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

                                   ----------

                                   FORM 10-K/A

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

      July 31, 2002                                              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|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No |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 November 8, 2002 was $4,139,518. As of
November 8, 2002 there were 22,872,958 shares of common stock, par value $.001
per share, outstanding.

      The Index to Exhibits appears on page 3.

                       Documents Incorporated by Reference

                                      None

The amendment to the Form 10-K filed on November 13, 2002 is being filed for the
purpose of amending and clarifying Item 8 and Item 13 and for filing new
Exhibits 23.1, 99.2 and 99.3. Specifically, the financial statements were
amended to include the required footnote disclosures, which were erroneously not
included in the original Form 10-K filing.

<PAGE>

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 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 patents, 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. On April 16, 2001, this agreement was
amended and clarified to provide that Ms. Shogen would receive the 15% royalty
payment relating to license(s) or the 5% of the net sales from any products sold
during the life of the patents but not both, unless we and a licensee both
market the licensed product.

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 trading days preceding the date of grant. An
aggregate 50,000 of these options were exercised.

In April 2001, our board of directors approved the issuance of 50,000 stock
options under the 1997 Plan to Martin Stadler, which vested on the date of
grant. The exercise price of the stock options was $0.90 per share which was
based on the average of the high and low trade prices of our common stock for
the ten trading days preceding the date of grant.

In April 2001, we issued convertible notes to Kuslima Shogen, our Chief
Executive Officer and a director, two of our directors, Donald Conklin and
Martin Stadler, and unrelated parties in the aggregate amount of $366,993.
Messrs. Conklin and Stadler are members of our Compensation Committee. The notes
are due within ninety days unless the lenders elect to exercise an option to
convert their note into common stock at the conversion price of $0.90 per share.
The related parties named above have elected to convert their notes into an
aggregate 330,000 shares of common stock. In addition, upon conversion, they
received three-year warrants to purchase an aggregate 330,000 shares of common
stock at an exercise price of $2.50 per share that will expire on July 7, 2004.
In October 2001, the Board of Directors approved a change in the exercise price
of the 330,000 warrants issued to related parties from $2.50 per share to $1.50
per share and changed the expiration date to July 7, 2006, to conform with the
private placements to unrelated parties. The notes issued to unrelated parties
with an aggregate balance of $69,993 were renewed for one hundred twenty (120)
days for the same conversion price of $0.90 per share. In addition, upon
conversion, they will receive five-year warrants to purchase an aggregate 77,770
shares of common stock at an exercise price of $1.50 per share. In October 2001,
the remaining noteholders elected to convert an aggregate $64,993 notes payable
into an aggregate 72,214 shares of common stock. In addition, they received
five-year warrants to purchase an aggregate 72,214 shares of common stock at an
exercise price of $1.50 per share.

During the fiscal year ended July 31, 2002, Kuslima Shogen, our CEO has made
loans to us repayable upon demand bearing interest at 8% per annum. As of July
31, 2002, we owe Ms. Shogen $139,794 classified as a current liability included
in Loan payable, related party. Amounts due from Ms. Shogen totaling $68,667 are
classified as a long term asset in Loan receivable, related party as we do not
expect repayment of these amounts within one year. We earn interest at a rate of
8% per annum on the unpaid balance.


                                       2
<PAGE>

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>
                                                                         Exhibit No. or
Exhibit                                                                  Incorporation
  No.                              Item Title                            by Reference
-------                            ----------                            --------------

<S>      <C>                                                                  <C>
 23.1    Consent of KPMG LLP                                                  #####

 99.2    Certification pursuant to 18 U.S.C. Section 1350, as adopted
         pursuant to section 906 of the Sarbanes-Oxley Act of 2002            #####

 99.3    Certification pursuant to 18 U.S.C. Section 1350, as adopted
         pursuant to section 906 of the Sarbanes-Oxley Act of 2002            #####
</TABLE>

#####    Filed herewith.


                                       3
<PAGE>

                                    Signature

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

                                 ALFACELL CORPORATION


Dated: November 19, 2002                By: /s/ Kuslima Shogen
                                        ----------------------
                                        Kuslima Shogen, Chief Executive Officer,
                                        Acting Chief Financial Officer and
                                        Chairman of the Board


                                       4
<PAGE>

                                 CERTIFICATIONS

I, Kuslima Shogen, certify that:

1. I have reviewed this annual report on Form 10-K/A of Alfacell Corporation;

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

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

Date: November 19, 2002


                                        /s/ Kuslima Shogen
                                        ----------------------
                                        Name: Kuslima Shogen
                                        Title: Chief Executive Officer and
                                               Chairman of the Board


                                       5
<PAGE>

                                 CERTIFICATIONS

I, Kuslima Shogen, certify that:

1. I have reviewed this annual report on Form 10-K/A of Alfacell Corporation;

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

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

Date: November 19, 2002


                                        /s/ Kuslima Shogen
                                        ----------------------
                                        Name: Kuslima Shogen
                                        Title: Acting Chief Financial Officer


                                       6
<PAGE>

                                      Index

                                                                            Page

Audited Financial Statements:

Independent Auditors' Report of KPMG LLP ................................    F-2

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

Balance Sheets - July 31, 2002 and 2001 .................................    F-5

Statements of Operations - Years ended July 31, 2002, 2001, and 2000
     and the Period from August 24, 1981
     (Date of Inception) to July 31, 2002 ...............................    F-6

Statement of Stockholders' Equity (Deficiency)
     Period from August 24, 1981
     (Date of Inception) to July 31, 2002 ...............................    F-7

Statements of Cash Flows - Years ended July 31, 2002, 2001, and 2000
     and Period from August 24, 1981
     (Date of Inception) to July 31, 2002 ...............................   F-12

Notes to Financial Statements - Years ended July 31, 2002, 2001 and
     2000 and the Period from August 24, 1981
     (Date of Inception) to July 31, 2002 ...............................   F-15


                                      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, 2002 and 2001, 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, 2002 and the period
from August 24, 1981 (date of inception) to July 31, 2002. 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 for the period from
August 24, 1981 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 to July 31, 2002 of the amounts for the period from August 24,
1981 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 as of July 31, 2002 and 2001, and the results
of its operations and its cash flows for each of the years in the three-year
period ended July 31, 2002 and the period from August 24, 1981 to July 31, 2002
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

Short Hills, New Jersey
November 4, 2002


                                      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.

The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liability in the normal course of business. As shown in the statement of


                                      F-3
<PAGE>

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 to the
Notes of 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.


                                        /s/ Armus, Harrison & Co.
                                        ---------------------------
                                        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, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                      2002              2001
                                                                                  ------------      ------------
<S>                                                                               <C>               <C>
ASSETS
Current assets:
     Cash and cash equivalents ..............................................     $     85,843      $     44,781
     Other assets ...........................................................           45,754            42,933
                                                                                  ------------      ------------
         Total current assets ...............................................          131,597            87,714

Property and equipment, net of accumulated depreciation and
     amortization of $1,120,371 in 2002 and $1,081,423 in 2001 ..............           28,607            67,555

Loan receivable, related party ..............................................           68,667            46,340
                                                                                  ------------      ------------

         Total assets .......................................................     $    228,871      $    201,609
                                                                                  ============      ============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
     Current portion of long-term debt ......................................     $      8,179      $      7,057
     Loan payable, related party ............................................          139,794                --
     Note payable - convertible debt - unrelated party, less debt
     discount of $34,511 ....................................................               --            35,482
     Accounts payable .......................................................          796,128           409,972
     Accrued expenses .......................................................          854,278           465,813
                                                                                  ------------      ------------
         Total current liabilities ..........................................        1,798,379           918,324

Long-term debt, less current portion ........................................          315,929            23,663
                                                                                  ------------      ------------
         Total liabilities ..................................................        2,114,308           941,987
                                                                                  ------------      ------------

Stockholders' deficiency:
     Preferred stock, $.001 par value.  Authorized and unissued, 1,000,000
         shares at July 31, 2002 and 2001 ...................................               --                --
     Common stock $.001 par value.  Authorized 40,000,000
         shares; issued and outstanding 22,760,921 shares and
         19,802,245 shares at July 31, 2002 and 2001, respectively ..........           22,761            19,802
     Capital in excess of par value .........................................       59,654,479        58,211,335
     Deficit accumulated during development stage ...........................      (61,562,677)      (58,971,515)
                                                                                  ------------      ------------
         Total stockholders' deficiency .....................................       (1,885,437)         (740,378)
                                                                                  ------------      ------------

         Total liabilities and stockholders' deficiency .....................     $    228,871      $    201,609
                                                                                  ============      ============
</TABLE>

See accompanying notes to financial statements.


                                      F-5
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                            Statements of Operations

                   Years ended July 31, 2002, 2001 and 2000,
                      and the Period from August 24, 1981
                      (Date of Inception) to July 31, 2002

<TABLE>
<CAPTION>
                                                      August 24, 1981
                                                         (date of
                                                        inception)
                                                     to July 31, 2002        2002             2001             2000
                                                     ----------------    -----------      -----------      -----------
<S>                                                    <C>               <C>              <C>              <C>
Revenues:
     Sales .....................................       $    553,489               --               --               --
     Investment income .........................          1,377,123            4,838           13,121           51,144
     Other income ..............................             60,103               --               --               --
                                                       ------------      -----------      -----------      -----------
                                                          1,990,715            4,838           13,121           51,144
                                                       ------------      -----------      -----------      -----------

Cost and expenses:
     Cost of sales .............................            336,495               --               --               --
     Research and development ..................         39,901,973        2,032,938        1,900,678        1,879,728
     General and administrative ................         21,663,446          798,053          705,745          644,588
     Interest:
        Related parties ........................          1,147,547            4,687          108,900               --
        Others .................................          2,064,912          114,054           44,129            4,980
                                                       ------------      -----------      -----------      -----------
                                                         65,114,373        2,949,732        2,759,452        2,529,296
                                                       ------------      -----------      -----------      -----------

Net loss before state tax benefit ..............       $(63,123,658)      (2,944,894)      (2,746,331)      (2,478,152)

State tax benefit ..............................          1,560,981          353,732          451,395          755,854
                                                       ------------      -----------      -----------      -----------

           Net loss ............................       $(61,562,677)      (2,591,162)      (2,294,936)      (1,722,298)
                                                       ============      ===========      ===========      ===========

Loss per basic and diluted common share ........                         $     (0.12)     $     (0.12)     $     (0.10)
                                                                         ===========      ===========      ===========

Weighted average number of shares outstanding ..                          21,045,000       18,927,000       17,812,000
                                                                         ===========      ===========      ===========
</TABLE>

See accompanying notes to financial statements.


                                      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, 2002

<TABLE>
<CAPTION>
                                                                           Common Stock
                                                                  ------------------------------
                                                                                                        Capital In        Common
                                                                   Number of                           Excess of par    Stock to be
                                                                     Shares            Amount              Value          Issued
                                                                  -----------        -----------       -------------    -----------
<S>                                                                 <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 service                    50,000                 50              4,950          --
Sale of shares for cash, net                                           82,143                 82            108,418          --
Adjustment for 3 for 2 stock split declared September 8, 1982         422,321                422               (422)         --
Net loss                                                                   --                 --                 --          --
                                                                  -----------        -----------        -----------        ----
Balance at July 31, 1982                                            1,266,964              1,267            325,933          --

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

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

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

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

<CAPTION>
                                                                    Deficit
                                                                  Accumulated                    Deferred            Total
                                                                     During                    compensation,     Stockholders'
                                                                  Development    Subscription   restricted           Equity
                                                                     Stage        Receivable       stock          (Deficiency)
                                                                  -----------    ------------  -------------     -------------
<S>                                                               <C>                <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 service                        --          --                --             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)         --                --          (121,486)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1982                                             (121,486)         --                --           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)         --                --          (558,694)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1983                                             (680,180)         --                --         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)         --                --        (1,421,083)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1984                                           (2,101,263)         --                --         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)         --                --        (2,958,846)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1985                                           (5,060,109)         --                --         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)         --                --        (2,138,605)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1986 (carried forward)                         (7,198,714)         --                --          (346,669)
</TABLE>


                                      F-7
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

            Statement of Stockholders' Equity (Deficiency), Continued

<TABLE>
<CAPTION>
                                                                           Common Stock
                                                                  ------------------------------
                                                                                                        Capital In        Common
                                                                   Number of                           Excess of par    Stock to be
                                                                     Shares            Amount              Value          Issued
                                                                  -----------        -----------       -------------    -----------
<S>                                                                 <C>              <C>                <C>                  <C>

Balance at July 31, 1986 (brought forward)                          2,933,052        $     2,933        $ 6,849,112          --

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

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

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

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

<CAPTION>
                                                                    Deficit
                                                                  Accumulated                    Deferred            Total
                                                                     During                    compensation,     Stockholders'
                                                                  Development    Subscription   restricted           Equity
                                                                     Stage        Receivable       stock          (Deficiency)
                                                                  -----------    ------------  -------------     -------------
<S>                                                               <C>                <C>        <C>               <C>

Balance at July 31, 1986 (brought forward)                        $(7,198,714)         --                --       $  (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)         --                --        (2,604,619)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1987                                           (9,803,333)         --                --        (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)         --                --        (3,272,773)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1988                                          (13,076,106)         --        (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)         --                --        (2,952,869)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1989                                          (16,028,975)         --        (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)         --                --        (4,860,116)
                                                                  -----------        ----       -----------       -----------
Balance at July 31, 1990 (carried forward)                        (20,889,091)         --        (5,920,516)       (3,103,176)
</TABLE>


                                      F-8
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

            Statement of Stockholders' Equity (Deficiency), Continued

<TABLE>
<CAPTION>
                                                                           Common Stock
                                                                  ------------------------------
                                                                                                        Capital In        Common
                                                                   Number of                           Excess of par    Stock to be
                                                                     Shares            Amount              Value          Issued
                                                                  -----------        -----------       -------------    -----------
<S>                                                                 <C>              <C>                <C>               <C>
Balance at July 31, 1990 (brought forward)                          6,799,829        $     6,800        $23,699,631          --

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

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

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

Conversion of debentures at $2.75 per share to $6.00 per share        425,400                425          1,701,575          --
Sale of shares to private investors, net                              743,000                743          1,710,048          --
Conversion of short-term borrowings                                    72,800                 73            181,927          --
Issuance of shares for services                                        16,200                 16             43,334          --
Issuance of shares under the 1989 Stock Plan, for services              5,000                  5             14,995          --
Issuance of options to related parties upon conversion of
  accrued interest, payroll and expenses                                   --                 --          3,194,969          --
Repurchase of stock options from related party                             --                 --           (198,417)         --
Issuance of options upon conversion of accrued interest                    --                 --            142,441          --
Common stock to be issued                                                  --                 --                 --      50,000
Amortization of deferred compensation, restricted stock                    --                 --                 --          --
Net loss                                                                   --                 --                 --          --
                                                                  -----------        -----------        -----------      ------
Balance at July 31, 1994 (carried forward)                          9,124,681              9,125         33,680,954      50,000

<CAPTION>
                                                                      Deficit
                                                                    Accumulated                    Deferred            Total
                                                                       During                    compensation,     Stockholders'
                                                                    Development    Subscription   restricted           Equity
                                                                       Stage        Receivable       stock          (Deficiency)
                                                                    -----------    ------------  -------------     -------------
<S>                                                                <C>                 <C>        <C>               <C>
Balance at July 31, 1990 (brought forward)                         $(20,889,091)       $ --       $(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)         --                --        (5,202,302)
                                                                    -----------        ----       -----------       -----------
Balance at July 31, 1991                                            (26,091,393)         --        (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)         --                --        (4,772,826)
                                                                    -----------        ----       -----------       -----------
Balance at July 31, 1992                                            (30,864,219)         --          (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)         --                --        (2,357,350)
                                                                    -----------        ----       -----------       -----------
Balance at July 31, 1993                                            (33,221,569)         --          (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)         --                --        (2,234,428)
                                                                    -----------        ----       -----------       -----------
Balance at July 31, 1994 (carried forward)                          (35,455,997)         --           (58,500)       (1,774,418)
</TABLE>


                                      F-9
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

            Statement of Stockholders' Equity (Deficiency), Continued

<TABLE>
<CAPTION>
                                                                      Common Stock
                                                              --------------------------
                                                                                                Capital In          Common
                                                               Number of                       Excess of par     Stock to be
                                                                 Shares          Amount            Value            Issued
                                                              ------------       -------       -------------     -----------
<S>                                                             <C>              <C>           <C>                <C>
Balance at July 31, 1994 (brought forward)                       9,124,681       $ 9,125       $ 33,680,954       $  50,000

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                                                                --            --                 --              --
                                                              ------------       -------       ------------       ---------
Balance at July 31, 1995                                        10,319,187        10,319         36,262,427         343,808

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                                                                --            --                 --              --
                                                              ------------       -------       ------------       ---------
Balance at July 31, 1996                                        13,859,209        13,859         47,023,529         258,335

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                                                                --            --                 --              --
                                                              ------------       -------       ------------       ---------
Balance at July 31, 1997                                        14,847,793        14,848         50,961,382              --

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

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

<CAPTION>
                                                                Deficit
                                                               Accumulated                         Deferred           Total
                                                                 During                          compensation,     Stockholders'
                                                               Development     Subscription       restricted          Equity
                                                                  Stage         Receivable          stock          (Deficiency)
                                                              ------------     ------------      -------------     -------------
<S>                                                           <C>                 <C>              <C>             <C>
Balance at July 31, 1994 (brought forward)                    $(35,455,997)       $      --        $(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)              --              --          (1,993,123)
                                                              ------------        ---------        --------        ------------
Balance at July 31, 1995                                       (37,449,120)              --              --            (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)              --              --          (2,942,152)
                                                              ------------        ---------        --------        ------------
Balance at July 31, 1996                                       (40,391,272)        (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)              --              --          (5,018,867)
                                                              ------------        ---------        --------        ------------
Balance at July 31, 1997                                       (45,410,139)              --              --           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)              --              --          (6,387,506)
                                                              ------------        ---------        --------        ------------
Balance at July 31, 1998                                       (51,797,645)              --              --           3,691,838

Issuance of options for services                                        --               --              --             205,593
Issuance of shares for services, net                                    --               --              --              16,405
Net loss                                                        (3,156,636)              --              --          (3,156,636)
                                                              ------------        ---------        --------        ------------
Balance at July 31, 1999 (carried forward)                    $(54,954,281)       $      --        $     --        $    757,200
</TABLE>


                                      F-10
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

            Statement of Stockholders' Equity (Deficiency), Continued

<TABLE>
<CAPTION>
                                                                        Common Stock
                                                              -------------------------------
                                                                                                    Capital In          Common
                                                               Number of                           Excess of par     Stock to be
                                                                 Shares             Amount             Value            Issued
                                                              ------------       ------------      -------------     -----------
<S>                                                             <C>              <C>                <C>                <C>
Balance at July 31, 1999 (brought forward)                      17,286,594       $     17,286       $ 55,694,195       $     --

Sale of shares to private investors, net                           875,000                875            547,417             --
Exercise of options at $0.43 - $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                                                                --                 --                 --             --
                                                              ------------       ------------       ------------       --------
Balance at July 31, 2000                                        18,431,559             18,431         56,526,288             --

Sale of shares to private investors, net                           863,331                863            955,561             --
Exercise of options at $0.29 - $0.85 per share                     165,555                166             83,565             --
Issuance of shares for services, net                                11,800                 12             10,018             --
Exercise of convertible debentures at $0.90 per share              330,000                330            296,670             --
Issuance of warrants with convertible debt                              --                 --            178,807             --
Issuance of options for services                                        --                 --            160,426             --
Net loss                                                                --                 --                 --             --
                                                              ------------       ------------       ------------       --------
Balance at July 31, 2001                                        19,802,245             19,802         58,211,335             --

Sale of shares to private investors, net                         2,622,122              2,623          1,047,925             --
Exercise of stock options and warrants                             186,000                186             92,814             --
Issuance of shares for services, net                                78,340                 78             64,048             --
Exercise of convertible debentures at $0.90 per share               72,214                 72             64,921             --
Vesting of options previously issued for services                       --                 --            173,436             --
Net loss                                                                --                 --                 --             --
                                                              ------------       ------------       ------------       --------
Balance at July 31, 2002                                        22,760,921       $     22,761       $ 59,654,479       $     --
                                                              ============       ============       ============       ========

<CAPTION>


                                                                 Deficit
                                                               Accumulated                        Deferred           Total
                                                                  During                         compensation,    Stockholders'
                                                                Development     Subscription      restricted         Equity
                                                                   Stage          Receivable        stock         (Deficiency)
                                                                ------------    -------------    -------------    -------------
<S>                                                             <C>                 <C>            <C>            <C>
Balance at July 31, 1999 (brought forward)                      $(54,954,281)       $     --       $     --       $    757,200

Sale of shares to private investors, net                                  --              --             --            548,292
Exercise of options at $0.43 - $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)             --             --         (1,722,298)
                                                                ------------        --------       --------       ------------
Balance at July 31, 2000                                         (56,676,579)             --             --           (131,860)

Sale of shares to private investors, net                                  --              --             --            956,424
Exercise of options at $0.29 - $0.85 per share                            --              --             --             83,731
Issuance of shares for services, net                                      --              --             --             10,030
Exercise of convertible debentures at $0.90 per share                     --              --             --            297,000
Issuance of warrants with convertible debt                                --              --             --            178,807
Issuance of options for services                                          --              --             --            160,426
Net loss                                                          (2,294,936)             --             --         (2,294,936)
                                                                ------------        --------       --------       ------------
Balance at July 31, 2001                                         (58,971,515)             --             --           (740,378)

Sale of shares to private investors, net                                  --              --             --          1,050,548
Exercise of stock options and warrants                                    --              --             --             93,000
Issuance of shares for services, net                                      --              --             --             64,126
Exercise of convertible debentures at $0.90 per share                     --              --             --             64,993
Vesting of options previously issued for services                         --              --             --            173,436
Net loss                                                          (2,591,162)             --             --         (2,591,162)
                                                                ------------        --------       --------       ------------
Balance at July 31, 2002                                        $(61,562,677)       $     --       $     --       $ (1,885,437)
                                                                ============        ========       ========       ============
</TABLE>

See accompanying notes to financial statements.


                                      F-11
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                            Statements of Cash Flows

                   Years ended July 31, 2002, 2001 and 2000,
                      and the Period from August 24, 1981
                      (Date of Inception) to July 31, 2002

<TABLE>
<CAPTION>
                                                                  August 24, 1981
                                                                     (date of
                                                                   inception) to
                                                                     July 31,
                                                                        2002            2002            2001            2000
                                                                  ---------------   ------------    ------------    ------------
<S>                                                                 <C>             <C>             <C>             <C>
Cash flows from operating activities:
  Net loss                                                          $(61,562,677)   $ (2,591,162)   $ (2,294,936)   $ (1,722,298)
  Adjustments to reconcile net loss to net cash used
  in operating activities:
       Gain on sale of marketable securities                             (25,963)             --              --              --
       Depreciation and amortization                                   1,531,406          38,948          74,615          93,748
       Loss on disposal of property and equipment                         18,926              --              --              --
       Noncash operating expenses                                      6,032,053         207,947         304,722         146,912
       Amortization of deferred compensation                          11,442,000              --              --              --
       Amortization of organization costs                                  4,590              --              --              --
       Changes in assets and liabilities:
        (Increase) decrease in other current assets                     (105,621)         (2,821)        (14,316)         58,224
        (Increase) decrease in other assets                               27,384         (22,327)         13,527              --
        Increase in loans and interest payable, related party            744,539              --              --              --
        Increase (decrease) in accounts payable                        1,156,364         450,282         249,214          76,901
        Increase in accrued payroll and expenses, related parties      2,348,145              --              --              --
        Increase (decrease) in accrued expenses                        1,383,291         388,465          53,967        (366,804)
                                                                    ------------    ------------    ------------    ------------
             Net cash used in operating activities                   (37,005,563)     (1,530,668)     (1,613,207)     (1,713,317)
                                                                    ------------    ------------    ------------    ------------

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


                                      F-12
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       Statements of Cash Flows, Continued

<TABLE>
<CAPTION>
                                                                  August 24, 1981
                                                                     (date of
                                                                   inception) to
                                                                     July 31,
                                                                        2002            2002            2001          2000
                                                                  ---------------   ------------    ------------  ------------
<S>                                                                 <C>             <C>             <C>           <C>
Cash flows from financing activities:
  Proceeds from short-term borrowings                               $    849,500    $         --    $        --   $         --
  Payment of short-term borrowings                                      (628,500)         (5,000)            --             --
  Increase in loans payable, related party, net                        2,768,662         139,794             --             --
  Proceeds from bank debt and other long-term debt, net of
     deferred debt costs                                               2,752,460         300,000             --         41,577
  Reduction of bank debt and long-term debt                           (2,942,460)         (6,612)        (6,605)       (10,515)
  Proceeds from issuance of common stock, net                         29,360,711       1,050,548        956,424        548,292
  Proceeds from exercise of stock options and warrants, net            5,683,254          93,000         83,731         45,850
  Proceeds from issuance of convertible debentures, related party        297,000              --        297,000             --
  Proceeds from issuance of convertible debentures, unrelated
     party                                                               416,993              --         69,993             --
                                                                    ------------    ------------    -----------   ------------
       Net cash provided by financing activities                      38,557,620       1,571,730      1,400,543        625,204
                                                                    ------------    ------------    -----------   ------------
       Net increase (decrease) in cash and cash equivalents               85,843          41,062       (212,664)    (1,125,688)
Cash and cash equivalents at beginning of period                              --          44,781        257,445      1,383,133
                                                                    ------------    ------------    -----------   ------------
Cash and cash equivalents at end of period                          $     85,843    $     85,843    $    44,781   $    257,445
                                                                    ============    ============    ===========   ============

Supplemental disclosure of cash flow information - interest paid    $  1,682,641    $     20,195    $     8,733   $      4,980
                                                                    ============    ============    ===========   ============

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                         $  3,242,000    $         --    $   297,000   $         --
                                                                    ============    ============    ===========   ============

  Conversion of short-term borrowings to common stock               $    226,000    $         --    $        --   $         --
                                                                    ============    ============    ===========   ============

  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    $         --    $        --   $         --
                                                                    ============    ============    ===========   ============



  Conversions of accounts payable to common stock                   $    360,326    $     64,126    $    10,030   $     92,184
                                                                    ============    ============    ===========   ============

  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    $         --    $        --   $         --
                                                                    ============    ============    ===========   ============
</TABLE>


                                      F-13
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       Statements of Cash Flows, Continued

<TABLE>
<CAPTION>
                                                                  August 24, 1981
                                                                     (date of
                                                                   inception) to
                                                                     July 31,
                                                                        2002            2002            2001          2000
                                                                  ---------------   ------------    ------------  ------------
<S>                                                                 <C>             <C>             <C>           <C>
  Issuance of common stock upon the conversion of convertible
     subordinated debentures, other                                 $    191,993    $     64,993    $        --   $         --
                                                                    ============    ============    ===========   ============

  Issuance of common stock for services rendered                    $      2,460    $         --    $        --   $      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, 2002, 2001 and 2000
                      and the Period From August 24, 1981
                      (Date of Inception) to July 31, 2002

(1)   Summary of Significant Accounting Policies

      Business Description

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

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

      Use of Estimates

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

      Property and Equipment

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

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

      Cash Equivalents

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

      Research and Development

      Research and development costs are expensed as incurred.

      Fair Value of Financial Instruments

      For all financial instruments, their carrying value approximates fair
      value due to the short maturity of those instruments. The debt has been
      issued at rates which represent prevailing market rates for similar
      financings.


                                      F-15
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

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

      Comprehensive Income (Loss)

      The net loss of $2,591,000, $2,295,000 and $1,722,000, recorded for the
      years ended July 31, 2002, 2001 and 2000, respectively, is equal to the
      comprehensive loss for those periods in accordance with Statement of
      Financial Accounting Standards No. 130, Reporting Comprehensive Income.

      Earnings (Loss) 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,
      if dilutive. The Company's Basic and Diluted per share amounts are the
      same since the Company is in a loss position and the assumed exercise of
      stock options and warrants would be all anti-dilutive. The number of
      outstanding options and warrants that could dilute earnings per share in
      future periods was 9,040,881, 6,445,748 and 6,156,195 at July 31, 2002,
      2001 and 2000, 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, Accounting for the Impairment of
      Long-Lived Assets and for Long-Lived Assets to be disposed of, has not had
      a material impact on the Company's financial position, operating results
      or cash flows.

      Stock Option Plans

      Stock based compensation is recognized using the intrinsic value method.
      For disclosure purposes, proforma net income (loss) and net income (loss)
      per share data are provided in accordance with Financial Accounting
      Standards No. 123, "Accounting for Stock-Based Compensation" as if the
      fair value method had been applied.

      The Company records compensation expense equal to the value of stock
      options granted for consulting services rendered to the Company by
      non-employees. The value of the options granted to non-employees is
      determined by the Black Scholes option pricing model.

(2)   Liquidity

      The Company has reported net losses of $2,591,000, $2,295,000, and
      $1,722,000 for the fiscal years ended July 31, 2002, 2001 and 2000,
      respectively. The loss from date of inception, August 24, 1981, to July
      31, 2002 amounts to $61,563,000. 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.


                                      F-16
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(2)   Liquidity, (Continued)

      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), licensing its
      proprietary RNASE technology and its ability to realize the full potential
      of its technology and its drug candidates via out-licensing agreements
      with other companies. 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. From August through November 6, 2002, the
      Company received gross proceeds of approximately $277,000 from long-term
      and short-term borrowings from unrelated parties and from the private
      placement of common stock and warrants. No assurances can be provided that
      the additional capital will be sufficient to meet the Company's needs.

      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 as well as its proprietary technology. 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. Therefore, the Company expanded
      its ongoing clinical trial internationally. 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.

      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:

                                                    2002           2001
                                                 ----------     ----------

      Laboratory equipment                       $  755,040     $  755,040
      Office equipment                              296,105        296,105
      Leasehold improvements                         97,833         97,833
                                                 ----------     ----------
      Total                                       1,148,978      1,148,978
      Less accumulated depreciation
         and amortization                         1,120,371      1,081,423
                                                 ----------     ----------
      Property and equipment, net                $   28,607     $   67,555
                                                 ==========     ==========


                                      F-17
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(4)   Long-term Debt

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

<TABLE>
<CAPTION>
                                                                             2002       2001
                                                                           --------   --------
<S>                                                                        <C>        <C>
      Note payable, unsecured, unrelated party at 8% interest and due as
      follows: $100,000 due December 4, 2003, $100,000 due February 17,
      2004 and $100,000 due March 29, 2004.                                $300,000   $     --
      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.                  24,108   $ 30,720
                                                                           --------   --------
                                                                            324,108     30,720
      Less current portion                                                    8,179      7,057
                                                                           --------   --------
                                                                           $315,929   $ 23,663
                                                                           ========   ========
</TABLE>

(5)   Related Party Instruments

      During the fiscal year ended July 31, 2002, Kuslima Shogen, the Company's
      CEO has made loans to the Company repayable upon demand bearing interest
      at 8% per annum. As of July 31, 2002, the Company owes Ms. Shogen $139,794
      classified as a current liability included in Loan payable, related party.
      Amounts due from Ms. Shogen totaling $68,667 are classified as a long term
      asset in Loan receivable, related party as the Company does not expect
      repayment of these amounts within one year. The Company earns interest at
      a rate of 8% per annum on the unpaid balance.

(6)   Note Payable - Convertible Note

      In April 2001, the Company entered into convertible notes payable with
      certain related and unrelated parties in the aggregate amount of $366,993.
      The notes were due within ninety (90) unless the lenders elect to exercise
      an option to convert the note into Alfacell common stock, par value $.001
      per share at a conversion price of $0.90 per share (the estimated fair
      market value of the stock based on the average of the high and low trade
      prices of the Company's common stock for the ten (10) trading days
      preceding the loan date). In addition, upon conversion, the lender would
      receive a three-year warrant for each share of converted Alfacell common
      stock at an exercise price of $2.50 per share that will expire on July 7,
      2004. The estimated value of the warrants of $133,793, using the
      Black-Scholes options-pricing model, was recorded as interest expense over
      the ninety day note term. In July 2001, an aggregate of $297,000 note
      payables were converted which resulted in the issuance of 330,000 shares
      of the Company's common stock. In addition, upon conversion, the Company
      issued the agreed three-year warrants to purchase an aggregate of 330,000
      shares of common stock at an exercise price of $2.50 per share. An
      aggregate balance of the convertible notes in the amount of $69,993 was
      renewed for one hundred twenty (120) days for the same conversion price of
      $0.90 per share. In addition, upon conversion, the lender would receive a
      five-year warrant for each share of converted Alfacell common stock at an
      exercise price of $1.50 per share. The estimated value of the warrants of
      $45,000, using the Black-Scholes options-pricing model, was treated as a
      debt discount which accrete as interest expense over the one hundred
      twenty day note term through October 31, 2001. In October 2001, an
      aggregate of $64,993 note payables were converted which resulted in the
      issuance of 72,214 shares of the Company's common stock. In addition, upon
      conversion, the Company issued the agreed five-year warrants to purchase
      an aggregate of 72,214 shares of common stock at an exercise price of
      $1.50 per share. Also, in October 2001, the Company's board of directors
      approved the change in the exercise price of the 330,000 warrants issued
      to related parties upon conversion of notes from $2.50 per share to $1.50
      per share and changed the expiration date to July 7, 2006, to conform with
      the private placements to unrelated parties.

(7)   Leases

      The Company leases its facility under a five-year operating lease which
      expired on December 31, 2001. We were negotiating a new lease with a
      potential new landlord. However, the sale of the property did not occur.
      We are currently negotiating our new lease agreement under similar terms
      with the original landlord. Rent


                                      F-18
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

      expense charged to operations was $136,000, $136,000, and $127,000 in
      2001, 2000 and 1999, respectively.

(8)   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.

      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.


                                      F-19
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   Stockholders' Equity, (Continued)

      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.

      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.


                                      F-20
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   Stockholders' Equity, (Continued)

      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.

      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.


                                      F-21
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   Stockholders' Equity, (Continued)

      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 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.


                                      F-22
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   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 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. The options expired during the fiscal year ended July
      31, 2001.

      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. The options expired during the
      fiscal year ended July 31, 2002.

      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(R) in the United States. The
      Company recorded a total research and development expense of $353,400
      which was the fair value on the date of issuance of that portion of the
      stock options that had vested as of July 31, 2002. Of these options,
      10,000 expired during the fiscal year ended July 31, 2002.

      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.


                                      F-23
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   Stockholders' Equity, (Continued)

      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, 2002, the Company
      recorded general and administrative expense of $182,100, 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.

      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. Of these options, 1,000 expired in October 2002.

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

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

      On January 23, 1998 the Securities and Exchange Commission (the "SEC")
      declared effective a registration statement on Form S-3 for the offer and
      sale by certain stockholders of up to 3,734,541 shares 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 was
      declared effective in February 2002.


                                      F-24
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   Stockholders' Equity, (Continued)

      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 May 2001, the expiration date of these
      warrants was extended from May 19, 2001 to August 17, 2001. The warrants
      expired on August 17, 2001.

      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, 2002, the Company recorded general and administrative expense of
      $131,500, 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.

      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 was declared
      effective in February 2002.

      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. These options expired in August 2000.


                                      F-25
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   Stockholders' Equity, (Continued)

      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 was 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. These options
      expired three years after it vested.

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

      On October 1, 1998 (the "Effective Date"), the Company entered into an
      agreement with a consultant (the "Agreement"), resulting in the issuance
      of 200,000 five-year stock options with an exercise price of $1.00 per
      share as payment for services to be rendered. These options will vest as
      follows: an aggregate 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.


                                      F-26
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   Stockholders' Equity, (Continued)

      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.

      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.

      During the fiscal year ended July 31, 2001, the Company issued 11,800
      shares of common stock for payment of services rendered. The fair value of
      the common stock in the amount of $10,030 was charged to operations.

      During the fiscal year ended July 31, 2001, the Company sold an aggregate
      of 863,331 shares of common stock to private investors at prices ranging
      from $0.90 to $1.50 per share resulting in net proceeds of $956,000 to the
      Company. In addition, the private investors were granted warrants to
      purchase an aggregate of 696,665 shares of common stock at per share
      exercise prices ranging from $1.50 to $3.00. The warrants will expire
      during the period commencing July 2004 and ending in October 2006.

      During the fiscal year ended July 31, 2001, the Company issued 165,555
      shares of common stock upon the exercise of stock options by related
      parties which resulted in gross proceeds of $83,700 to the Company. The
      per share exercise prices of the options ranged from $0.29 to $0.85.

      During the fiscal year ended July 31, 2001, the Company issued 50,000
      five-year stock options to a director as payment for non-board related
      services. These options vested immediately and have an exercise price of
      $0.90 per share. The Company recorded general and administrative expense
      of $31,600 which was the fair market value of the options, using the
      Black-Scholes options-pricing model, on the date of issuance. In addition,
      the director will receive a contingent award of 50,000 shares of the
      Company's common stock should the Company complete a strategic partnership
      or receive an investment from the prospective partner or its affiliates.

      During the fiscal year ended July 31, 2001, the Company issued 330,000
      shares of common stock upon the conversion of convertible notes from
      related parties at $0.90 per share. In addition, upon conversion, the
      related parties were granted three-year warrants to purchase an aggregate
      of 330,000 shares of common stock at an exercise price of $2.50 per share.
      The estimated value of these warrants in the amount of $108,900 was
      recorded by the Company as interest expense during the fiscal year ended
      July 31, 2001. In October 2001, the board of directors approved a change
      of the 330,000 warrants from three-year warrants to five-year warrants and
      the exercise price from $2.50 per share to $1.50 per share.

      During the fiscal year ended July 31, 2002, the Company issued 72,214
      shares of common stock upon the conversion of convertible notes from
      unrelated parties at $0.90 per share. In addition, upon conversion, the
      unrelated parties were granted five-year warrants to purchase an aggregate
      of 72,214 shares of common stock at an exercise price of $1.50 per share.
      The estimated value of these warrants in the amount of $32,200 was
      recorded by the Company as interest expense during the fiscal year ended
      July 31, 2002.


                                      F-27
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(8)   Stockholders' Equity, (Continued)

      During the fiscal year ended July 31, 2002, the Company issued 78,340
      shares of common stock in settlement of accounts payable in the amount of
      $64,126. In addition, one of the vendors was granted five-year warrants to
      purchase 55,556 shares of common stock at an exercise price of $1.50 per
      share. The settled accounts payable amount was credited to equity as the
      value of the common stock and warrants.

      During the fiscal year ended July 31, 2002, the Company issued an
      aggregate of 85,221 five-year stock options as payment for services
      rendered. The options vested immediately and have a per share exercise
      prices of $0.75 as to 70,000 stock options and $0.94 as to 15,221 stock
      options. The Company recorded an aggregate total of $40,747 non cash
      expenses for these options, based upon the fair value on the date of the
      issuance as estimated by the Black-Scholes options-pricing model.

      During the fiscal year ended July 31, 2002, the Company sold an aggregate
      of 2,622,122 shares of common stock to private investors at prices ranging
      from $0.35 to $0.90 per share resulting in net proceeds of $1,050,000 to
      the Company. In addition, the private investors were granted warrants to
      purchase an aggregate of 2,673,422 shares of common stock at per share
      exercise prices ranging from $0.75 to $1.50. The warrants will expire
      during the period commencing August 2006 and ending in June 2007.

      During the fiscal year ended July 31, 2002, the Company issued warrants to
      purchase 1,500,000 shares of common stock to Roan Meyers Associates L.P.
      for an aggregate warrant purchase price of $1,500 in connection with the
      engagement of Roan Meyers to render advisory services. Roan Meyers has
      already exercised warrants to purchase an aggregate of 186,000 shares of
      common stock during the fiscal year ended July 31, 2002 with an exercise
      price of $0.50 per share, resulting in net proceeds of $93,000 to the
      Company. Warrants to purchase an additional 314,000 shares are currently
      exercisable, of which 64,000 shares have an exercise price of $0.50 per
      share and 250,000 have an exercise price of $1.00 per share. The remaining
      1,000,000 warrants will become exercisable if Roan Meyers is successful in
      helping the Company raise capital. For each $1 million in capital
      financing raised with the assistance of Roan Meyers, 200,000 warrants will
      become exercisable up to 1,000,000 warrants in the aggregate. Of those
      1,000,000 warrants, 400,000 are exercisable at $1.00 per share and 600,000
      are exercisable at $1.50 per share. The Company recorded an expense equal
      to the fair market value of the first 500,000 warrants in February 2002
      based upon the fair value of such warrants as estimated by Black-Scholes
      pricing model ($153,300), less the $1,500 received from the sale of the
      warrants. The additional warrants vest contingent upon capital being
      raised and will be accounted for as part of the capital transaction.

      During the fiscal year ended July 31, 2002, the Company issued an
      aggregate of 186,000 shares of common stock upon the exercise of warrants
      by an unrelated party which resulted in gross proceeds of $93,000 to the
      Company.

      During the fiscal year ended July 31, 2002, the Company issued an
      aggregate of 75,000 five-year stock options to unrelated parties as an
      incentive for lending the Company an aggregate of $75,000 which was repaid
      during the quarter. The options vested immediately and have an exercise
      price of $1.50 per share. The total non-cash interest expense recorded for
      these options was $25,615, based upon the fair value of such option on the
      date of issuance as estimated by the Black-Scholes options-pricing model.

      During the fiscal year ended July 31, 2002, the Company issued a notes
      payable to an unrelated party in an aggregate amount of $300,000. The note
      was due thirty days bearing interest at 8% per annum. In addition, the
      lender received warrants to purchase 350,000 shares of common stock at an
      exercise price of $0.60 per share. The total non-cash interest expense
      recorded for these warrants was $40,690, based upon the fair value of such
      option on the date of issuance as estimated by the Black-Scholes
      options-pricing model. The notes were either extended for eighteen months
      or the lenders can convert the notes at a conversion price of $0.40 per
      share plus a five-year warrant for each share of Alfacell common stock
      issued upon conversion at an exercise price of $1.00 per share.

(9)   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.


                                      F-28
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(9)   Common Stock Warrants, (Continued)

       The following table summarizes the activity of common stock warrants
       issued in connection with the Private Placements completed in fiscal
       years 1994 through 2002:

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

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

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

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

      Issued to bank in connection with an amendment
        to the Company's term loan                                10,000            4.19              8/31/97
      Sold in September 1995 Private Placement                     8,540            4.00              10/1/98

      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              8/17/01
      Issued to the Placement Agent in connection with
      the February 1998 Private placement (see note 7)           350,574        2.20 - 2.50           8/17/01
      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 8/17/01

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

      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

      Sold in various private placements                         696,665        1.50 - 3.00     7/07/04 to 10/30/06

      Issued to related parties upon conversion of note
      payable                                                    330,000            1.50              7/07/06
                                                               ---------

      Outstanding and exercisable at July 31, 2001             3,415,864        1.03 - 4.55     8/17/01 to 10/30/06
</TABLE>


                                      F-29
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(9)   Common Stock Warrants, (Continued)

<TABLE>
<CAPTION>
                                                               Warrants        Exercise Price       Expiration
                                                               --------        --------------       ----------
<S>                                                            <C>              <C>             <C>
      Expired                                                  1,514,199        2.20 - 2.50           8/17/01
      Sold in various private placements                       2,673,422        0.75 - 1.50     11/03/06 to 9/10/07
      Issued to vendor upon settlement of accounts
      payable                                                     55,556            1.50              8/15/06
      Issued to unrelated party for advisory services          1,500,000        0.50 - 1.50           2/6/07
      Exercised                                                  186,000            0.50              2/6/07
      Issued to unrelated parties upon conversion of notes
      payable                                                     72,214            1.50             10/31/06
      Issued to unrelated parties in connection with notes
      payable                                                    350,000            0.60        11/13/06 - 7/29/07
                                                               ---------

      Outstanding and exercisable at July 31, 2002             6,366,857        0.50 - 4.55     5/28/03 to 9/10/07
                                                               =========        ===========
</TABLE>

(10)  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, 2002:

<TABLE>
<CAPTION>
                                         Shares Available      Number of          Weighted Average
                                            for Grant           Shares        Exercise Price Per Share
                                            ---------           ------        ------------------------
<S>                                         <C>               <C>                      <C>
      Balance August 1, 1994                1,926,841          5,935,337               $3.76
           Granted                           (818,850)           818,850                2.60
           Exercised                               --           (185,000)               2.36
           Canceled                                --         (1,897,500)               4.30
                                            ---------          ---------
      Balance July 31, 1995                 1,107,991          4,671,687                3.39
           Granted                           (296,205)           296,205                3.99
           Exercised                               --           (656,334)               2.92
           Canceled                             6,500           (235,333)               4.89
                                            ---------          ---------
      Balance July 31, 1996                   818,286          4,076,225                3.43
           1997 Plan                        2,000,000                 --                  --
           Granted                           (932,500)           932,500                4.90
           Exercised                               --           (639,500)               3.82
           Canceled                           484,845           (484,845)               4.70
                                            ---------          ---------
      Balance July 31, 1997                 2,370,631          3,884,380                3.56
</TABLE>


                                      F-30
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(10)  Stock Options, (Continued)

<TABLE>
<CAPTION>
                                         Shares Available      Number of          Weighted Average
                                            for Grant           Shares        Exercise Price Per Share
                                            ---------           ------        ------------------------
<S>                                         <C>               <C>                      <C>
           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
           Granted                           (447,000)           447,000                0.85
           Exercised                               --           (165,555)               0.51
           Canceled                           774,315         (1,018,557)               3.42
                                            ---------         ----------
      Balance July 31, 2001                 2,215,042          3,029,884                2.24
           Granted                           (544,221)           544,221                0.69
           Exercised                               --                 --                  --
           Canceled                           655,840           (900,081)               2.31
                                            ---------         ----------
      Balance July 31, 2002                 2,326,661          2,674,024                1.90
                                            =========         ==========               =====
</TABLE>

      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 certain milestones, 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. No compensation expense was issued in 2001 and 2002. An aggregate
      50,000 options issued to the Company's outside board of directors were
      exercised during the fiscal year 2001. The 350,000 stock options issued to
      the employees expired during the fiscal year ended July 31, 2002. The
      options outstanding at July 31, 2002 will expire between August 1, 2002
      and October 4, 2010.

      The weighted-average fair value per option at the date of grant for
      options granted during the fiscal years 2002, 2001 and 2000 were $0.40,
      $0.74 and $0.45, respectively. The fair value was estimated using the
      Black-Scholes options pricing model based on the following assumptions:

                                                       2002      2001      2000
                                                       ----      ----      ----

      Expected dividend yield                             0%        0%        0%
      Risk-free interest rate                          5.50%     5.50%     6.00%
      Expected stock price volatility                 88.71%   104.25%   114.50%
      Expected term until exercise (years)             5.60      6.00      6.37

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

      Net Loss:                     2002             2001             2000
                               -------------    -------------    -------------
        As reported            $  (2,591,162)   $  (2,294,936)   $  (1,722,298)
        Pro forma                 (2,760,870)      (2,522,656)      (1,956,667)
      Loss per common share:
        As reported            $       (0.12)   $       (0.12)   $       (0.10)
        Pro forma                      (0.13)           (0.13)           (0.20)


                                      F-31
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(10)  Stock Options, (Continued)

      The following table summarizes information concerning options outstanding
      at July 31, 2002:

<TABLE>
<CAPTION>
                     Options Outstanding                                 Options Exercisable
       -------------------------------------------------        -----------------------------------
                                        Weighted Average        Weighted                   Weighted
                                           Remaining             Average                   Average
           Range of                       Contractual           Exercise                   Exercise
       Exercise Prices      Shares        Term (Years)            Price       Shares        Price
       ---------------      ------        ------------            -----       ------        -----
<S>                        <C>                <C>                 <C>        <C>            <C>
         $0.00 - 1.99      1,598,666          4.38                $0.68        938,466      $0.71
          2.00 - 2.99         95,250          4.21                 2.73         50,250       2.80
          3.00 - 3.99        688,771          1.16                 3.22        663,771       3.20
          4.00 - 4.99         98,837          1.91                 4.58         98,837       4.58
          5.00 - 5.99        147,500          2.77                 5.18        147,500       5.18
          6.00 - 6.99         45,000           .42                 6.97         45,000       6.97
         ============      ---------          ====                =====      ---------      =====
                           2,674,024                                         1,943,824
                           =========                                         =========
</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:

<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:

<TABLE>
<CAPTION>
                                                                             Shares          Price Range
                                                                             ------          -----------
<S>                                                                         <C>              <C>
            Granted (42,167 options were repriced and extended
              as described in note 9)                                        894,887         $2.50-7.00
            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
                                                                            ========         ==========
</TABLE>

      All of the above options expired as of July 31, 2001.


                                      F-32
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(10)  Stock Options, (Continued)

      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:

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

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

(11)  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 ended                        Fair               Amount 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
                        ========        ============         =========


                                      F-33
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

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

      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 ended                        Fair               Amount 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.

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


                                      F-34
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

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

      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 2001, 2000 or 1999.

(12)  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. For the state fiscal year 2002 (July
      1, 2001 to June 30, 2002), the Company had $1,535,000 total available tax
      benefits of which $426,000 was allocated to be sold between July 1, 2001
      to June 30, 2002. In December 2001, the Company received $354,000 from the
      sale of an aggregate of $426,000 tax benefits which was recognized as a
      tax benefit for the fiscal year 2002. In December 2000 and 1999, the
      Company received $451,000 and $756,000 from the sale of its allocated tax
      benefits which was recognized as tax benefits for the fiscal years 2001
      and 2000, respectively.


                                      F-35
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(12)  Income Taxes, (Continued)

      The Company will attempt to sell the remaining balance of its tax benefits
      in the amount of approximately $1,109,000 between July 1, 2002 and June
      30, 2003, 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, 2002 and 2001, the tax effects of temporary differences that
      give rise to the deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                           2002              2001
                                                                       ------------      ------------
<S>                                                                    <C>               <C>
      Deferred tax assets:
             Excess of book over tax depreciation and amortization     $     71,018      $     83,946

             Accrued expenses                                               146,843           131,098
             Federal and state net operating loss carryforwards          14,787,041        14,666,868
             Research and experimentation and investment tax
                 credit carry forwards                                    1,259,070         1,203,536
                                                                       ------------      ------------
      Total gross deferred tax assets                                    16,263,972        16,085,448
      Valuation allowance                                               (16,263,972)      (16,085,448)
                                                                       ------------      ------------
      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. The
      tax benefit assumed using the federal statutory tax rate of 34% has been
      reduced to an actual benefit of zero due principally to the aforementioned
      valuation allowance.

      At July 31, 2002, the Company has federal net operating loss carryforwards
      of approximately $41,000,000 that expire in the years 2003 to 2022. The
      Company also has research and experimentation tax credit carryforwards of
      approximately $1,250,000 that expire in the years 2003 to 2022. 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.

(13)  Other Financial Information

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

                                                 2002         2001
                                               --------     --------

            Payroll and payroll taxes          $351,575     $ 43,876
            Professional fees                    27,000       50,690
            Clinical trial grants               374,522      327,745
            Other                               101,181       43,502
                                               --------     --------
                                               $854,278     $465,813
                                               ========     ========

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

                                                 2002         2001
                                               --------     --------

            Prepaid insurance                  $ 45,450     $ 35,380
            Other                                   304        7,553
                                               --------     --------
                                               $ 45,754     $ 42,933
                                               ========     ========


                                      F-36
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(14)  Commitments and Contingencies

      On July 23, 1991, the Board of Directors authorized the Company to pay
      Kuslima Shogen an amount equal to 15% of any gross royalties which may be
      paid to the Company from any license(s) with respect to the Company's
      principal product, ONCONASE(R), 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 patents. If the Company manufactures
      and markets its own drugs, then the Company will pay an amount equal to 5%
      of net sales from any products sold during the life of the patents. On
      April 16, 2001, this agreement was amended and clarified to provide that
      Ms. Shogen would receive the 15% royalty payment relating to licensees or
      the 5% fee relating to sales but not both, unless the Company and the
      licensee both market the licensed product.

      The Company has product liability insurance coverage in the amount of
      $3,000,000 for clinical trials in the U.S. Additionally, the Company also
      maintains product liability insurance in Europe in the amount of
      DM20,000,000. 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.

      Included in accrued expenses as of July 31, 2002, is $256,000 of unpaid
      payroll taxes due to the Internal Revenue Service (IRS) and other state
      tax agencies. The Company is currently negotiating a payment plan with the
      taxing authorities for the payment of the payroll taxes with interest and
      penalties, to be determined. The Company believes that any interest and
      penalties assessed by the IRS or state tax agencies will not have a
      material adverse effect on the Company financial position and results of
      operations.

      Below is a table that presents our contractual obligations and commercial
      commitments as of July 31, 2002:

<TABLE>
<CAPTION>
                                                            Payments Due by Fiscal Year
                                             ---------------------------------------------------------

                                                                                             2005 and
                                              Total       2003        2004        2005      Thereafter
                                              -----       ----        ----        ----      ----------
<S>                                          <C>         <C>         <C>         <C>         <C>  <C>
      Research and development
      commitments                            $   -0-     $   -0-     $   -0-     $   -0-     $   -0-
      Operating leases                        58,200      19,800      19.200      19,200         -0-
                                             -------     -------     -------     -------     -------
      Total contractual cash obligations     $58,200     $19,800     $19,200     $19,200     $   -0-
                                             =======     =======     =======     =======     =======
</TABLE>

(15)  Research and Development Agreement

      In October 2002, the Company entered into a research collaboration with
      Wyeth Pharmaceuticals to co-develop a number of designer drugs such as
      conjugates and fusion proteins for a variety of indications using the
      Company's proprietary technology. This collaboration may result in a
      licensing agreement between the companies however, there is no assurance
      that such agreement will be reached.

      In August 1995, the Company entered into a CRADA with the NCI. In
      accordance with this CRADA, the NCI performed 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 for the fiscal year ended July 31, 2000.

(16)  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


                                      F-37
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                    Notes to Financial Statements, Continued

(16)  401(k) Savings Plan, (Continued)

      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, 2002, 2001 and 2000, the
      Company's contribution to the Plan amounted to $25,717, $23,826 and
      $21,714, respectively.

(17)  Quarterly Financial Data (Unaudited)

(In thousands, except per share amounts)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                         2002                                                     2001
                   --------------------------------------------------------------------------------------------------------------
                   First      Second     Third     Fourth       Totals      First     Second      Third     Fourth       Totals
---------------------------------------------------------------------------------------------------------------------------------
<S>               <C>        <C>        <C>        <C>        <C>          <C>        <C>        <C>        <C>        <C>
Interest
  income          $    --    $    .1    $    .1    $   4.6    $     4.8    $   3.8    $   3.0    $   1.5    $   4.8    $    13.1

Operating  loss    (731.1)    (697.9)    (792.8)    (723.2)    (2,945.0)    (511.9)    (688.4)    (762.2)    (783.8)    (2,746.3)
---------------------------------------------------------------------------------------------------------------------------------
Net income
  (loss)           (377.3)    (697.9)    (792.8)    (723.2)    (2,591.2)     (60.5)    (688.4)    (762.2)    (783.8)    (2,294.9)

Loss per share
  - basic and
  diluted         $ (0.02)   $ (0.03)   $ (0.04)   $ (0.03)   $   (0.12)   $  0.00    $ (0.04)   $ (0.04)   $ (0.04)   $   (0.12)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>