnase conjugate for the treatment of patients with non-Hodgkin's  lymphoma.
The National Cancer Institute is preparing for the initiation of clinical trials
by doing  manufacturing  scale up and preclinical  studies.  However,  we cannot
ascertain at this time when the clinical trials will commence.

Proteasome Inhibitors

Cyclins and cyclin-dependent  kinases 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 the
expression of these  proteins.  In vitro studies of  ONCONASE(R)  have shown its
ability to inhibit cell cycle progression. Given that ONCONASE(R) and proteasome
inhibitors  both have been  shown in vitro to  modulate  fundamental  mechanisms
governing tumor cell growth, proliferation and death, we are testing ONCONASE(R)
and  proteasome  inhibitors  in  combination  and  have  discovered  synergistic
anti-tumor effects. We believe that a new class of anti-cancer  compounds can be
developed combining ranpirnase and its variants with proteasome inhibitors.

HIV Infection

The drugs  currently  approved in the United States for the treatment of the HIV
infection  consist  primarily of reverse  transcriptase  inhibitors and protease
inhibitors.  There is a 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, and drug non-compliance.

Experimental   data  shows  that  anti-HIV  effects  of  ONCONASE(R)  are  quite
selective,  independent  of the HIV  envelope  and  therefore  likely to inhibit
replication  of the  different  HIV-1  subtypes.  In  vitro  studies  have  been
performed  by  independent  scientific  collaborators,  including  the  National
Institutes  of  Health  -  Division  of AIDS.  Ranpirnase  is an  enzyme  highly
specialized in the breakdown of RNA molecules and might be an effective anti-HIV
agent,  irrespective of viral  mutations that may render other antiviral  agents
ineffective.  Other  viral  indications  such as  hepatitis  C will  be  further
investigated as resources allow.


                                        6
<PAGE>


Ranpirnase Variant Conjugates

We have  developed a variant of  ranpirnase  and  conjugated  it to a variety of
proteins and peptides which are potentially important from a clinical viewpoint.
These conjugates are designed to specifically  target relevant  molecules in the
body.  These  conjugates may have  therapeutic  applications in the treatment of
anti- inflammatory  diseases,  such as arthritis and other autoimmune  diseases.
However,  we  cannot  assure  you  that  these  products  will  be  successfully
developed.

Raw Materials

The major  active  ingredient  derived  from  leopard  frog eggs is the  protein
ranpirnase.  Although we currently  acquire our natural  source  material from a
single supplier,  we believe that it is abundantly available from other sources.
We have  sufficient  egg  inventory  on hand to produce  enough  ONCONASE(R)  to
complete the current clinical trials and supply  ONCONASE(R) for up to two years
after  commercialization.  We have  successfully  cloned the gene of the natural
protein  ranpirnase.  The use of  recombinant  technology  may not be more  cost
effective than the natural source.

Manufacturing

We have signed an agreement  with  Scientific  Protein  Laboratories,  or SPL, a
subsidiary of a division of American Home Products Corp., which will perform the
intermediary  manufacturing process of purifying ranpirnase.  Subsequently,  the
intermediate   product  will  be  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 our product.  Compliance with
Current Good  Manufacturing  Practices,  or cGMP, is a requirement  for products
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,
manufacture in accordance  with cGMP. For the foreseeable  future,  we intend to
rely on these  manufacturers,  or substitute  manufacturers,  if  necessary,  to
manufacture  our  product.  We cannot  assure  you that we would be able to find
substitute  manufacturers,  if  necessary.  We are  dependent  upon our contract
manufacturers  to comply  with  cGMPs and to meet our  production  requirements.
There can be no assurance that our contract manufacturers will comply with cGMPs
or timely deliver sufficient quantities of our products.

Marketing

We intend to market  products  for which we gain  approval,  either  directly or
through  co-promotion  or  other  licensing  arrangements  with  pharmaceutical,
biopharmaceutical or biotechnology companies. We may:

o    grant exclusive  marketing rights to corporate  partners in return for such
     corporate  partners'  assuming  further  research  and  development  costs,
     up-front fees, milestone payments and royalties on sales; or

o    build or rent a targeted  oncology  sales force to market  ONCONASE(R)  and
     subsequent products; or

o    establish a strategic relationship with a larger biopharmaceutical  company
     to co-promote ONCONASE(R) in the United States and other territories.

However, we cannot assure you that any of these arrangements will materialize.


                                        7
<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,   manufacturing   and   marketing  of
pharmaceutical  products.  Obtaining FDA approval for a new therapeutic may take
many  years  and  involve  substantial  expenditures.  State,  local  and  other
authorities also regulate pharmaceutical manufacturing facilities.

As an initial step in the FDA regulatory  approval process,  preclinical studies
are  conducted  in  laboratory  dishes  and  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,
or IND,  which is filed to obtain  approval  to begin human  testing.  The human
clinical testing program typically involves up to three phases.  Data from human
trials as well as other regulatory requirements such as chemistry, manufacturing
and controls;  pharmacology and toxicology sections, are submitted to the FDA in
a New Drug Application or Biologics License  Application,  or BLA.  Preparing an
NDA or BLA involves considerable data collection, verification and analysis.

We have not received  United States or other  marketing  approval for any of our
product  candidates  and  may  not  receive  any  approvals.  We  may  encounter
difficulties  or   unanticipated   costs  in  our  effort  to  secure  necessary
governmental  approvals,  which could delay or  preclude us from  marketing  our
products.

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

Patents and Trademarks

We believe it is important to develop new technology and to improve our existing
technology.  When appropriate, we file patent applications to protect inventions
in which we have an ownership interest.

We own six legally effective United States patents:

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

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

o    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(R) with
     certain other pharmaceuticals.

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

We own three European  patents,  which have been  validated in certain  European
countries.  These European  patents cover  ONCONASE(R),  process  technology for
making   ONCONASE(R),   and  combinations  of  ONCONASE(R)  with  certain  other
chemotherapeutics.  We also own other patent applications,  which are pending in
the United States, Europe, and Japan.  Additionally,  we own 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 Collaborative  Research and Development Agreements to which we and
the National Institutes of Health are parties.


                                        8
<PAGE>


Patents covering biotechnological inventions have an uncertain scope, and we are
subject to this uncertainty.  Our patent  applications may not issue as patents.
Moreover, our patents may not provide us with competitive advantages and may not
withstand challenges by others. Likewise,  patents owned by others may adversely
affect our ability to do business. Furthermore, others may independently develop
similar  products,  may duplicate our  products,  and may design around  patents
owned by us.

We also  rely on  proprietary  know-how  and on trade  secrets  to  develop  and
maintain  our  competitive  position.  Others  may  independently  develop  such
know-how or trade secrets or may otherwise  obtain access thereto.  Although our
employees  and  consultants  have  access  to  proprietary  information  and are
required  to  sign  agreements  which  require  them to  keep  such  information
confidential.   However,   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 us.  Most of  these  entities  and
associations  have far greater financial  resources,  larger research staffs and
more extensive physical facilities.  These competitors may develop products that
are more effective than ours and may be more successful than us at producing and
marketing  their  products.  We are not  aware of any  product  currently  being
marketed  which has the same  mechanism of action as  ONCONASE(R)  or of any FDA
approved drug for the treatment of malignant mesothelioma.

Employees

As of October 24,  2000,  we employed  14  persons,  of whom 12 were  engaged in
research and  development  activities and 2 were engaged in  administration  and
management.  We have 5  employees  who hold Ph.D.  or M.D.  degrees.  All of our
employees are covered by confidentiality  agreements. We consider relations with
our employees to be very good. None of our employees are covered by a collective
bargaining agreement.

Environmental Matters

Our  operations  are  subject  to  comprehensive   regulation  with  respect  to
environmental,  safety and similar  matters by the United  States  Environmental
Protection  Agency 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 we expand or change our existing
operations or propose any new  operations,  we may need to obtain  additional or
amend existing  permits or  authorizations.  We spend time,  effort and funds in
operating  our  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
our financial condition. The principal environmental regulatory requirements and
matters known to us requiring or potentially  requiring capital  expenditures by
us do not appear likely,  individually  or in the aggregate,  to have a material
adverse effect on our financial condition.  We believe that we are in compliance
with all current laws and regulations.

Item 2. PROPERTIES.

We lease a total of  approximately  17,000 square feet in an  industrial  office
building  located in  Bloomfield,  New  Jersey.  We lease the  facility  under a
five-year operating lease which is due to expire December 31, 2001. The

                                        9

<PAGE>


annual rental  obligation,  which  commenced  January 1, 1997, is $96,775 and is
subject to escalation  amounts.  We believe that the facility is sufficient  for
our needs in the foreseeable future.

Item 3. LEGAL PROCEEDINGS.

We are presently not involved in any legal proceedings.

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

None.

                                     Part II

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

Our common stock is traded on the OTC Bulletin Board, or OTCBB, under the symbol
"ACEL".  At the close of business  April 27,  1999,  we were  delisted  from The
Nasdaq  SmallCap  Market,  or Nasdaq,  for failing to meet the minimum bid price
requirements  set forth in the NASD  Marketplace  Rules. As of October 24, 2000,
there were approximately 1,265 stockholders of record of our 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, 2000 and 1999.  The prices
for the  periods  commencing  April 28,  1999 were  obtained  from OTCBB and the
prices 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, 2000:
      First Quarter                                15/16         13/32
      Second Quarter                             1-15/16           3/8
      Third Quarter                                3-7/8         23/32
      Fourth Quarter                               2-5/8         11/16

Year Ended July 31, 1999:
      First Quarter                                1-1/4         13/32
      Second Quarter                                 1/2          7/32
      Third Quarter                                  7/8         13/64
      Fourth Quarter                                9/16          3/16

We have not paid  dividends  on our common stock since  inception  and we do not
plan to pay  dividends in the  foreseeable  future.  Any earnings we may realize
will be retained to finance our growth.

Recent Sales of Unregistered Securities

In August 2000,  we issued 11,800 shares of common stock for payment of services
rendered,  in a private transaction  consummated pursuant to Section 4(2) of the
Securities Act of 1933, as amended.


                                       10
<PAGE>


In August and September  2000, we sold an aggregate of 333,332  shares of common
stock to  private  investors  at a price of $1.50 per share  resulting  in gross
proceeds of $499,998. In addition,  the private investors were granted five-year
warrants to purchase an aggregate of 166,666 shares of common stock at per share
exercise price of $3.00.  These  transactions were consummated as a private sale
pursuant to Section 4(2) of the Securities Act of 1933, as amended.

In September  2000, we issued 40,000 shares of common stock upon the exercise of
stock options by a related party  resulting in gross  proceeds of $16,100,  in a
transaction  consummated  as a private  sale  pursuant  to  Section  4(2) of the
Securities Act of 1933, as amended.

Item 6. SELECTED FINANCIAL DATA.

Set forth  below is the  selected  financial  data for our  company for the five
fiscal years ended July 31.

<TABLE>
<CAPTION>

Year Ended                                                        July 31,
-----------           ----------------------------------------------------------------------------------------------
                            2000                1999                1998                1997                1996
                        -----------         -----------         -----------         -----------         -----------
<S>                     <C>                 <C>                 <C>                 <C>                 <C>
Revenue                     $51,144            $168,372            $311,822            $442,572            $184,250
Net Loss (1)            $(1,722,298)        $(3,156,636)        $(6,387,506)        $(5,018,867)        $(2,942,152)
Net Loss Per Basic
and Diluted Share             $(.10)              $(.18)              $(.40)              $(.34)              $(.25)
Dividends                      None                None                None                None                None

At Year End:                                                      July 31,
-----------           ----------------------------------------------------------------------------------------------
                            2000                1999                1998                1997                1996
                        -----------         -----------         -----------         -----------         -----------
Total Assets               $488,099          $1,728,648          $5,516,678          $8,034,954          $8,487,711
Long-term                    30,251                None              $6,727             $15,902          $1,398,760
Obligations
Total Equity
(Deficiency)              $(131,860)           $757,200          $3,691,838          $5,566,091          $6,650,266

</TABLE>

(1)  Included  in the net loss of  $(1,722,298)  for fiscal  year ended July 31,
     2000 is a tax benefit of $755,854  related to the sale of certain state tax
     operating loss carryforwards.

                                       11
<PAGE>


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

Overview

Since our  inception,  we have  devoted  the  majority of our  resources  to the
research and  development of  ONCONASE(R).  After we obtained the results of our
preliminary  analysis  of the Phase III  clinical  trial  results  for  advanced
pancreatic  cancer,  we closed the  pancreatic  cancer trials and redirected our
resources  towards the  completion of the ongoing  Phase III clinical  trial for
unresectable malignant  mesothelioma.  We have presented our preliminary results
of the Phase III trial in patients with  malignant  mesothelioma  to the FDA and
have begun a series of meetings  and  communications  with the FDA to  establish
mutually  agreed upon  parameters for the NDA  submission.  We must complete all
chemistry,  manufacturing and controls and pharmacology requirements of the NDA,
as well as provide  confirmatory  survival data from the ongoing  trial.  We are
also exploring various strategic  alternatives for our business and our research
and development operations.

We are currently  funding the research and development of our products from cash
reserves resulting from the previous sales of our securities. The termination of
the Phase III clinical trials for advanced  pancreatic  cancer had a significant
and detrimental impact on the price of our common stock and our ability to raise
additional capital for future operations. We may not have, or be able to obtain,
the  financial  resources  required to pay for all the  associated  costs of the
malignant   mesothelioma   program  to  file  a  Unites  States  and/or  foreign
registration for the marketing approval of ONCONASE(R) for this indication.

Results of Operations

Fiscal Years Ended July 31, 2000, 1999 and 1998

Revenues

We are a  development  stage  company  as defined  in the  Financial  Accounting
Standards  Board's  Statement of Financial  Accounting  Standards  No. 7. We are
devoting  substantially  all our present  efforts to establishing a new business
and developing new drug products.  Our planned principal operations of marketing
and/or licensing of new drugs have not commenced and,  accordingly,  we have not
derived any  significant  revenue  from these  operations.  We focus most of our
productive and financial  resources on the development of  ONCONASE(R).  We have
not had any sales in fiscal 2000,  1999 and 1998.  Investment  income for fiscal
2000 was $51,000  compared to $168,000  for fiscal 1999, a decrease of $117,000.
This decrease was due to lower balances of cash and cash equivalents. 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.

Research and Development

Research  and  development  expense for fiscal 2000 was  $1,880,000  compared to
$2,402,000  for fiscal  1999, a decrease of $522,000 or 22%.  This  decrease was
primarily due to an 80% decrease in costs in support of ongoing clinical trials,
primarily due to lower clinical  costs related to the Phase III clinical  trials
for  malignant  mesothelioma  and  pancreatic  cancer,  an 82% decrease in costs
related to the preclinical research studies of ONCONASE(R) and a 44% decrease in
costs related to the  manufacture  of clinical  supplies of  ONCONASE(R).  These
decreases were offset by an increase in expenses in preparation of an NDA filing
for ONCONASE(R)  and an 82% increase in expenses  associated with the new patent
and trademark applications for ONCONASE(R).

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(R),  a 47% decrease in costs in support of ongoing clinical
trials,

                                       12
<PAGE>


an 82% decrease in expenses for  preparation of an NDA for  ONCONASE(R) 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.

General and Administrative

General and  administrative  expense for fiscal  2000 was  $645,000  compared to
$921,000  for fiscal  1999,  a decrease of $276,000 or 29%.  This  decrease  was
primarily due to a 45% reduction in  administrative  personnel costs,  primarily
due to the  resignation  of our  chief  financial  officer,  a 46%  decrease  in
consulting  fees and a 55% decrease in public  relations  expenses,  offset by a
$20,000 increase in legal fees.

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.

Interest

Interest  expense for fiscal 2000 was $5,000  compared to $2,000 in fiscal 1999,
an increase of $3,000. The increase was primarily due to the financing of office
equipment during the fiscal year ended July 31, 2000.

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 our $1.4 million term loan  agreement  with our
bank during the fiscal year ended July 31, 1998.

Income Taxes

New Jersey has enacted legislation  permitting certain  corporations  located in
New  Jersey  to sell  state  tax  loss  carryforwards  and  state  research  and
development  credits  or tax  benefits.  Approximately  $2.4  million of our tax
benefits  were  approved  for  sale by the  state  in  December  1999,  of which
approximately  $1 million was allocated to be sold between July 1, 1999 and June
30, 2000. In December 1999, we received  $755,854 from the sale of $1 million of
our tax benefits  which was recognized as a tax benefit for fiscal year 2000. We
will attempt to sell the remaining  balance of our tax benefits in the amount of
approximately  $1.4 million  between July 1, 2000 and June 30, 2001,  subject to
all existing laws of the State of New Jersey. However, we cannot assure you that
we will be able to find a buyer for our tax  benefits or that such funds will be
available in a timely manner.

Net Loss

We have incurred net losses during each year since our  inception.  The net loss
for fiscal 2000 was  $1,722,000  as compared  to  $3,157,000  in fiscal 1999 and
$6,388,000  in fiscal  1998.  The  cumulative  loss from the date of  inception,
August 24,  1981,  to July 31,  2000  amounted to  $56,677,000.  Such losses are
attributable  to the  fact  that  we are  still  in the  development  stage  and
accordingly have not derived  sufficient  revenues from operations to offset the
development stage expenses.

Liquidity and Capital Resources

We have financed our operations  since  inception  primarily  through equity and
debt financing,  research product sales and interest  income.  During the fiscal
year 2000,  we had a net decrease in cash and cash  equivalents  of  $1,126,000.
This decrease primarily  resulted from net cash used in operating  activities of
$1,713,000 and net


                                       13
<PAGE>


cash used in investing  activities  of $38,000,  offset by net cash  provided by
financing  activities  in the amount of  $625,000,  primarily  from the  private
placement of common  stock and warrants and proceeds  from the exercise of stock
options.  Total cash  resources  as of July 31, 2000 were  $257,000  compared to
$1,383,000 at July 31, 1999.

Our current  liabilities as of July 31, 2000 were $590,000  compared to $971,000
at July 31, 1999, a decrease of $375,000 or 39%. The decrease was  primarily due
to a reduction in our accrued  expenses,  primarily  due to the  reduction of an
accrual  related  to the Phase III  clinical  trials for  pancreatic  cancer and
decrease in costs in support of ongoing clinical  trials,  offset by an increase
in expenses for the preparation of an NDA filing for ONCONASE(R) and an increase
in legal fees,  primarily due to the filing of an S-1 registration  statement to
register the resale of up to 3,764,671  shares of our common  stock.  As of July
31,  2000 our  current  liabilities  exceeded  our  current  assets and we had a
working capital deficit of $304,000.

New Jersey has enacted legislation  permitting certain  corporations  located in
New  Jersey  to sell  state  tax  loss  carryforwards  and  state  research  and
development  credits  or tax  benefits.  Approximately  $2.4  million of our tax
benefits  were  approved  for  sale by the  state  in  December  1999,  of which
approximately  $1 million was allocated to be sold between July 1, 1999 and June
30, 2000. In December  1999, we received  $755,854 from the sale of a portion of
our tax  benefits.  We will  attempt  to sell the  remaining  balance of our tax
benefits in the amount of  approximately  $1.4 million  between July 1, 2000 and
June 30, 2001, subject to all existing laws of the State of New Jersey. However,
we cannot  assure you that we will be able to find a buyer for our tax  benefits
or that such funds will be available in a timely fashion.

Our continued  operations will depend on our ability to raise  additional  funds
through   various   potential   sources  such  as  equity  and  debt  financing,
collaborative agreements,  strategic alliances,  sale of tax benefits,  revenues
from the  commercial  sale of  ONCONASE(R)  and our  ability to realize the full
potential of our technology and our drug  candidates.  Such additional funds may
not become  available as we need them or be available on  acceptable  terms.  To
date, a significant portion of our financing has been through private placements
of common stock and warrants, the issuance of common stock for stock options and
warrants  exercised  and for services  rendered,  debt  financing  and financing
provided by our Chief Executive  Officer.  Additionally,  we have raised capital
through the sale of our tax benefits.  Until our operations generate significant
revenues,  we will continue to fund operations from cash on hand and through the
sources of  capital  previously  described.  In August and  September  2000,  we
received gross proceeds of approximately  $516,000 from the private placement of
various  individual  investors  and an  exercise  of stock  options by a related
party.  After taking into account the net proceeds  received and the anticipated
proceeds from the sale of the balance of our tax  benefits,  we believe that our
cash and cash  equivalents  as of July 31, 2000 will be  sufficient  to meet our
anticipated cash needs through February 2001. We may not be able to receive such
funds in a timely manner.  If we are unable to obtain funds from the sale of our
tax benefits in a timely  basis,  our current cash reserves will be exhausted in
December  2000.  The  report  of  our  independent  auditors  on  our  financial
statements  includes an  explanatory  paragraph  which states that our recurring
losses,  working capital deficit and limited liquid resources raise  substantial
doubt about our ability to continue as a going concern. Our financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

We will  continue  to incur  costs in  conjunction  with  our U.S.  and  foreign
registrations  for  marketing  approval  of  ONCONASE(R).  We are  currently  in
discussion with several potential  strategic  alliance partners  including major
international   biopharmaceutical  companies  to  further  the  development  and
marketing of ONCONASE(R) and other related products in our pipeline. However, we
cannot assure you that any such  alliances will  materialize.  We intend to seek
foreign  marketing  approvals  for  ONCONASE(R)  for the  treatment of malignant
mesothelioma.  Clinical  data is  required  in certain  European  countries  for
registration. Therefore, we have initiated a plan to expand our ongoing clinical
trial internationally.


                                       14
<PAGE>


Our 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, our
common stock trades on the OTC Bulletin Board under the symbol "ACEL". Delisting
of our common  stock from  Nasdaq  could have a material  adverse  effect on our
ability to raise additional capital,  our stockholders'  liquidity and the price
of our common stock.

The market  price of our 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 our common stock could also be  materially  affected by the
marketing approval or lack of approval of ONCONASE.

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., or AHC,
terminated  their  association  with AHC,  or AHC  termination,  and AHC  ceased
performing  accounting  and  auditing  services,  except for limited  accounting
services to be performed on our behalf.  In June 1996,  AHC dissolved and ceased
all operations.  The report of KPMG LLP with respect to our financial statements
from  inception  to July 31,  2000 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  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 us, 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,  our officers and directors  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 our common stock or otherwise.


                                       15
<PAGE>


                                    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                        55           1981           Chairman of the Board, Chief Executive
                                                                  Officer and Acting Chief Financial Officer

Stanislaw M. Mikulski, M.D.           56           1986           Executive Vice President, Medical Director
                                                                  and Director

Stephen K. Carter, M.D.(1)            62           1997           Director and Chairman of the Scientific
                                                                  Advisory Board

Donald R. Conklin(1)(2)               64           1997           Director

Martin F. Stadler(1)(2)               58           1997           Director
</TABLE>

(1)  Member of Compensation Committee

(2)  Member of Audit Committee

Business Experience of Directors and Executive Officers

Kuslima Shogen has served as our Chief  Executive  Officer since September 1986,
as Chairman of the Board since August 1996,  as a Director  since our  inception
and as Acting Chief  Financial  Officer since June 23, 1999.  She also served as
our Chief  Financial  Officer from  September  1986 through July 1994 and as our
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 our
founding,  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,  or 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 as our Executive Vice President
and  Medical  Director  since 1987 and as a Director  since  1986.  Prior to his
affiliation  with us, Dr.  Mikulski  was Special  Assistant  to the Chief of the
Investigational   Drug  Branch  of  the  National  Cancer  Institute,   and  the
Coordinator  for  Immunotherapy  Trials in  Cancer  for the  Division  of Cancer
Treatment.  Prior to joining  us, 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,
The American  Association for Cancer  Research and the American  Association for
the  Advancement  of Science.  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.


                                       16
<PAGE>


Stephen K. Carter,  M.D. joined the Board of Directors in May 1997 and serves as
Chairman of our Scientific Advisory Board. In addition to his positions with us,
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 National Cancer
Institute,  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.

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 our  stock  by our  executive  officers  and
directors and owners of 10% or more of our 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,  2000,  all  reports  required to be filed
pursuant to Section 16(a) of the Exchange Act were filed in a timely manner.


                                       17
<PAGE>


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  our 1993 Stock  Option Plan or 1993 Plan  which,  among
other  things,  provides  for  automatic  grants of  options  under a formula to
non-employee directors or 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 our common stock,
or the  regular  grant;  and  (ii) on the  date of each  independent  director's
initial  election  to the  Board of  Directors,  the newly  elected  independent
director automatically receives an option to purchase the 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  year,  or 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.  An
option  will not  become  exercisable  as to any shares  unless the  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 the  independent  director  joined  the  Board  until the date on which the
options are scheduled to vest and become exercisable. However, if an independent
director  does  not  fulfill  such  continuous  service  requirement  due to the
independent  director's  death or disability all options held by the 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 equal to the average of the high
and low trade  prices of our  common  stock for the  twenty  (20)  trading  days
preceding the date of grant.

During the fiscal year ended July 31, 2000, 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 formula set forth
above.


Name                    Number of Options       Exercise Price       Expiration
----                    -----------------       --------------       ----------

Stephen K. Carter             15,000                $ 0.48            12/30/05
Donald R. Conklin             15,000                $ 0.48            12/30/05
Martin F. Stadler             15,000                $ 0.48            12/30/05

Additionally,  in December 1999 our compensation committee approved the issuance
of an aggregate total of 75,000 stock options to our outside board of directors,
which vested on the date of grant.  The exercise  price of the stock options was
$0.47 per share which was based on the average of the high and low trade  prices
of our common  stock for the twenty  (20)  trading  days  preceding  the date of
grant.

Compensation Committee Interlocks and Insider Participation

During  the  fiscal  year  ended  July 31,  2000,  the  members  of our Board of
Directors  who served on the  Compensation  Committee  were  Stephen K.  Carter,
Donald R. Conklin and Martin F. Stadler, all of whom are non-employee directors.


                                       18
<PAGE>


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, 2000, 1999 and 1998 earned by
our Chief  Executive  Officer and  Executive  Vice  President  or our  executive
officers during the last fiscal year.

<TABLE>
<CAPTION>
                                                                                              Long Term
                                              Annual Compensation                           Compensation
                        ---------------------------------------------------------------   -----------------
                                                                                             Securities
                                                                         Other Annual        Underlying          All Other
      Name and                          Salary           Bonus           Compensation       Options/SARs        Compensation
 Principal Position       Year           ($)              ($)               ($)(1)               (#)               ($)(2)
---------------------   --------     ------------     -----------      ----------------   -----------------   ----------------

<S>                       <C>            <C>             <C>                <C>                 <C>                <C>
Kuslima Shogen            2000           $150,000        - 0 -              - 0 -               215,000            3,615
Chief Executive           1999            150,000        - 0 -              - 0 -                - 0 -             3,289
Officer, Chairman         1998            150,000        - 0 -              - 0 -                - 0 -             - 0 -
of the Board of
Directors and
Acting Chief
Financial Officer

Stanislaw M.              2000           $130,000        - 0 -              - 0 -               130,000            3,600
Mikulski                  1999            130,000        - 0 -              - 0 -                50,000            2,850
Executive Vice            1998            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 our executive officers' total annual salary and bonus.

(2)  Consists of our contributions to a 401(k) plan.

Option Grants in Last Fiscal Year

The following table contains  information  concerning the grant of stock options
to our executive officers during the fiscal year ended July 31, 2000:

<TABLE>
<CAPTION>
                                    Individual Grants
                                                                                             Potential Realizable Value at
                                                                                                Assumed Annual Rates of
                                                                                             Stock Price Appreciation for
                                                                                                    Option Term(2)
----------------------------------------------------------------------------------------- -----------------------------------
                         Number of
                        Securities        % of Total
                        Underlying      Options Granted     Exercise or
                          Options       to Employees in      Base Price     Expiration
        Name            Granted (#)       Fiscal Year       ($/Share)(1)       Date
                                                                                            0%($)      5%($)        10%($)
--------------------  ---------------  ------------------  -------------- --------------- --------- -----------  ------------
<S>                     <C>                 <C>                 <C>          <C>              <C>      <C>         <C>
Kuslima Shogen           23,000(3)           3.25%              $.54         10/15/04         --       $  621       $ 1,242
                         23,000(3)           3.25%               .54         10/15/05         --          621         1,242
                         23,000(3)           3.25%               .54         10/15/06         --          621         1,242
                         23,000(3)           3.25%               .54         10/15/07         --          621         1,242
                         23,000(3)           3.25%               .54         10/15/08         --          621         1,242
                        100,000(4)          14.14%               .48         12/31/01(4)      --        2,400         4,800
</TABLE>
                                       19
<PAGE>


<TABLE>
<CAPTION>
                                    Individual Grants
                                                                                             Potential Realizable Value at
                                                                                                Assumed Annual Rates of
                                                                                             Stock Price Appreciation for
                                                                                                    Option Term(2)
------------------------------------------------------------------------------------------------------------------------------
                         Number of
                        Securities        % of Total
                        Underlying      Options Granted     Exercise or
                          Options       to Employees in      Base Price     Expiration
        Name            Granted (#)       Fiscal Year       ($/Share)(1)       Date
                                                                                            0%($)      5%($)        10%($)
--------------------  ---------------  ------------------  -------------- --------------- --------- -----------  ------------
<S>                      <C>                 <C>                <C>          <C>              <C>      <C>           <C>
Stanislaw M.             11,000(3)            1.56%             $.54         10/15/04         --       $  297        $  594
Mikulski                 11,000(3)            1.56%              .54         10/15/05         --          297           594
                         11,000(3)            1.56%              .54         10/15/06         --          297           594
                         11,000(3)            1.56%              .54         10/15/07         --          297           594
                         11,000(3)            1.56%              .54         10/15/08         --          297           594
                         75,000(4)           10.61%              .48         12/31/01(4)      --        1,800         3,600
</TABLE>


(1)  The exercise  prices of these options were based on the average of the high
     and low trade  prices of our common  stock for the twenty (20) trading days
     preceding the date of grant.

(2)  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  prices of the options  equal the market
     price of the underlying  common stock on the date the options were granted,
     and thus the options  will have no value  unless our stock price  increases
     above the exercise prices.

(3)  These options vested and became  exercisable as to 20% of the shares on the
     date of the grant and 20% of the shares each year thereafter.

(4)  These  options  will  vest and  become  exercisable  upon FDA  approval  of
     ONCONASE(R) for malignant  mesothelioma  provided that  ONCONASE(R) must be
     approved on or before  December 31, 2001, or these options will  terminate,
     and the executive  officers must be actively  employed by Alfacell  through
     the date of the  approval.  These  options will expire five years after the
     vesting date.

Option Exercises and Fiscal Year-End Values

The  following  table sets forth the  information  with respect to our executive
officers  concerning  the exercise of options  during the fiscal year ended July
31, 2000 and unexercised options held as of July 31, 2000.

<TABLE>
<CAPTION>
                                                             Number of Securities              Value of Unexercised
                                                            Underlying Unexercised              In-The-Money Options
                                                          Options at Fiscal Year-End          at Fiscal Year-End($)(1)
                                                                      (#)
                            Shares          Value
        Name              Acquired on      Realized     Exercisable     Unexercisable     Exercisable     Unexercisable
                         Exercise (#)        ($)
---------------------  ----------------- ------------  -------------- ------------------ -------------- ------------------
<S>                          <C>             <C>          <C>               <C>             <C>              <C>
Kuslima Shogen               None            None         1,127,723         192,000          $8,510          $77,040

Stanislaw M. Mikulski        None            None           339,845         119,000         $28,070          $48,530
</TABLE>


                                       20
<PAGE>

(1)  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  ($0.91)  for the common
     stock  obtained from the OTC Bulletin  Board on the last trading day of the
     fiscal year July 31, 2000.

Employment and Termination Agreements

On August 31, 1999 we entered into a separation  agreement  and general  release
with Ms. Gail E. Fraser pursuant to which:

o    Ms. Fraser  confirmed her  resignation as vice  president,  finance,  chief
     financial officer, director and employee effective as of June 23, 1999,

o    we agreed to pay Ms. Fraser her regular salary for the period commencing on
     the date of resignation through July 31, 1999,

o    we agreed with Ms. Fraser that an aggregate of 395,000  options  granted to
     Ms. Fraser under our 1993 Stock Option Plan,  all of which had vested as of
     the date of her  resignation,  will  remain  vested and  exercisable  until
     December 30, 2000 and an aggregate of 70,000 options granted under our 1993
     Stock  Option  Plan,  which had not vested on the date of her  resignation,
     will be  deemed  vested  as of the  date of  resignation  and  will  remain
     exercisable  until  December  30,  2000,

o    we agreed to pay for health  insurance  for Ms.  Fraser and her  dependents
     until July 1999,

o    we and Ms. Fraser released each other from all claims and,

o    Ms. Fraser agreed not to compete with us 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 our
outstanding common stock, each of the current  directors,  each of our executive
officers and all directors and executive officers as a group as of September 30,
2000.  Except as  otherwise  noted,  each person has sole voting and  investment
power with respect to the shares shown as beneficially owned.



                                              Number       Percentage of Common
Directors, Officers or 5% Stockholders(1)    of Shares(2)  Stock Outstanding(3)
------------------------------------------   ---------     ---------------------
Kuslima Shogen                               2,442,343(4)          12.2%
Stanislaw M. Mikulski                          723,095(5)           3.8%
Stephen K. Carter                              103,750(6)            *
Donald R. Conklin                              169,250(7)            *
Martin F. Stadler                              161,250(8)            *
All executive officers and directors
as a group (five persons)                    3,599,688(9)          17.5%

*    Less than one percent.

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


                                       21
<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 September  30, 2000 by (ii) the sum of (A)
     the number of shares of common stock  outstanding  as of September 30, 2000
     plus (B) the number of shares issuable upon exercise of options or warrants
     held by such stockholder which were exercisable as of September 30, 2000 or
     which will become exercisable within 60 days after September 30, 2000.

(4)  Includes  1,173,723 shares underlying  options which were exercisable as of
     September  30, 2000 or which will become  exercisable  within 60 days after
     September 30, 2000.

(5)  Includes  361,845 shares  underlying  options which were  exercisable as of
     September  30, 2000 or which will become  exercisable  within 60 days after
     September 30, 2000.

(6)  Includes  103,750 shares  underlying  options which were  exercisable as of
     September  30, 2000 or which will become  exercisable  within 60 days after
     September 30, 2000.

(7)  Includes  103,750 shares  underlying  options which were  exercisable as of
     September  30, 2000 or which will become  exercisable  within 60 days after
     September 30, 2000.

(8)  Includes  46,250 shares  underlying  options which were  exercisable  as of
     September  30, 2000 or which will become  exercisable  within 60 days after
     September  30,  2000 and  25,000  shares  underlying  warrants  which  were
     exercisable  as of  September  30,  2000 or which will  become  exercisable
     within 60 days after September 30, 2000.

(9)  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 us to pay Kuslima Shogen an
amount  equal to 15% of any  gross  royalties  which  may be paid to us from any
license(s)  with respect to our  principal  product,  ONCONASE(R),  or any other
products  derived from amphibian  source extract,  produced either as a natural,
synthesized,  and/or  genetically  engineered  drug  for  which  we own or are a
co-owner of the patent,  or acquire such rights in the future,  for a period not
to exceed  the life of the  patents.  If we  manufacture  and  market  the drugs
ourselves,  we will pay an amount  equal to 5% of gross sales from any  products
sold during the life of the patents.

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, as amended, for profits alleged to
have been realized by Ms. Shogen and Dr. Mikulski in transactions  involving our
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
our 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 us based upon our achievement
of certain milestones. No allegations of fraud were made. Ms. Shogen

                                       22

<PAGE>


agreed to pay us $91,971.00 and Dr. Mikulski  agreed to pay us $72,903.00.  Such
payments are to be made in a form  acceptable  to us whether in cash,  shares of
our common  stock or  options to  purchase  our 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 August
1998 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.  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 February 2000 Dr. Mikulski paid the balance in
full by the cancellation of options to purchase 31,599 shares owned by him.

In  December  1999,  our  compensation  committee  approved  the  issuance of an
aggregate total of 75,000 stock options to our outside board of directors, which
vested on the date of grant.  The exercise  price of the stock options was $0.47
per share which was based on the average of the high and low trade prices of our
common stock for the twenty (20) trading days preceding the date of grant.

                                     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               ###
  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                                                                     ****
</TABLE>


                                       23

<PAGE>

<TABLE>
<CAPTION>

                                                                                         Exhibit No.
                                                                                             or
Exhibit                                                                                 Incorporation
   No.                                 Item Title                                       by Reference
-------                                ----------                                       -------------
  <S>        <C>                                                                         <C>
  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                  ####
  10.21      Form of Subscription Agreement and Warrant Agreement used in Private
             Placements completed in February 2000                                       #####
  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.

****  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.

                                       24

<PAGE>


++    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.

####  Previously  filed as exhibits to the Company's  Annual Report on Form 10-K
      for the year  ended July 31,  1999 and  incorporated  herein by  reference
      thereto.

##### Filed herewith.

(b)   Reports on Form 8-K.

      None


                                       25

<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: October 27, 2000               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:  October 27, 2000                   /s/ KUSLIMA SHOGEN
                                           Kuslima Shogen, Chief Executive
                                           Officer, Acting Chief Financial
                                           Officer (Principal Executive
                                           Officer, Principal Accounting
                                           Officer) and Chairman of the Board


Dated: October 27, 2000                    /s/ STANISLAW M. MIKULSKI
                                           Stanislaw M. Mikulski, M.D.,
                                           Executive Vice President and Director


Dated: October 27, 2000                    /s/ STEPHEN K. CARTER
                                           Stephen K. Carter, M.D., Director


Dated: October 27, 2000                    /s/ DONALD R. CONKLIN
                                           Donald R. Conklin, Director


Dated: October 27, 2000                    /s/ MARTIN F. STADLER
                                           Martin F. Stadler, Director


                                       26

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)




                                      Index
<TABLE>
<CAPTION>

                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
Independent Auditors' Report of KPMG LLP........................................................................F-2
Independent Auditors' Report of Armus, Harrison & Co. ..........................................................F-3


      Financial Statements:
           Balance Sheets - July 31, 2000 and 1999..............................................................F-5
           Statements of Operations - Years ended July 31, 2000, 1999
             and 1998 and the Period from August 24, 1981 (Date of
             Inception) to July 31, 2000........................................................................F-6
           Statement of Stockholders' Equity (Deficiency) - Period from
            August 24, 1981 (Date of Inception) to July 31, 2000................................................F-7
           Statements of Cash Flows - Years ended July 31, 2000, 1999
            and 1998 and the Period from August 24, 1981 (Date of
            Inception) to July 31, 2000........................................................................F-12
           Notes to Financial Statements - Years ended July 31, 2000,
            1999 and 1998 and the Period from August 24, 1981
            (Date of Inception) to July 31, 2000...............................................................F-15
</TABLE>


                                       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,  2000  and  1999,  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, 2000 and the period
from August 24,  1981 (date of  inception)  to July 31,  2000.  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our  opinion,  based on our audits  and,  for the  effect on the period  from
August 24,  1981 (date of  inception)  to July 31,  2000 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, 2000 and 1999, and the results of its
operations  and its cash  flows for each of the years in the  three-year  period
ended July 31, 2000 and the period from August 24, 1981 (date of  inception)  to
July 31, 2000 in conformity with accounting principles generally accepted in the
United States of America.

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,
has a working  capital  deficit 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
October 4, 2000

                                       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, 2000 and 1999

<TABLE>
<CAPTION>

                       ASSETS                                                    2000            1999
                                                                            ------------    ------------
<S>                                                                         <C>             <C>
Current assets:

         Cash and cash equivalents                                          $    257,445    $  1,383,133
         Other assets                                                             28,617          87,308
                                                                            ------------    ------------
                  Total current assets                                           286,062       1,470,441
Property and equipment, net of accumulated depreciation and
  amortization of $1,006,808 in 2000 and $944,830 in 1999                        142,170         198,807

Other assets                                                                      59,867          59,400
                                                                            ------------    ------------

                  Total assets                                              $    488,099    $  1,728,648
                                                                            ============    ============
<CAPTION>
                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<S>                                                                         <C>             <C>
Current liabilities:
         Current portion of long-term debt                                  $      7,074    $      6,727
         Accounts payable                                                        170,788         186,071
         Accrued expenses                                                        411,846         778,650
                                                                            ------------    ------------
                  Total current liabilities                                      589,708         971,448

Long-term debt, less current portion                                              30,251            --
                                                                            ------------    ------------
                  Total liabilities                                              619,959         971,448
                                                                            ------------    ------------

Commitments and contingencies
Stockholders' equity (deficiency)
         Preferred stock, $.001 par value.  Authorized and unissued,
            1,000,000 shares at July 31, 2000 and 1999                              --              --
         Common stock $.001 par value.  Authorized 40,000,000 shares;
            issued and outstanding 18,431,559 shares and 17,286,594
            shares at July 31, 2000 and 1999, respectively                        18,431          17,286
         Capital in excess of par value                                       56,526,288      55,694,195
            Deficit accumulated during development stage                     (56,676,579)    (54,954,281)
                                                                            ------------    ------------
                                                                                (131,860)        757,200)
                  Total stockholders' equity (deficiency)                   ------------    ------------

                  Total liabilities and stockholders' equity (deficiency)   $    488,099    $  1,728,648
                                                                            ============    ============
</TABLE>

See accompanying notes to financial statements.


                                       F-5

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)


                            Statements of Operations

                    Years ended July 31, 2000, 1999 and 1998,
                       and the Period from August 24, 1981
                      (Date of Inception) to July 31, 2000

<TABLE>
<CAPTION>
                                                  August 24,
                                                     1981
                                                   (date of
                                                  inception)
                                                      to
                                                   July 31,
                                                      2000            2000            1999            1998
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>               <C>
Revenues:
         Sales                                   $    553,489            --              --              --
         Investment income                          1,359,164          51,144         168,372         311,822
         Other income                                  60,103            --              --              --
                                                 ------------    ------------    ------------    ------------
                                                    1,972,756          51,144         168,372         311,822
                                                 ------------    ------------    ------------    ------------

Costs and expenses:
         Cost of sales                                336,495            --              --              --
         Research and development                  35,968,357       1,879,728       2,401,945       5,264,578
         General and administrative                20,159,648         644,588         920,686       1,412,968
         Interest:
           Related parties                          1,033,960            --              --              --
           Others                                   1,906,729           4,980           2,377          21,782
                                                 ------------    ------------    ------------    ------------
Total costs and expenses                           59,405,189       2,529,296       3,325,008       6,699,328
                                                 ------------    ------------    ------------    ------------

Net (loss) before state tax benefit               (57,432,433)     (2,478,152)     (3,156,636)     (6,387,506)

State tax benefit                                     755,854         755,854            --              --
                                                 ------------    ------------    ------------    ------------

                    Net (loss)                   $(56,676,579)     (1,722,298)     (3,156,636)     (6,387,506)
                                                 ============    ============    ============    ============

         Loss per basic and diluted
            common share                                         $      (0.10)   $      (0.18)          (0.40)
                                                                 ============    ============    ============

Weighted average number of shares
   outstanding                                                     17,812,000      17,271,000      15,926,000
                                                                 ============    ============    ============

See accompanying notes to financial statements

</TABLE>


                                       F-6

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                 Statement of Stockholders' Equity (Deficiency)

                           Period from August 24, 1981
                      (Date of Inception) to July 31, 2000

<TABLE>
<CAPTION>
                                                                                                              Deficit
                                                            Common Stock                                    accumulated
                                                      ------------------------   Capital in      Common       during
                                                       Number of                excess of par  stock to be  development
                                                        Shares       Amount        value         issued        stage
                                                      ----------    ----------  -------------  -----------  -----------
<S>                                                    <C>          <C>           <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                                                    --            --            --           --        (121,486)
                                                      ----------    ----------    ----------    ---------   -----------
Balance at July 31, 1982                               1,266,964         1,267       325,933         --        (121,486)

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                                                    --            --            --           --        (558,694)
                                                      ----------    -----------   ----------    ---------   -----------
Balance at July 31, 1983                               2,007,325         2,007     1,802,384         --        (680,180)

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                                                    --            --            --           --      (1,421,083)
                                                      ----------    ----------    ----------    ---------   -----------
Balance at July 31, 1984                               2,444,891         2,445     3,223,065         --      (2,101,263)

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                                                    --            --            --           --      (2,958,846)
                                                      ----------    ----------    ----------    ---------   -----------
Balance at July 31, 1985                               2,884,843         2,885     6,445,730         --      (5,060,109)

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                                                    --            --            --           --      (2,138,605)
                                                      ----------    ----------    ----------    ---------   -----------
Balance at July 31, 1986 (carried forward)             2,933,052         2,933     6,849,112        --       (7,198,714)
</TABLE>



<TABLE>
<CAPTION>
                                                                       Deferred
                                                                       Compens-
                                                                       sation       Total stock-
                                                        Subscription  restricted   holders' equity
                                                         Receivable     stock       (deficiency)
                                                         ----------   -----------   -----------
<S>                                                        <C>         <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

<TABLE>
<CAPTION>
                                                                                                                       Deficit
                                                                  Common Stock                                       accumulated
                                                           --------------------------    Capital in      Common          during
                                                            Number of                   excess of par  stock to be    development
                                                             Shares         Amount          value        issued          stage
                                                           -----------    -----------   -------------  -----------   ------------
<S>                                                          <C>          <C>           <C>              <C>        <C>
Balance at July 31, 1986 (brought forward)                   2,933,052    $     2,933   $  6,849,112     $  --      $ (7,198,714)

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                                                          --             --             --          --        (2,604,619)
                                                           -----------    -----------   ------------     -------    ------------
Balance at July 31, 1987                                     3,207,797          3,208      7,596,287        --        (9,803,333)

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                                                          --             --             --          --        (3,272,773)
                                                           -----------    -----------   ------------     -------    ------------
Balance at July 31, 1988                                     4,440,724          4,441     12,006,716        --       (13,076,106)

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                                                          --             --             --          --        (2,952,869)
                                                           -----------    -----------   ------------     -------    ------------
Balance at July 31, 1989                                     5,595,897          5,596     17,803,899        --       (16,028,975)

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                                                          --             --             --          --        (4,860,116)
                                                           -----------    -----------   ------------     -------    ------------
Balance at July 31, 1990 (carried forward)                   6,799,829          6,800     23,699,631        --       (20,889,091)
</TABLE>



<TABLE>
<CAPTION>
                                                                                     (Continued)

                                                                       Deferred
                                                                       Compens-
                                                                        sation       Total stock-
                                                      Subscription    restricted   holders' equity
                                                       Receivable       stock       (deficiency)
                                                      ------------    ----------   --------------
<S>                                                      <C>          <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




<TABLE>
<CAPTION>

                                                                                                                     (Continued)

                                                                                                                       Deficit
                                                                  Common Stock                                        accumulated
                                                           --------------------------    Capital in      Common         during
                                                            Number of                   excess of par  stock to be    development
                                                             Shares         Amount          value        issued          stage
                                                           -----------    -----------   -------------  -----------   ------------
<S>                                                          <C>          <C>           <C>            <C>          <C>
Balance at July 31, 1990 (brought forward)                   6,799,829    $    6,800    $ 23,699,631   $    --      $(20,889,091)

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                                                          --            --              --          --        (5,202,302)
                                                            ----------    ----------    ------------   ---------    ------------
Balance at July 31, 1991                                     7,022,549         7,022      24,642,803        --       (26,091,393)

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                                                          --            --              --          --        (4,772,826)
                                                            ----------    ----------    ------------   ---------    ------------
Balance at July 31, 1992                                     7,338,014         7,338      25,778,877        --       (30,864,219)

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                                                          --            --              --          --        (2,357,350)
                                                            ----------    ----------    ------------   ---------    ------------
Balance at July 31, 1993                                     7,862,281         7,863      26,890,082        --       (33,221,569)

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                                         --            --              --        50,000            --
Amortization of deferred compensation, restricted stock           --            --              --          --              --
Net loss                                                          --            --              --          --        (2,234,428)
                                                            ----------    ----------    ------------   ---------    ------------
Balance at July 31, 1994 (carried forward)                   9,124,681         9,125      33,680,954      50,000     (35,455,997)
</TABLE>




<TABLE>
<CAPTION>



                                                                          Deferred
                                                                          Compens-
                                                                           sation        Total stock-
                                                         Subscription    restricted     holders' equity
                                                          Receivable       stock         (deficiency)
                                                         ------------    ----------     --------------
<S>                                                         <C>          <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>

                                                                     (Continued)

                                       F-9

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

            Statement of Stockholders' Equity (Deficiency), Continued


<TABLE>
<CAPTION>
                                                                                                                   Deficit
                                                            Common Stock                                         accumulated
                                                     --------------------------    Capital in       Common         during
                                                      Number of                   excess of par   stock to be    development
                                                       Shares         Amount          value         issued          stage
                                                     -----------   ------------   -------------   -----------   ------------
<S>                                                   <C>          <C>             <C>            <C>           <C>
Balance at July 31, 1994 (brought forward)             9,124,681   $     9,125     $33,680,954    $   50,000    $(35,455,997)

Sale of shares to private investors, net                 961,000           961       2,023,241       (50,000)           --
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                                   --            --              --         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                              10,319,187        10,319      36,262,427       343,808     (37,449,120)

Sale of shares to private investors, net               2,953,327         2,953       8,969,655      (339,008)           --
Issuance of shares for services                           19,995            20          70,858        (4,800)           --
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                                   --            --              --         258,335            --
Subscription receivable                                     --            --              --            --              --
Net loss                                                    --            --              --            --        (2,942,152)
                                                     -----------   -----------     -----------    ----------    ------------
Balance at July 31, 1996                              13,859,209        13,859      47,023,529       258,335     (40,391,272)

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      (258,335)           --
Exercise of  warrants at $5.00 per share, net            147,450           148         737,102          --              --
Net loss                                                    --            --              --            --        (5,018,867)
                                                     -----------   -----------     -----------    ----------    ------------
Balance at July 31, 1997                              14,847,793        14,848      50,961,382          --       (45,410,139)

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                                                    --            --              --            --        (6,387,506)
                                                     -----------   -----------     -----------    ----------    ------------
Balance at July 31, 1998                              17,239,893        17,240      55,472,243          --       (51,797,645)

Issuance of options for services                            --            --           205,593          --              --
Issuance of shares for services, net                      46,701            46          16,359          --              --
Net loss                                                    --            --              --            --        (3,156,636)
                                                     -----------   -----------     -----------    ----------    ------------
Balance at July 31, 1999 (carried forward)            17,286,594   $    17,286     $55,694,195    $     --      $(54,954,281)
</TABLE>



<TABLE>
<CAPTION>
                                                                          Deferred
                                                                          Compens-
                                                                           sation        Total stock-
                                                         Subscription    restricted     holders' equity
                                                          Receivable       stock         (deficiency)
                                                         ------------    ----------     --------------
<S>                                                         <C>          <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)          --         (254,185)
Net loss                                                         --             --       (2,942,152)
                                                            ---------    -----------     ----------
Balance at July 31, 1996                                     (254,185)          --        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           254,185           --        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 (carried forward)                  $    --      $      --       $  757,200
</TABLE>



                                      F-10

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

            Statement of Stockholders' Equity (Deficiency), Continued



<TABLE>
<CAPTION>
                                                                                                                 Deficit
                                                           Common Stock                                        accumulated
                                                    --------------------------    Capital in       Common         during
                                                     Number of                   excess of par   stock to be    development
                                                      Shares         Amount          value         issued          stage
                                                    -----------   ------------   -------------   -----------   ------------
<S>                                                  <C>          <C>             <C>              <C>         <C>
Balance at July 31, 1999 (brought forward)           17,286,594   $     17,286    $ 55,694,195      $    --    $(54,954,281)

Sale of shares to private investors, net                875,000            875         547,417           --            --
Exercise of options at $0.43 to $1.43 per share          95,000             95          45,755           --            --
Issuance of shares for services, net                    174,965            175          92,009           --            --
Vesting of options previously issued for services          --             --           146,912           --            --
Net loss                                                   --             --              --             --      (1,722,298)
                                                    -----------   ------------    ------------    -----------  ------------
Balance at July 31, 2000                             18,431,559   $     18,431    $ 56,526,288      $    --    $(56,676,579)
                                                    ===========   ============    ============    ===========  ============
</TABLE>



<TABLE>
<CAPTION>
                                                                       Deferred
                                                                       Compens-
                                                                        sation       Total stock-
                                                      Subscription    restricted   holders' equity
                                                       Receivable       stock       (deficiency)
                                                      ------------   -----------   --------------
<S>                                                   <C>            <C>           <C>
Balance at July 31, 1999 (brought forward)            $      --      $      --     $   757,200

Sale of shares to private investors, net                     --             --         548,292
Exercise of options at $0.43 to $1.43 per share              --             --          45,850
Issuance of shares for services, net                         --             --          92,184
Vesting of options previously issued for services            --             --         146,912
Net loss                                                     --             --      (1,722,298)
                                                      -----------    -----------   -----------
Balance at July 31, 2000                              $      --      $      --     $  (131,860)
                                                      ===========    ===========   ===========
</TABLE>


See accompanying notes to financial statements.



                                      F-11

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                            Statements of Cash Flows

                         Years ended July 31, 2000, 1999
                          and 1998, and the Period from
                                 August 24, 1981
                      (Date of Inception) to July 31, 2000


<TABLE>
<CAPTION>
                                                                     August 24,
                                                                     1981 (date
                                                                      of incep-
                                                                      tion) to
                                                                      July 31,
                                                                        2000            2000            1999            1998
                                                                    ------------    ------------    ------------    ------------
<S>                                                                 <C>             <C>             <C>             <C>
Cash flows from operating activities:
  Net loss                                                          $(56,676,579)   $ (1,722,298)   $ (3,156,636)   $ (6,387,506)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
      Gain on sale of marketable securities                              (25,963)           --              --              --
      Depreciation and amortization                                    1,417,843          93,748         101,231         102,836
      Loss on disposal of property and equipment                          18,926            --              --              --
      Noncash operating expenses                                       5,519,384         146,912         208,053         199,954
      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              --              --              --              --
        (Increase) decrease in other current assets                      (88,484)         58,224         (29,521)         47,919
        Decrease in other assets                                          36,184            --              --              --
        Increase in loans and interest payable, related party            744,539            --              --              --
        Increase (decrease) in accounts payable                          456,868          76,901        (513,338)        438,336
        Increase in accrued payroll and expenses, related parties      2,348,145            --              --              --
        Increase (decrease) in accrued expenses                          953,359        (366,804)       (314,248)        399,057
                                                                    ------------    ------------    ------------    ------------
           Net cash used in operating activities                     (33,849,188)     (1,713,317)     (3,704,459)     (5,199,404)
                                                                    ------------    ------------    ------------    ------------

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                              (1,406,836)        (37,575)           --           (75,315)
      Patent costs                                                       (97,841)           --              --              --
                                                                    ------------    ------------    ------------    ------------
           Net cash used in investing activities                      (1,478,714)        (37,575)           --           (75,315)
                                                                    ------------    ------------    ------------    ------------
</TABLE>


                                      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,
                                                                        2000            2000            1999            1998
                                                                    ------------    ------------    ------------    ------------
<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 costs                                          2,452,460          41,577            --              --
  Reduction of bank debt and long-term debt                           (2,929,243)        (10,515)         (9,175)     (1,381,416)
  Proceeds from issuance of common stock, net                         27,353,739         548,292          (2,686)      4,202,214
  Proceeds from exercise of stock options and warrants, net            5,506,523          45,850            --            11,085
  Proceeds from issuance of convertible debentures                       347,000            --              --              --
                                                                    ------------    ------------    ------------    ------------
      Net cash provided by financing activities                       35,585,347         625,204         (11,861)      2,831,883
                                                                    ------------    ------------    ------------    ------------

      Net increase (decrease) in cash and cash equivalents               257,445      (1,125,688)     (3,716,320)     (2,442,836)
Cash and cash equivalents at beginning of period                            --         1,383,133       5,099,453       7,542,289
                                                                    ------------    ------------    ------------    ------------

Cash and cash equivalents at end of period                          $    257,445    $    257,445    $  1,383,133    $  5,099,453
                                                                    ============    ============    ============    ============

Supplemental disclosure of cash flow information - interest paid    $  1,653,713    $      4,980    $      2,378    $     21,782
                                                                    ============    ============    ============    ============
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>


                                      F-13

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       Statements of Cash Flows, Continued


<TABLE>
<CAPTION>
                                                           August 24,
                                                           1981 (date
                                                            of incep-
                                                            tion) to
                                                            July 31,
                                                              2000         2000       1999        1998
                                                          -----------    --------   --------   -----------
<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            $   286,170    $ 92,184   $ 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            $    94,644    $ 92,184   $  2,460   $      --
                                                          ===========    ========   ========   ===========
</TABLE>



See accompanying notes to financial statements.


                                      F-14

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                          Notes to Financial Statements


                    Years ended July 31, 2000, 1999 and 1998
                       and the Period From August 24, 1981
                      (Date of Inception) to July 31, 2000

(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.

     Certain reclassifications to the prior year financial information were made
     to conform with the July 31, 2000 presentation.

     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.


                                                                     (Continued)
                                      F-15

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


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


     Research and Development

     Research and development costs are expensed as incurred.

     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  $1,722,000,
     $3,157,000 and $6,388,000, recorded for the years ended July 31, 2000, 1999
     and  1998,  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
     number of options and warrants excluded from the calculation was 6,156,195,
     5,894,875 and 5,911,557 at July 31, 2000, 1999 and 1998, 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


                                                                     (Continued)
                                      F-16

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


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


     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.

(2)  Liquidity

     The  Company  has  reported  net  losses  of  $1,722,000,  $3,157,000,  and
     $6,388,000  for the  fiscal  years  ended  July 31,  2000,  1999 and  1998,
     respectively. The loss from date of inception, August 24, 1981, to July 31,
     2000  amounts to  $56,677,000.  Also,  the  Company  has a working  capital
     deficit and 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.

     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
     benefits,  revenues from the commercial sale of ONCONASE(R) and its ability
     to realize the full potential of its  technology  and its drug  candidates.
     Such  additional  funds  may  not  become  available  or  be  available  on
     acceptable terms. 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 and warrants  exercised and for
     services  rendered,  debt financing and financing provided by the Company's
     Chief Executive Officer.  Additionally,  the Company raised capital through
     the sale of a portion of its tax benefits.  Until the Company's  operations
     generate significant revenues, the Company will continue to fund operations
     from cash on hand and through the sources of capital previously  described.
     In August and  September  2000,  the  Company  received  gross  proceeds of
     approximately  $516,000  from the private  placement of various  individual
     investors and exercise of stock options by a related party.

     The Company will continue to incur costs in  conjunction  with its U.S. and
     foreign registrations for marketing approval of ONCONASE(R). The Company is
     currently in discussion with several potential  strategic alliance partners
     including major  international  biopharmaceutical  companies to further the
     development and marketing of ONCONASE(R) and other related  products in its
     pipeline.  However,  there can be no assurance that any such alliances will
     materialize.  The Company intends to seek foreign  marketing  approvals for
     ONCONASE(R) for the treatment of malignant  mesothelioma.  Clinical data is
     required in certain European  countries for  registration.  Therefore,  the
     Company  has  initiated  a  plan  to  expand  its  ongoing  clinical  trial
     internationally. However, there can be no assurance that any such plan will
     materialize.  The  Company's  ability to raise  funding at this time may be
     dependent  upon  other  factors  including,   without  limitation,   market
     conditions,  and  such  funds  may  not be  available  or be  available  on
     acceptable terms.


                                                                     (Continued)
                                      F-17

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(2)  Liquidity, (Continued)

     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 trades 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 its  ability  to raise
     additional capital, its stockholders' liquidity and the price of its common
     stock.

(3)  Property and Equipment

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


                                                  2000           1999
                                                  ----           ----

      Laboratory equipment                    $  755,040         755,040
      Office equipment                           296,105         290,764
      Leasehold improvements                      97,833          97,833
                                              ----------      ----------
                                              $1,148,978       1,143,637
                                              ==========      ==========

(4)  Long-term Debt

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

<TABLE>
<CAPTION>
                                                                       2000             1999
                                                                     -------          -------
<S>                                                                  <C>              <C>
Note  payable, in monthly installments of $1,459, including
      principal and interest commencing April 2000 and each
      month thereafter until March 2005, secured by equipment.       $37,325          $  --

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
                                                                     -------          -------
                                                                      37,325            6,727
Less current portion                                                   7,074            6,727
                                                                     -------          -------
                                                                     $30,251          $  --
                                                                     =======          =======
</TABLE>

(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 $127,000,  $108,000,  and
     $97,000 in 2000, 1999 and 1998, respectively.



                                                                     (Continued)

                                      F-18

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(5)  Leases, Continued

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

                                     Operating leases
                                     ----------------
          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  exercise  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-19

<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-20

<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-21

<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-22

<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-23

<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
     expired during the fiscal year ended July 31, 2000.

     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 1995 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 $263,800 which was the fair value on the date of
     issuance of that  portion of the stock  options  that had vested as of July
     31, 2000.

                                                                     (Continued)
                                      F-24

<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, 2000,  the Company
     recorded  general and  administrative  expense of $124,600,  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.


                                                                     (Continued)
                                      F-25

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     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 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,
     the  Company  no longer  qualified  for the use of a Form S-3  registration
     statement  for this  offering  when it filed its Annual Report on Form 10-K
     for the  fiscal  year  ended  July 31,  1999 and  thus,  this  registration
     statement  was no  longer  effective.  The  Company  filed  a  registration
     statement  on Form S-1 to  register  these  shares,  which has not yet been
     declared 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,  2000,  the  Company  recorded  general and  administrative  expense of
     $81,100,  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-26

<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,  the Company no
     longer qualified for the use of a Form S-3 registration  statement for this
     offering  when it filed its Annual  Report on Form 10-K for the fiscal year
     ended July 31, 1999 and thus,  this  registration  statement  was no longer
     effective.  The  Company  filed a  registration  statement  on Form  S-1 to
     register these shares, which has not yet been declared 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


                                                                     (Continued)

                                      F-27

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     per share as payment for services to be rendered.  These  options will vest
     as follows:  an  aggregate  of 20,000 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 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  $49,300 of general and  administrative
     expense  based upon the fair value of the vested  options  through July 31,
     2000.  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 2000, the Agreement was terminated which resulted in the
     cancellation of 150,000 options.

     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.

     During the fiscal  year ended July 31,  2000,  the Company  issued  174,965
     shares of common stock for payment of services rendered.  The fair value of
     the common stock in the amount of $92,184 was charged to operations.

     During the fiscal  year ended July 31,  2000,  the  Company  issued  95,000
     shares of common  stock upon the  exercise  of stock  options by  unrelated
     parties  which  resulted in gross  proceeds of $45,850 to the Company.  The
     exercise prices of the options ranged from $0.43 to $1.43.




                                                                     (Continued)

                                      F-28

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(6)  Stockholders' Equity, (Continued)

     During the fiscal year ended July 31,  2000,  the Company sold an aggregate
     of 875,000  shares of common stock to private  investors at prices  ranging
     from $0.50 to $1.00 per share  resulting in net proceeds of $548,300 to the
     Company.  In  addition,  the private  investors  were  granted  warrants to
     purchase an  aggregate  of 875,000  shares of common  stock,  inclusive  of
     additional  warrants issued so that all investors in the private placements
     received  substantially  the same securities,  at per share exercise prices
     ranging  from $1.03 to $4.55.  The warrants  will expire  during the period
     commencing May 2003 and ending in May 2005.

(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 2000:

<TABLE>
<CAPTION>

                                                                               Exercise
                                                                  Warrants       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

</TABLE>

                                                                     (Continued)

                                      F-29

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued



(7)  Common Stock Warrants, (Continued)

<TABLE>
<CAPTION>
                                                                               Exercise
                                                                  Warrants       Price            Expiration
                                                                  --------     --------           ----------
<S>                                                             <C>            <C>             <C>
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     10/1/98 to 5/19/01

Sold in February 2000 Private Placement                           875,000      1.03 - 4.55     5/28/03 to 5/28/05
Expired                                                           313,800          7.50        8/30/99 to 9/11/99
                                                                ---------

Outstanding and exercisable at July 31, 2000                    2,389,199      1.03 - 4.55     5/19/01 to 5/28/05
                                                                =========      ===========
</TABLE>


(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, 2000:


                                                              Weighted Average
                             Shares Available   Number of    Exercise Price Per
                               for Grant          Shares           Share
                             ----------------   ---------    ------------------
Balance August 1, 1994         1,926,841        5,935,337       $   3.76
     Granted                    (818,850)         818,850           2.60


                                                                     (Continued)

                                      F-30

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued



(8)   Stock Options, (Continued)


                                                              Weighted Average
                             Shares Available   Number of    Exercise Price Per
                               for Grant          Shares           Share
                             ----------------   ---------    ------------------

      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          0.62
      Canceled                   443,934         (555,737)         3.97
                              ----------       ----------
Balance July 31, 1999          2,076,332        4,066,876          3.05
      Granted                   (827,000)         827,000          0.52
      Exercised                     --            (95,000)         0.48
      Canceled                   638,395       (1,031,880)         2.73
                              ----------       ----------
 Balance July 31, 2000         1,887,727        3,766,996          2.65
                              ==========       ==========          ====

     The stock  options  granted in fiscal year ended July 31, 2000  included an
     aggregate  total of 75,000 stock options  issued to the  Company's  outside
     board of directors and an aggregate  total of 350,000 stock options  issued
     to the  employees  of the Company,  which will vest and become  exercisable
     upon FDA approval of ONCONASE(R) for malignant  mesothelioma  provided that
     ONCONASE(R)  must be  approved on or before  December  31,  2001,  or these
     options will  terminate,  and the  employees  must be actively  employed by
     Alfacell through the date of the approval.  Compensation  expense,  if any,
     will be determined  based on the Company's  stock price on the vesting date
     relative to the options exercise price. The options outstanding at July 31,
     2000 will expire between August 4, 2000 and October 18, 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



                                                                     (Continued)

                                      F-31

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(8)  Stock Options, (Continued)

     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 February 2000 Dr. Mikulski paid the balance in full by the
     cancellation of options to purchase 31,599 shares owned by him.

     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. As of July 31, 2000,  90,000 of these options were
     exercised.

     The weighted-average fair value per option at the date of grant for options
     granted during the fiscal years 2000,  1999 and 1998 were $0.45,  $0.36 and
     $2.03,  respectively.  The fair value was estimated using the Black-Scholes
     options pricing model based on the following assumptions:


                                               2000        1999        1998
                                              ------      ------      ------

     Expected dividend yield                      0%          0%          0%
     Risk-free interest rate                   6.00%       6.00%       6.00%
     Expected stock price volatility         114.50%      93.99%      88.15%
     Expected term until exercise (years)      6.37        5.59        6.17

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



                                                                     (Continued)

                                      F-32

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(8)  Stock Options, (Continued)


                                         2000             1999          1998
                                         ----             ----          ----
     Net Loss:
      As reported                    $(1,722,298)     $(3,156,636)  $(6,387,506)
      Pro forma                       (1,956,667)      (3,429,057)   (6,697,066)
     Loss per common share:
      As reported                    $     (0.10)     $     (0.18)  $     (0.40)
      Pro forma                            (0.12)           (0.22)        (0.42)

     The pro forma  effects  on net loss and loss per  share for 2000,  1999 and
     1998 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, 2000:

<TABLE>
<CAPTION>

                     Options Outstanding                                            Options Exercisable
     -------------------------------------------------------------------        ---------------------------

                                        Weighted Average       Weighted                            Weighted
       Range of                             Remaining          Average                             Average
       Exercise                            Contractual         Exercise                            Exercise
        Prices              Shares        Term (Years)          Price              Shares           Price
        ------              ------        ------------          -----              ------           -----
     <S>                   <C>                <C>               <C>                <C>              <C>
     $0.00 - 1.99          1,148,000          6.17              $0.51              487,400          $0.53
      2.00 - 2.99            204,000          3.08               2.59              139,000           2.54
      3.00 - 3.99          1,639,318          1.96               3.21            1,594,318           3.20
      4.00 - 4.99            563,178          1.20               4.29              541,178           4.27
      5.00 - 5.99            167,500          4.38               5.17               97,500           5.17
      6.00 - 6.99             45,000          2.42               6.97               45,000           6.97
      ===========         ----------          ====               ====            ---------           ====
                           3,766,996                                             2,904,396
                           =========                                             =========
</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.

     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:


                                                                    (Continued)

                                      F-33

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(8)  Stock Options, (Continued)


<TABLE>
<CAPTION>

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

      <S>                                                                <C>          <C>
      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
                                                                         =========       =========
</TABLE>

     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                894,887    $2.50-7.00
          and extended 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:


                                                    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


                                                                     (Continued)

                                      F-34

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued



(8)  Stock Options, (Continued)

                                                    Shares          Price Range
                                                    ------          -----------
     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-35

<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 2000, 1999 or 1998.

(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.

     New Jersey has enacted legislation  permitting certain corporations located
     in New Jersey to sell state tax loss  carryforwards  and state research and
     development  credits or tax  benefits.  Approximately  $2.4  million of the
     Company's  tax  benefits  were  approved  for sale by the state in December
     1999,  of which  approximately  $1 million was allocated to be sold between
     July 1, 1999 and June 30,  2000.  In December  1999,  the Company  received
     $755,854 from the sale of $1 million of its tax benefits.  The Company will
     attempt to sell the remaining  balance of its tax benefits in the amount of
     approximately  $1.4 million between July 1, 2000 and June 30, 2001, subject
     to all  existing  laws of the  State of New  Jersey.  However,  there is no
     assurance  that  the  Company  will be  able  to  find a buyer  for its tax
     benefits or that such funds will be available in a timely manner.

     At July 31, 2000 and 1999,  the tax effects of temporary  differences  that
     give rise to the deferred tax assets are as follows:

                                                                    (Continued)

                                      F-36

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(10) Income Taxes, (Continued)

<TABLE>
<CAPTION>

                                                                        2000            1999
                                                                ------------    ------------
     <S>                                                        <C>             <C>
     Deferred tax assets:
           Excess of book over tax depreciation                 $     72,248    $     37,035
           Accrued expenses                                          171,916         311,458
           Federal and state net operating loss carryforwards     14,838,624      15,227,316
           Research and experimentation and investment tax
               credit carry forwards                                 922,785         843,418
                                                                ------------    ------------
     Total gross deferred tax assets                              16,005,573      16,419,227
     Valuation allowance                                         (16,005,573)    (16,419,227)
                                                                ------------    ------------
     Net deferred tax assets                                    $     --        $     --
                                                                ============    ============
</TABLE>

     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, 2000, the Company has federal net operating loss  carryforwards
     of  approximately  $39,920,910  that expire in the years 2001 to 2020.  The
     Company  also has  investment  tax  credit  carryforwards  of  $26,867  and
     research and  experimentation  tax credit  carryforwards  of $818,308  that
     expire in the years 2001 to 2020. 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:


                                              2000       1999
                                              ----       ----

                Payroll and payroll taxes   $ 34,926   $ 50,160
                Professional fees             43,000     28,000
                Clinical trial grants        308,070    683,515
                Other                         25,851     16,975
                                            --------   --------
                                            $411,847   $778,650
                                            ========   ========

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


                                              2000       1999
                                              ----       ----

                        Insurance           $ 15,963   $ 65,330
                        NIH research            --       14,579
                        Other                 12,654      7,399
                                            --------   --------
                                            $ 28,617   $ 87,308
                                            ========   ========


                                                                     (Continued)

                                      F-37

<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued


(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.

     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 was
     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
     years ended July 31, 1999 and 1998.

     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 and in June  2000 the  expiration  was  extended  to expire in
     August 2001. Both extensions were without  additional cost for the Company.
     Total research and development  expenses under this arrangement amounted to
     $5,200,  $62,400 and $60,400 for the fiscal years ended July 31, 2000, 1999
     and 1998, 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 years ended July
     31,  2000 and 1999,  the  Company's  contribution  to the Plan  amounted to
     $21,714 and $16,052, respectively.

                                      F-38